Former Wells Fargo Advisors Senior Vice President Moves Federal Court to Undo 2017 FINRA Settlement

July 27, 2022

After FINRA accepted his Offer of Settlement in 2017 and imposed a $5,000 fine and three-month suspension, Robert Loftus had the regulatory equivalent of buyer's remorse. To some extent, his bout with FINRA ended per a TKO but he wasn't done fighting. First, in 2020, Loftus tried to get his day in FINRA arbitration but was told he was ineligible. Then, Loftus tried to get his day in court but FINRA's Motion to Dismiss was granted. Not taking "no" for an answer, Loftus asked the federal court to reconsider. At first glance, frankly, it all seems a bit silly. You got a 2017 settlement but you're first trying to undo it three years later? Three years?? Why didn't you just contest FINRA's charges when they were filed in 2016? Ultimately, there was a lot of fight in Loftus, but it largely seemed to arise after the bell had rung for the last round at FINRA.  

2017 FINRA Offer of Settlement

In response to the filing of a Complaint on July 15, 2016, by the Financial Industry Regulatory Authority's ("FINRA's") Department of Enforcement, Respondent Robert Edward Loftus submitted an Offer of Settlement dated March 10, 2017, which the regulator accepted. Under the terms of the Offer of Settlement, without admitting or denying the allegations in the FINRA Complaint, Loftus consented to the entry of findings and violations and to the imposition of the sanctions of a $5,000 fine and a three-month suspension with any FINRA member in all capacities.
FINRA Department of Enforcement, Complainant, v. Robert Edward Loftus, Respondent (FINRA Office of Hearing Officers Order Accepting Offer of Settlement, Disciplinary Proceeding  No. 2013037575801/ March 15, 2017)

Online FINRA BrokerCheck records as of July 27, 2022, disclose that Loftus was first registered in 1985, and from March 2009 to July 2013, he was registered with Wells Fargo Advisors, LLC and held the positions of Senior Vice President and Registered Representative. 

As set forth under the "Summary" portion of the 2017 FINRA Offer of Settlement:

1. On three occasions, once in November 2012 and twice in April 2013, Respondent Robert Edward Loftus deposited checks that were drawn on his personal checking account into the brokerage account that he held with his member firm employer. Wells Fargo Advisors, LLC ("Wells Fargo''), when he knew or should have known that he lacked sufficient funds to cover the checks.

2, Loftus deposited the worthless personal checks in order to benefit temporarily from the "float'' on the checks (i. e., to derive the use and benefit of the funds from the time they were credited to his account until other funds were deposited into the account). and. more specifically. to artificially inflate the balance in his Wells Fargo account and prevent four checks that he had written against his Wells Fargo account from bouncing. Wells Fargo paid the four checks in reliance upon the artificially inflated balance in Loftus's Wells Fargo account. 

3. By engaging in this conduct. Loftus failed to observe high standards of commercial honor and just and equitable principles of trade in the conduct of his business, in violation of FINRA Rule 2010.

2021 SDNY Opinion

In 2020, Loftus filed a Complaint against FINRA in the United States District Court for the Southern District of New York ("SDNY") alleging that the self-regulatory-organization had violated his rights under the Securities Exchange Act when it denied him a forum to petition for expungement of his three-year-old FINRA disciplinary record. Further, Loftus asked SDNY to order FINRA to expunge his disciplinary record or grant him a hearing on his expungement petition. In response to Loftus' Complaint,  FINRA filed a Motion to Dismiss, which SDNY granted and dismissed Loftus case for lack of subject matter jurisdiction Robert Loftus, Plaintiff, v. Financial Industry Regulatory Authority, Inc., Defendant (Opinion/Order, United States District Court for the Southern District of New York, 20-CV-7290 / February 1, 2021) (the "2021 SDNY Opinion")

May 2020: FINRA Arbitration Forum Closed to Loftus

Travelling back in time in order to gain perspective, this is how Loftus' efforts interacted (or not) with FINRA's purported "comprehensive process" :

In 2020, plaintiff filed a claim in FINRA's arbitration forum seeking expungement of his disciplinary order. FINRA's arbitration forum offers dispute resolution services to private parties to resolve disputes involving stockbrokers and their customers, as well as intra-firm and intra-broker disputes. See FINRA Rules 12200 and 13200. This private arbitration service has no relation to FINRA's disciplinary functions. 

In late May 2020, FINRA determined that plaintiff's claim was "not eligible for arbitration" and closed his case. (Compl. Ex. 1.) Plaintiff then filed a complaint in this Court, seeking an order "[d]irecting FINRA . . . to expunge the subject record and sanction . . . or, in the alternative, Directing the Defendant FINRA to grant the Plaintiff a Hearing to determine whether expungement is proper under the circumstances." (Id. ¶ 64.) In the complaint, Loftus "object[s] to the characterization of the subject occurrences as 'check kiting' " and argues that the facts "make clear . . . that he lacked the requisite intent to commit any fraud whatsoever." (Id. ¶¶ 33-34). Moreover, plaintiff claims that the public disclosure of his disciplinary order has hurt "his ability to conduct his trade[.]" (Id. ¶ 41.) Loftus alleges that FINRA's statutory mandate to "provide a fair procedure for the disciplining of its members," 15 U.S.C. § 78o-3(b)(8), entitles him to a hearing on his request that FINRA expunge its disciplinary finding against him. (See Compl. ¶¶ 15, 44; Plt.'s Opp'n at 20, ECF No. 21.) Furthermore, Loftus claims, because in any such expungement hearing "the Plaintiff would prevail based upon the reasonableness of his request and the fundamental equities therein," this Court should simply direct FINRA to expunge his record. (Id. ¶¶ 63-64.) 

at Page 3 of the 2021 SDNY Opinion

The Comprehensive Process

In rebuffing Loftus' Complaint, SDNY offered the following observations: 

The FINRA Rules also create a comprehensive process for the review of any adverse disciplinary action. After FINRA's Department of Enforcement files a complaint, an appointed hearing panel makes an initial determination on the issue. FINRA Rule 9213(a)-(b). Next, an aggrieved party may appeal the hearing panel's decision to FINRA's National Adjudicatory Council, which may affirm, reverse, or modify the decision. FINRA Rule 9349(a). The aggrieved party may then petition the SEC for it to review that determination, 15 U.S.C. § 78s(d)(2), after which a further appeal lies to the relevant United States Court of Appeals, 15 U.S.C. § 78y(a)(1). 

As part of its disciplinary responsibilities, FINRA is statutorily required to maintain a database of its disciplinary actions. 15 U.S.C. § 78o-3(i)(5). It does so through its Central Registration Depository ("CRD"), portions of which, including final regulatory actions, are made available to the public through the BrokerCheck tool on FINRA's website. See BrokerCheck, FINRA,; see also 15 U.S.C. § 78o3(i)(1)(B) (requiring an SRO to make portions of CRD records public through a "readily accessible electronic or other process"). 

at Page 2 of the 2021 SDNY Opinion

As FINRA argued and as SDNY saw it, Loftus just didn't follow the "comprehensive process" provided to adjudicate his grievances-- or, as the Court so bluntly stated:

Loftus has transparently failed to follow Congress's prescribed administrative process for challenging a FINRA enforcement action and this Court therefore lacks jurisdiction to review plaintiff's disciplinary order at all, let alone order its expungement. See, e.g., Santos-Buch v. Fin. Indus. Regulatory Auth., Inc., 591 F. App'x 32, 33 (2d Cir. 2015). 

at Page 5 of the 2021 SDNY Opinion

SDNY viewed Loftus' foray into federal court as a re-litigation of FINRA allegations that he had voluntarily settled:

[L]oftus claims that he "is not challenging a disciplinary action of FINRA" at all, and instead "is only seeking a ruling from this Court that FINRA should have granted him a hearing in which to have his request for expungement adjudicated." (Plt.'s Resp. at 10, ECF No. 21.) As an initial matter, this representation is inaccurate: much of Loftus's complaint is devoted to relitigating the facts of his 2017 disciplinary proceeding (see Compl. ¶¶ 19-41), and he repeatedly requests that this Court "look at the underlying facts for the disciplinary proceeding, and make a determination that the Plaintiff did not engage in 'check kiting', and therefore merits the expungement of the record." (Plt.'s Resp. at 12; Compl. ¶¶ 52, 64.) As explained above, the Court has no jurisdiction to consider these arguments. 

However, to the extent plaintiff alleges a right to a FINRA expungement hearing enforceable through a private cause of action, such a claim is indeed independent of the merits of his disciplinary proceeding and not subject to administrative exhaustion. See Santos-Buch, 591 Fed. Appx. at 34. However, Loftus has failed to establish any legal entitlement whatsoever to such a hearing. 

at Page 5 of the 2021 SDNY Opinion

Ain't No Due Process at FINRA

Ultimately, SDNY failed to find the predicate subject-matter jurisdiction needed for it to review Loftus' disciplinary record and the ensuing settlement; and, further, the Court failed to discern any "right" that Loftus has to his requested expungement hearing. As to Loftus' assertion that his Due Process rights were violated, SDNY admonishes that:

[F]INRA, a private corporation and self-regulatory organization, is not a state actor, and courts have spoken in one voice in rejecting attempts to challenge its enforcement actions on the basis of due process. See, e.g., Santos-Buch, 32 F. Supp. 3d at 484-85 ("[T]he Second Circuit has repeatedly held that [FINRA] is a private actor."); see also D.L. Cromwell Inv., Inc. v. NASD Regulation, Inc., 279 F.3d 155 (2d Cir. 2002); Perpetual Sec., Inc. v. Tang, 290 F.3d 132, 138 (2d Cir. 2002); Desiderio, 191 F.3d at 206.

at Page 6 of the 2021 SDNY Opinion

2022 SDNY Opinion

Loftus is an imaginative fellow inclined to lace up the gloves and answer the bell for the 13th round of a 12 round match. Not taking a 2021 "no" for answer, Loftus moved SDNY for reconsideration of its opinion. Robert Loftus, Plaintiff, v. Financial Industry Regulatory Authority, Inc., Defendant (Opinion/Order, United Sttes District Court for the Southern District of New York, 20-CV-7290 / July 20, 2022) (the "2022 SDNY Opinion")'

Newly Available Evidence . . . so, what's actually "new"?

Almost 18 months after SDNY's February 2021 disposition of Loftus' case, here we are again, watching Loftus argue for a rematch because of "newly available evidence." In response, SDNY tells Loftus that yet another bell has already rung and it's just too late: Federal Rule of Civil Procedure Rule 59(e) required him to file for reconsideration by 28 days after the entry of judgment (which was February 2, 2021), and, purportedly, Loftus filed his motion on January 29, 2022, almost a year after said judgment. The statutory 28 days having come and gone (and then some), Loftus cited FRCP Rule 60, which allows the Court to relieve a party from a final judgment based upon newly discovered evidence (provided that the party showed "reasonable diligence" in discovering the evidence). SDNY wasn't having it:

The only "newly discovered evidence" Loftus highlights is the NAC' s denial of his appeal. This is categorically not newly discovered evidence that would satisfy the strictures of Rule 60(b )(2) because it is not evidence that "existed at the time of trial or other dispositive proceeding." Teamsters, 247 F.3d at 392. Indeed, Loftus initiated his appeal to the NAC after this Court dismissed his suit and in response to that dismissal. (See Mot. at 4, ECF No. 26.) Such evidence is therefore insufficient to warrant Loftus relief from judgment under Rule 60(b )(2). 

at Page 2 of the 2022 SDNY Opinion

Extraordinary? Extreme?

With little room left to maneuver and clearly getting pounded against the ropes, Loftus then cited another provision of FRCP Rule 60 that offers relief in the face of "extraordinary circumstances" that would "work an extreme hardship on movant." As you likely guessed, SDNY just didn't see anything extraordinary or extreme. Which left the Court with these final words:

The Court reiterates that FINRA is "a private corporation and self-regulatory organization, . . . not a state actor, and courts have spoken in one voice in rejecting attempts to challenge its enforcement actions on the basis of due process." Loftus, 202 WL 325773, at *5 ( collecting cases). Moreover, here lies no "manifest injustice": Loftus consented to the disciplinary order entered against him and waived his right to appeal that order. 

The Court therefore declines to use its equitable power to revisit its earlier opinion. 

IV. Conclusion 

Loftus' s motion for reconsideration and relief fails under Local Civil Rule 6.3 and Federal Rules of Civil Procedure 59(e), 60(b)(2), and 60(b)(6). It is hereby denied. 

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