FINRA Arbitrator Pens Perfect Rationale in UBS Expungement Award

August 23, 2021's publisher, Bill Singer, is no fan of FINRA's expungement process. When wearing his white hat as an investor's advocate, Bill sees FINRA's expungement process as little more than a profitable drive-in car wash that cleans dirty records and polishes undeserving reputations. When wearing his black hat as an industry advocate, Bill sees FINRA's expungement process as a cudgel with which broker-dealer employers pound their former employees via mandatory intra-industry arbitration replete with high fees and enervating delays. Notwithstanding Bill's reservations and concerns, a recent FINRA Arbitration Award presented a compelling case for expungement that was deftly handled by a very competent arbitrator. 

Case In Point

Associated person Claimant Parry sought an expungement of a settled customer dispute from his Central Registration Depository record ("CRD"), which Respondent UBS did not oppose -- in fact, the firm filed a Notice of Non-Participation in response to the requested relief. Similarly, although notified of the expungement proceeding, the customers involved in the dispute at issue declined to participate in the hearing. In the Matter of the Arbitration Between Curtis John Parry, Claimant, v. UBS Financial Services Inc., Respondent (FINRA Arbitration Award 20-00524)

Disclosures on FINRA's BrokerCheck database as of August 23 2021, state that Claimant Parry was first registered in 1997 with PaineWebber Incorporated and was subsequently registered with Wells Fargo Advisors and Merrill Lynch. In some cases and in some careers, one customer complaint is enough -- and the ensuing damages could easily destroy life savings and financially devastate the victim. That is not at issue with Parry. Over a career spanning some 24 years, the only blot on Parry's record was one, and only one, customer dispute dating back to 2000 and involving a settlement of $4,633.38. 

In recommending the expungement of the customer dispute, sole FINRA Public Arbitrator Constance Ellen Boukidis made a FINRA Rule 2080 finding that the customers' claim, allegation, or information is factually impossible or clearly erroneous, and false. 

Bill Singer's Comment

I don't believe that expungements should be adjudicated by an arbitration forum because the issues in dispute tend to involve "regulatory" issues, and, as such, expungement claims should be presented to a regulatory panel rather than a panel of arbitrators. Also, I don't believe that FINRA affords enough serious consideration to the anti-public-investor aspects of running an expungement mill (which is how the process tends to come off -- it sure as hell brings a lot of filing fees and hearing fees into FINRA's coffers). Finally, far too much of FINRA's expungement process seems designed to protect its member firms to the detriment of former employees, and the costs and delays inherent in the present system are often daunting.

Notwithstanding my unhappiness with FINRA's expungement process, I am no opponent of expungements because some industry men and women are victimized by unscrupulous customers (and their counsel), who file baseless claims merely designed to extract a nuisance-fee settlement; and such complaints often involve a shotgun pleading naming everyone and anyone, including those with no meaningful connection to the alleged incidents. Moreover, there are some industry persons who are truly innocent of the alleged misconduct -- not merely "not guilty" but wholly innocent. I make those statements under no illusion: The overwhelming number of customer complaints against Wall Street are valid and compelling. On the other hand, there is still a large number of industry employees whose good names and careers have been wrongly tarnished by mistaken beliefs or fabricated falsehoods.

What compelled me to report about Parry is that it demonstrated superb legal skills by his counsel, Chelsea Masters, Esq., HLBS Law, and an equally impressive adjudicatory effort by FINRA Arbitrator Boukidis. Sometimes the gears all mesh perfectly and the machinery of justice grinds on smoothly. This case is one such effort. So . . . let me cut things short here and simply allow Arbitrator Boukidis' beautifully crafted rationale speak for itself, and in eloquent and persuasive fashion:

Claimant has been a broker for almost 24 years. At the time of the alleged events during March, 2000 through July, 2000, Claimant was registered with Respondent from September, 1997 through September, 2000 in Encino, California. Claimant initially contacted the Customers, who made the underlying complaints, through a cold call and they became clients of Claimant and his brother at the end of 1999. 

Respondent filed a Notice of Non-Participation in this matter and stated that it did not oppose the expungement request but did oppose the $1.00 in compensatory damages sought by Claimant. 

Claimant's counsel served a copy of his Statement of Claim and Notice of Expungement along with notice of the expungement hearing on the Customers on June 24, 2021, which was delivered by June 30, 2021. The Customers did not respond or participate in this expungement matter. 

In Claimant's words, the relationship between him and his brother and the Customers began with a cold call. He was just starting out back then and that is how you tried to expand your clientele. Through public information, it was apparent that the Customers had a large profit-sharing plan for their business. The process did not take place overnight. They met several times and spoke over the phone over the course of a few months. Claimant is very thorough and detail oriented, but not such a great salesperson. He likes to go deep in the weeds and did the same with the Customers. At the outset, the Customers were interested in the proprietary Ed Kerschner's Highlighted stock portfolio and generally, Claimant and his brother would buy and sell stocks for the Customers as per the list. 

The Customers were involved in the details of all the investments and even received a 70-page binder that contained all of the proposals from Claimant and his brother. This was part of the procedure back then. Diversification was a linchpin of the proposals and they did include the purchase of Class C-share international mutual funds in their profit-sharing plan. At the time, Claimant used Frontier, an analytics tool that directed how to allocate assets across different instruments. Claimant and his brother actually proposed that the Customers invest an amount in the international mutual funds but after deliberating over it, the Customers only authorized a third of Claimant's suggested dollar amount, to be divided equally in three funds, which was about 1.5 percent of their portfolio. These purchases were based on a one percent commission at that time, so after Respondent took its cut, Claimant and his brother would have received about $150.00, so it seems unlikely that Claimant tried to pull the wool over the Customers' eyes for approximately $75.00. 

The Customers had a family trust discretionary account, however, these C-share funds were purchased in the non-discretionary account. The Customers complained about another purchase that was made in the discretionary account. The discretionary account was then changed to non-discretionary after that purchase. Claimant spoke with the Customers regularly between March 2000 and the end of August 2000 regarding the performance of the Customers' portfolio. Claimant's manager at the time approved all of the recommendations made to the Customers. As the technology sector was declining in 2000, the portfolio was declining. The Customers were unhappy with the international C-Share funds but Claimant encouraged them to have patience and maintain a long-term view, especially since these were a very small portion of their portfolio. 

Claimant's brother was the senior partner of the brothers and was Respondent's top producer at the time. There was a lot of friction between Claimant's brother and the manager of the branch, which led to his brother's termination and Claimant's resignation. Claimant and Claimant's testifying witness both felt that the manager contacted not only the Customers, but a number of other clients after their departure from Respondent to persuade them to file complaints against Claimant and his brother. 

The Customers sent a letter of complaint to Respondent, dated September 28, 2000. They never spoke to Claimant directly about lodging a formal complaint. Claimant's brother had already been terminated by Respondent on August 23, 2000 and Claimant himself resigned from Respondent on September 14, 2000. Claimant responded to the Customers' complaint in his letter to Respondent's counsel, dated October 25, 2000. 

The case was settled on December 22, 2000. Claimant did not participate in the negotiations but contributed to the settlement. Claimant did not have legal representation. Claimant was told that this complaint would never appear on his record and he just wanted to move on. Respondent never told him that they had investigated the allegations and found them to be true and that it was his fault. The Customers did not pursue this Complaint until after Claimant left Respondent nor in court or through arbitration. 

Claimant has been a broker for almost 24 years and this is the only customer complaint on his record. Claimant met with the Customers a number of times and had numerous conversations regarding the proposals for investments that he and his brother made. Claimant even provided a 70-page binder with detailed proposals to the Customers. 

For these reasons, the Arbitrator recommends expungement pursuant to FINRA Rules 2080(b)(1)(A) as the claim, allegation, or information is factually impossible or clearly erroneous and 2080(b)(1)(C) as the claim, allegation, or information is false. 

Additionally, the Customers' complaint holds no meaningful regulatory or investor protection value and its expungement would have no material adverse effect on investor protection, the integrity of the CRD system, or regulatory requirements. This complaint actually has harmed Claimant because he is required to disclose it continually and it is available to the public, so its expungement will accurately represent his record.