We Got A Version. We Got A Sample. We Got A 17 Year Old Margin Capability Dispute Against E*TRADE

January 12, 2023

It's 2023. Except we're considering a FINRA Arbitration Award involving margin transactions from 2006 in an E*TRADE customer account. Or not. Or, if the trades did take place on margin, then we need to look at a version of a 1998 account document. A version? As in not the actual document but merely a version? On top of that, we are asked to consider a sample of statements. A sample? As in not the actual statements but merely a sample? Hey, they're not my words -- they're in the FINRA Arbitration Award.

A Case of Margin Capability Without Informed Consent

In a FINRA Arbitration Statement of Claim filed in September 2022, public customer Claimant Bakker representing himself pro se asserted: 

margin capability added to account ("Margin Account") without Claimant's informed consent as the sole cause of action. The cause of action relates to Claimant's self-directed Margin Account.

In the Matter of the Arbitration Between Thomas Bakker, Claimant, v. E*Trade Securities LLC, Respondent (FINRA Arbitration Award 22-02013)

Claimant Bakker sought $7,565 in compensatory damages. Respondent E*Trade generally denied the allegations and asserted affirmative defenses. 


The Sole Public FINRA Arbitrator who heard the cases denied Claimant's claims.

Bill Singer's Comment

Ummmm . . . what the hell? Apparently, Claimant believed that "margin capability" was added to his account without his informed consent. Okay, sure, I can see how that happens and am familiar with some prior cases involving disputes over whether a customer had or had not authorized the opening of a Margin Account. So -- for argument's sake, let's accept the allegation that Claimant was enabled to trade on margin without his asking for same. Notwithstanding that concession, obviously, the mere fact that a customer account has been rendered "capable" of trading on margin isn't proof of damages absent further allegations. In fleshing out Claimant's allegations, the FINRA Award offers this: 

Claimant seeks relief for interest charged upon Margin Account. Claimant denies knowledge of or agreement to Margin Account; Claimant argues that there was no notice of interest charges on active Margin Account until recently in 2022, during his efforts to open a new account/ transfer funds/securities. 

Claimant's timeline reflects in 2006, a sale of securities with proceeds of approximately $15,000. Between then and the end of 2006, there was a transfer of proceeds to Citibank where an 'accidental overcharge' may have caused the margin debt. Claimant's timeline reports first 1099 interest charges of $60.58; Claimant reports in 2012, interest average margin debt was $4,581 (6 years later); and in July 2015, average margin debt was $5,448; and margin interest for 12/31/2021 was $800.36.

The Quantum Leap to 2006

If we take a quantum leap back in time to 2006 -- some 17 years ago -- this is what seems to have happened (according to the Claimant) and, thereafter, unfolded by way of the time continuum:
  • There was a sale of securities, and that seems to have produced $15,000 in proceeds.
  • Then that $15,000 seems to have been transferred to Citibank.
  • Then someone, somewhere, somehow "accidentally" overcharged something and, okay, ummm, a margin debt may have arisen. 
  • Then the fun math begins as that overcharge or whatever the hell it is yielded $60.58 in interest charges . . . charges on what exactly . . . I'm not sure but I think it was on the margin debt created by the accidental overcharge, or not, or possibly, but maybe not, but maybe it was.
  • In 2012 the interest average margin debt rose to $4,581. Sorry, I have no idea what is the difference between interest charges and interest average margin debt.
  • In 2015, the average margin debt rose to $5,448. Sorry, I have no idea what is the difference among interest chargesinterest average margin debt, and average margin debt.
  • In 2021, the margin interest was $800.36, Sorry, I have no idea what is the difference among interest chargesinterest average margin debt, average margin debt, and margin interest.
A Lack of Lucidity Likely Prompted by an Arbitrator's Exasperation

The FINRA Arbitration Award informs us that "Respondent denies Claimant's claims." Okay but denies what exactly? The failure of the FINRA Arbitration Award to set out a cogent, lucid explanation may not be the Arbitrator's fault but the inability of a pro se Claimant to articulate an underlying cogent, lucid explanation; or, then again, the Claimant's inability to so articulate may be as a result of his alleged victimization by Citibank or E*Trade -- or all of the aforementioned or one of them or neither of them. The Arbitrator clues us into his likely exasperation by having found that "Claimant fails in his burden of proof." As the Arbitrator characterized that burden:

The burden of proof rests with Claimant to show that he was never notified that the Margin Account was triggered. Claimant submits that the first 1099 with margin interest was issued to him in 2006 with interest charges in the amount of $60.58.

Time Warp

In rebutting Claimant's allegations notwithstanding that Claimant may not have carried his burden of proof, Respondent E*Trade submitted a:

1998 version of Respondent account, citing provision that client responsibility to review monthly statements (e-version or paper statements) and to OBJECT in writing within 5 days after account statement is received by client. Respondent submits that sample of statements contains information of account balance and Margin Account balance. 

1998?  1998?? Wow, that screws up my timeline going back to 2006 -- so, let's just go another eight years back in time. As Respondent apparently argued, Claimant had to object in writing within five days after receiving an account statement. Okay but was that five days after receiving that 1998 version, and, if so, why is that 1998 account document referred to as a "version" of Respondent's account rather than an actual print-out? Did Respondent merely submit a "sample" of the type of account document that Claimant would have "likely" received in lieu of producing a copy of an actual document? Hey, don't get mad at me for pointing out the lack of consistency. I didn't write the Award. 

Proving a Negative

And as we find ourselves somewhere back in 1998 with a version that may or may not be anything that Claimant was actually sent, we then have this mind-blowing assertion by the FINRA Arbitrator:

The burden of proof rests with Claimant to show that there was no contractual acceptance of any Margin Account terms; but Claimant fails to show there was no contractual agreement of actual decline of Margin Account services. Claimant concedes factually that he may have inadvertently triggered the margin balance by transferring proceeds in an amount greater than cash available in 2006. 

The burden of proof rests with Claimant to show that he was never notified that the Margin Account was triggered. Claimant submits that the first 1099 with margin interest was issued to him in 2006 with interest charges in the amount of $60.58.

Okay, someone wanna tell me how you prove that there was "no contractual acceptance . . no contractual agreement?" 

If I produce a blank piece of paper and swear that it is a scanned image of a non-existent contract, would that be deemed probative evidence? 

And just for the sake of causing more confusion, just how would someone carry the burden of proof in showing that there was no contract -- maybe I'm a tad dense here but wouldn't that burden be on the Respondent brokerage firm arguing that there was a contract, that there was notification, and despite all of that, the Claimant failed to object in writing within five days of receipt of a statement? Wouldn't you expect that E*TRADE would have simply submitted copies of the underlying agreements/contract and that would have been that? 

A Sample of Statements?

Regardless of what I do and do not understand, the Arbitrator seems confident in his findings, as noted by this relatively assertive conclusion:

Respondent affirmatively presents sample of statements which reflect the Margin Account balance and interest charges.

Respondent asserts that Claimant had an affirmative duty to review monthly statements and to notify Respondent within 5 days of receipt of the statement. Had Claimant responded within 30 days / 60 days/ 90 days of the transaction in 2006, this matter would have been resolved 18 years ago. Claimant's failure to review and to object to interest charges covering 18 years does not negate his duty to pay said principal and interest charges stemming from the use of the Margin Account funds.

A sample of statements showing the margin debt and interest in dispute? A sample?  On top of a version?  Again, none of this is my wording. I'm focusing on what was written in the Award. SampleVersion. Those terms do not suggest to me that Respondent E*TRADE produced actual account documents; and, if that's the case, then what the hell did the brokerage firm produce and why did the Arbitrator find that probative? If E*TRADE did produce the actual account documents, then it might have been nice if the Award simply stated as much. Not saying the Arbitrator ruled incorrectly. I'm just saying that I don't quite understand the nature of the evidence produced by E*TRADE. Not quality-control at its best on FINRA's part.