February 17, 2022
In today's featured public customer arbitration against Robinhood, the FINRA Arbitration Award hardly offers so much as a summary of the underlying issues. About all that we're told is that the dispute involves "unspecified securities." FINRA's say-nothing policy fails to alert the investing public about any developing problems. On top of that, the way Wall Street works, its customers are forced into mandatory arbitration against FINRA member firms and effectively denied redress for most disputes in court. Strike out the mandatory arbitration provision in any New Account Form and see if any FINRA member firm will open a new account for you; and, for good measure, complain to FINRA about this contract of adhesion and see how the regulator responds. It's one thing when an industry's culture of collaboration forces contracts of adhesion upon the public; however, it's quite another when the industry has been granted to luxury of self regulation but the self-regulatory-organization looks the other way.
Case in Point
In a FINRA Arbitration Statement of Claim filed in August 2021, public customer Sandhu asserted:
harassment; refusal to transfer account; and loss of income. The causes of action relate to
In the Matter of the Arbitration Between Aftab Sandhu, Claimant , v. Robinhood Financial, LLC, Respondent (FINRA Arbitration Statement of Claim 21-02245)
Claimant Sandhu sought $10,000 in compensatory damages. Respondent Robinhood generally denied the allegations and asserted affirmative defenses.
Oh my! What a joke of a case, right? I mean, sure, let's all have a laugh at this nonsense, no? After all, as the FINRA Arbitration Award seems to disclose in a mixture of half-hearted-seriousness tinged with just a hint of sarcasm, Claimant Sandhu's claims of fraud and harassment and assorted misdeeds involve nothing more than "causes of action [that] relate to unspecified securities." Wow -- imagine that! A customer wants to be compensated to the tune of $10,000 based upon allegations involving "unspecified securities;" and, on top of that, there isn't a single date cited in the entire Award referencing so much as an act, deed, or something that might pass for conduct or misconduct. Being the curious fellow that I am, I looked up FINRA Arbitration 21-02245 on FINRA's online BrokerCheck database as of February 17, 2022. In keeping with FINRA's penchant for foolish consistency, the BrokerCheck record discloses in pertinent part that the allegations in Sandhu's arbitration involved: "ACCOUNT ACTIVITY-OTHER" and Disputed Product Type: COMMON STOCK"
FINRA Rule 12904
Just for the hell of it, let's reprint in full FINRA Code of Arbitration Procedure for Customer Disputes Rule 12904: Awards [Ed: highlights added]:
(a) All awards shall be in writing and signed by a majority of the arbitrators or as required by applicable law. Such awards may be entered as a judgment in any court of competent jurisdiction.
(b) Unless the applicable law directs otherwise, all awards rendered under the Code are final and are not subject to review or appeal.
(c) The Director will serve the award on each party, or the representative of the party.
(d) The panel shall endeavor to render an award within 30 business days from the date the record is closed.
(e) The award shall contain the following:
(1) The names of the parties;
(2) The name of the parties' representatives, if any;
(3) An acknowledgement by the arbitrators that they have each read the pleadings and other materials filed by the parties;
(4) A summary of the issues, including the type(s) of any security or product, in controversy;
(5) The damages and other relief requested;
(6) The damages and other relief awarded;
(7) A statement of any other issues resolved;
(8) The allocation of forum fees and any other fees allocable by the panel;
(9) The names of the arbitrators;
(10) The dates the claim was filed and the award rendered;
(11) The number and dates of hearing sessions;
(12) The location of the hearings; and
(13) The signatures of the arbitrators.
(f) The award may contain a rationale underlying the award.
(1) This paragraph (g) applies only when all parties jointly request an explained decision.
(2) An explained decision is a fact-based award stating the general reason(s) for the arbitrators' decision. Inclusion of legal authorities and damage calculations is not required.
(3) Parties must make any request for an explained decision no later than the time for the prehearing exchange of documents and witness lists under Rule 12514(d).
(4) The chairperson of the panel will be responsible for writing the explained decision.
(5) The chairperson will receive an additional honorarium of $400 for writing the explained decision, as required by this paragraph (g).
(6) This paragraph (g) will not apply to simplified cases decided without a hearing under Rule 12800 or to default cases conducted under Rule 12801.
(h) All awards shall be made publicly available.
(i) Fees and assessments imposed by the arbitrators under the Code shall be paid immediately upon the receipt of the award by the parties. Payment of such fees shall not be deemed ratification of the award by the parties.
(j) All monetary awards shall be paid within 30 days of receipt unless a motion to vacate has been filed with a court of competent jurisdiction. Absent specification to the contrary in the award, when arbitrators order opposing parties to make payments to one another, the monetary awards shall offset, and the party assessed the larger amount shall pay the net difference. An award shall bear interest from the date of the award:
(1) If not paid within 30 days of receipt;
(2) If the award is the subject of a motion to vacate which is denied; or
(3) As specified by the panel in the award.
Interest shall be assessed at the legal rate, if any, then prevailing in the state where the award was rendered, or at a rate set by the arbitrator(s).
May Contain a Rationale
Just going by the highlighted sections above in FINRA Rule 12904, a customer-dispute FINRA Arbitration Award should contain a "summary of the issues, including the type(s) of any security or product, in controversy. . ." The Award will be made publicly available and, go figure, but when it comes to stating a rational for the disposition of the case, in its infinite wisdom and in a half-assed nod to investor protection, FINRA decided that the best option is that an Award "may contain a rationale underlying the award." Not shall contain. Not must contain. Not should contain. But, y'know, "may" contain. Of course, FINRA cynically offers the so-called "Explained Decision" option but that requires "all parties jointly request an explained decision," which may explain the paucity of such explained decisions because if one of the parties won't join in with the request then the Rule says it ain't gonna happen. On top of that, FINRA imposes a $400 honorarium for the privilege of having the Chair of the Arbitration Panel write the Explained Decision.
When a Summary Ain't So Much Even That
In the Sandhu FINRA Arbitration Award, I don't think we even got a "summary of the issues" as required by Rule 12904, and I sure as hell think the sole Arbitrator emphasized the "may" aspect of providing a "rationale," and opted to say nothing. Why is FINRA's say-nothing default policy harmful in advancing the goals of public protection? For starters, as the industry's largest self-regulatory-organization, FINRA should feel an obligation to ensure that its Arbitration Awards disclose enough information about public customer disputes against one of its largest member firms, Robinhood, so as to alert the public about any developing trends -- and, you know, while we're at it, howsabout alerting FINRA to emerging regulatory problems? On top of that, the way Wall Street works, its customers are forced into mandatory arbitration against FINRA member firms and effectively denied redress for most disputes in court. Strike out the mandatory arbitration provision in any New Account Form and see if any FINRA member firm will open a new account for you; and, for good measure, complain to FINRA about this contract of adhesion and see how the regulator responds. It's one thing when an industry's culture of collaboration forces contracts of adhesion upon the public; however, it's quite another when the industry has been granted to luxury of self regulation but the self-regulatory-organization looks the other way.
Given the sparse fact pattern in the FINRA Arbitration Award, you likely expected that the sole FINRA Arbitrator tossed Claimant Sandhu's case into the gutter.
Hold on . . . wait a minute . . . wow!!!! . . . stop the presses . . .
The sole FINRA Arbitrator found that Respondent Robinhood is liable for and shall pay to Claimant Sandhu $2,500 in compensatory damages.
Ummm, compensatory damages for just what exactly? For something that Robinhood did or didn't do involving "unspecified securities?"
Ain't FINRA Rule 12904 grand? Ain't that Rule a thing to behold? After all, the FINRA Arbitrator awarded thousands of dollars out of Robinhood's pockets and compensated a disgruntled public customer and all of that for no apparent reason. How wonderful Capitalism is when all the moving parts come together like this. Money for nuthin'. How happy Robinhood must be that the public will never get to learn about what the FINRA member firm did to public customer Sandhu in order to justify a $2,500 award. And on top of that, other similarly situated Robinhood customers will never have a chance to be alerted to the fact that what they are experiencing was what Sandhu had experienced because FINRA Rule 12904 only requires a "summary" and not an "explained decision."
Try as it might, wish as it might, Robinhood just can't seem to stay out of the press these days. In today's news, an unhappy Robinhood customer sued the brokerage firm in court despite the existence of a mandatory arbitration provision in the New Account Agreement. On top of that, with the ongoing COVID pandemic, it appeared that the customer was in no position to travel out of state, as would have been mandated by the arbitration provision.
By now, you'd think that Wall Street's regulatory community would want something akin to full disclosure to the investing public about successful public customer lawsuits against Robinhood. Certainly, you'd think that FINRA Dispute Resolution Services is mindful of the clamor surrounding Robinhood: meme stocks, gamification, payment for order flow, systems outages. Going by the lack of a fact pattern and rationale in a recent public customer arbitration against Robinhood, FINRA seems to think that disclosing nothing is sound public advocacy. Ah yes, FINRA, the Sheriff of Nothing-ham, and a modern-day Robinhood!
The nice thing about saying nothing is that it makes it difficult to put words in your mouth. All of which may be a commendable way to keep the peace. When it comes to judge's ruling on matters of fact and law, biting one's tongue fails to develop a useful record on appeal. A decision is supposed to resolve the dispute, not leave the allegations suspended in the air and open to further interpretation. A recent FINRA customer arbitration shows what happens when arbitrators take "summary" too literally.
You know those days when you just want to pull the covers over your head and not get out of bed? Well, FINRA had one of those days. As to what caused all of FINRA's anxiety, let's start with these words in a court's order about a FINRA public customer arbitration hearing: "The transcripts satisfy the Investors' burden of proving the fraud on the panel by clear and convincing evidence. The audio tapes, which were not available to the Investors until after the close of the hearing, confirm that Wells Fargo' s key witness used the delay caused by the medical emergency to materially change his testimony and offer perjured testimony in direct contravention of the earlier testimony. In addition, counsel for Wells Fargo inserted himself as a fact witness and purported to testify to the Panel himself to support the changed story."
Albert Einstein famously quipped that "Life is just like a game, First you have to learn rules of the game, And then play it better than anyone else." Those are sage words for Wall Street's regulators as they attempt to run their newfangled gamification ball into the end zone. Of course, there are still some quarterbacks who will come to the line of scrimmage, opt not to run the coach's play, and audible. Sometimes that's a gutsy call. Other times, not a smart play.
Robinhood Hit With Damages in a Say-Nothing FINRA Arbitration Award (BrokeAndBroker.com Blog)
Three Men Guilty in Scheme to Defraud Elderly and Vulnerable Victims of More Than $5 Million (DOJ Release)
Senior Investors / FINRA Adopts Amendments to FINRA Rule 2165 / Effective Date: March 17, 2022 (FINRA Regulatory Notice 22-05 / February 15, 2022)
Former CFO of Boston Grand Prix Sentenced to Four Years in Prison for Fraud and Tax Schemes that Netted Almost $2 Million / Defendant used fraudulently obtained pandemic grant funds to pay for three-carat diamond ring, online dating membership, private school tuition and luxury hotel stays (DOJ Release)
Final Defendant Sentenced for Mexican Timeshare Resale Fraud Scheme (DOJ Release)
Statement on Public Dissemination of Security-Based Swap Transactions by SEC Chair Gary Gensler (SEC Release)
FINRA Arbitration Panel Awards Customers Damages against Joseph Gunnar & Co. Respondents
In the Matter of the Arbitration Between Joseph Reilly, Brian Wolf, Vijay Ande, Stephen Cameron, David Freshwater, Murray Grigg, Mark Vacirca, Steven Rothstein, Antonia Hieronymus, and Daniel Hassett, Claimants, v. Joseph Gunnar & Co., LLC, Joseph Anthony Alagna, Jr., and Stephan A. Stein, Respondents (FINRA Arbitration Award)
FINRA Sanctions Another Morgan Stanley Rep for Commissions Earned Under Joint Production Agreement (BrokeAndBroker.com Blog)
Customer Lawsuit Puts Robinhood In The News Again (BrokeAndBroker.com Blog)
SEC Director Calls Awkward Football Audible During Wall Street Gamification Bowl (BrokeAndBroker.com Blog)