Yet another bit of dubious quality control arises with yet another FINRA published document. In today's iteration, we have an alleged customer complaint from someone who wasn't actually a customer when a questioned loan was extended to the financial advisor, who wasn't the non-customer's advisor at the time that the loan in question arose. And as if all of that tortured was and was not was or wasn't enough, we have a three-arbitrator Panel declining to issue a so-called Explained Decision, which turns out to be a petard on which the arbitrators themselves get hoisted. Although the Panel of three arbitrators purportedly heard the case, oddly, inexplicably, one, and only one arbitrator, made mandatory findings, which not only seems in contravention of FINRA's Code of Arbitration Procedure but, how ironic, isn't explained in the Award.
Case in Point
In a FINRA Arbitration Statement of Claim filed in October 2019, associated person Claimant Morton sought an expungement of allegedly defamatory information posted on his Form U5 by Respondent FINRA member firm Edward Jones. Claimant sought at least $1,700,000 in actual and punitive damages.
In the Matter of the Arbitration of Austin Wayne Morton, Claimant, v. Edward Jones, Respondent (FINRA Arbitration Award 19-03212) https://www.finra.org/sites/default/files/aao_documents/19-03212.pdf
Respondent Edward Jones generally denied the allegations and asserted various affirmative defenses.
In October 2021, Claimant Morton requested an "Explained Decision," which was opposed by Respondent Edward Jones and denied by the FINRA Arbitration Panel.
The FINRA Arbitration Panel found Respondent Edward Jones liable to and ordered it to pay to Claimant Morton $160,230 in compensatory damages. Further, the Panel recommended the expungement of the "Termination Explanation" on Claimant's Form U5 as filed by Respondent; however, the Panel declined to alter the "Reason for Termination." In recommending the expungement of the explanation, the Panel recommended that the present statement be replaced with "Claimant was an employee at will." The FINRA Arbitration Award offered the following rationale for its decision:
Pursuant to Rule 13805 of the Code of Arbitration Procedure ("Code"), the Arbitrator has
made the following Rule 2080 affirmative finding of fact:
The claim, allegation, or information is false.
The Arbitrator has made the above Rule 2080 finding based on the following reasons:
GR closed his account with Respondent by withdrawing all assets on September 13,
2016. The proceeds were deposited on September 16, 2016 in his personal checking
account and comingled with its existing balance. GR made a loan to Claimant by check
dated October 9, 2021. Claimant's grandfather had been a close friend of GR and GR
had known Claimant all of Claimant's life. Respondent's expert witness testified that as of
the closing of GR's account, GR ceased being a client of Respondent.
Bill Singer's Comment
The FINRA Arbitration Award fails to satisfactorily present the underlying facts that prompted Edward Jones' comments on Morton's Form U5 -- which makes it difficult if not impossible to understand the nature of Morton's complaints against Edward Jones notwithstanding that the Panel recommended expungement and ordered monetary damages.
Confused and curious, I did some research. As of November 16, 2021, FINRA's online BrokerCheck disclosures alleged that on November 8, 2016, Edward Jones had received a "customer" complaint seeking $22,000 in damages based upon allegations that:
Client's daughter (POA) alleges her father's financial advisor borrowed funds on October 9, 2017.
Right off the bat, we are informed that it was NOT the client but his daughter who complained. There is virtually no mention of that critical factor in the FINRA Arbitration Award but there is much discussion about customer "GR" making a loan to Morton. In responding to the daughter's allegations, the following "Broker Comment" (attributed online to Morton) was noted on BrokerCheck:
THIS COMPLAINT CAME FROM A FORMER CLIENTS [sic] DAUGHTER AND WAS NOT
A CLIENT IN ANY CAPACITY AT TIME OF DISCUSSION OF LOAN OR AFTER.
FURTHERMORE THIS FAMILY FRIEND APPROACHED ME, I DID NOT SOLICIT
HIM. ALSO THE COMPLAINTANT APPROVED THE TERMS OF THE LOAN PRIOR
TO FILING THIS COMPLAINT. SO SHE COMPLAINING ABOUT SOMETHING SHE
APPROVED ON OCT. 19 BEFORE FILING COMPLAINT OCT 27. THEY HAD AN
OPPORTUNITY TO VOID THE LOAN BUT CHOSE TO KEEP THE TERMS TO
For reasons not explained on BrokerCheck, on January 26, 2017, Edward Jones settled the above claim for $44,000, or twice what was reported as the initial damages sought by the customer's daughter.
Under the BrokerCheck heading "Employment Separation After Allegations," Edward Jones reported that it had "discharged" Morton on November 18, 2016, based upon allegations that:
On 9-13-16, 82 year old Firm client (FC) liquidated his IRA. On 9-16-16, FC
transferred $22,359.11 to his personal bank account. On Sunday 10-9-16, FC
signed a check drawn on his personal bank account and gave it to Mr. Morton. Mr.
Morton had filled out the remainder of the check. The check was made payable to
Mr. Morton for $22,000.00. Mr. Morton cashed the check on 10-10-16 at FC's
bank. Mr. Morton characterized this transaction as a loan from FC to Mr. Morton.
In responding to his former employer's allegations, Morton filed a "Broker Comment" that asserted:
THE GENTLEMAN REFERRED TO AS A FIRM CLIENT CLOSED HIS ACCOUNT
W/US FROM THE PAST. HE WAS NOT A CLIENT AT TIME OF THE LOAN OR
AFTER. THIS IS A LONG TIME FAMILY FRIEND. BC HE WAS NOT A CLIENT
After an evidentiary hearing on the above event pertaining to a loan from or not from a client, the FINRA Arbitration Award recommended that Edward Jones' narrative be deleted and replaced with "Claimant was an employee at will." Yeah, sure, that revision really explains nothing and, worse, does very little to convey the full brunt of the Panel's response to Edward Jones' "false" narrative. Keep in mind that not only did the Panel recommend the expungement of the Form U5 "Termination Explanation," but they found the allegations to be "false," and, for good measure, awarded to Morton, the victim of the false assertions, over $160,000 in compensatory damages. As readers of the BrokeAndBroker.com Blog know, FINRA Arbitration Panels (and individual arbitrators) do not typically award compensatory damages in Form U5 expungement cases. Congratulations to Claimant's legal team!
Given the Panel's Award of a recommended expungement and monetary damages, Morton was owed a more substantive statement in furtherance of clearing his name than what was set forth in the published document: This Panel should have agreed to issue an "Explained Decision." Oh, and another thing, speaking about the unexplained, although this dispute was purportedly submitted to a FINRA Arbitration Panel comprising one Non-Public Arbitrator and two Public Arbitrators (of which one served as the Chair), references to the Panel are abruptly replaced on Page 3 by references to a single "Arbitrator," who seems to be the only arbitrator who made the mandatory FINRA Rule 2080 finding of fact. If, in fact, a single, unnamed Arbitrator, and only that Arbitrator, made the Rule 2080 findings and drafted the rationale for recommending the expungement, the reason for that delegation of authority is not set forth in the FINRA Arbitration Award. The Panel's revision from three arbitrators to one arbitrator raises a number of problems should either party file a Motion to Confirm/Vacate. As published, is this even a valid Award? Unfortunately, we are presented with yet another example of the inadequate "quality control" afforded by FINRA to critical documents published by the industry's self-regulatory-organization and alternative dispute resolution forum.