In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in March 2010, Claimants sought compensatory damages of $50,000 arising from losses in their investments in Lehman Brothers, Citigroup, Barclays Bank and A-rated bonds as a result of Respondent Beckett's handling of their account. In the Matter of the FINRA Arbitration Between Lang Velka and Philip Velka, Claimants, vs. James Michael Orr, Christopher Shawn Beckett, and UBS Financial Services Inc., Respondents (FINRA Arbitration 10-01449, July 20, 2011)
Respondents generally denied the allegations and asserted various affirmative defenses. Respondents apparently sought an expungement of the arbitration from the Central Registration Depository records ("CRD") of Respondents Beckett and Orr.
Fading Out
By March 2011, the Claimants had withrawn their claims against against Respondents UBS, Beckett and Orr.
On April 14,2011, Respondents Beckett and Orr submitted their Motion for Expungement Recommendation, to which Claimant did not respond. Thereafter, in on July 11, 2011, the FINRA Arbitrator conducted a recorded telephonic expungement hearing. During the expungement hearing, Respondents' counsel withdrew the expungement request for Respondent Orr stating that his record was not an issue.
Expungement
Subject to the provisions of Notice to Members 04-16: Expungement, the FINRA Arbitrator recommended the expungement of Respondent Beckett's CRD. Preliminarily, the FINRA Arbitrator noted that no settlement documents had been submitted by the parties, implying that the claims had been withdrawn and the arbitration dismissed (in contradistinction to "settled") by Claimants.
In finding Claimants' claims as false against Respondent Beckett, FINRA the Arbitrator offered the following rationale:
The evidence does not support a finding that Respondent Beckett violated the securities laws or engaged in any fraudulent or other actionable conduct. It was stated that not only did the Claimants know they were invested in a Lehman Brothers product, but that they knew they were invested in the product up until the day that Lehman Brothers went bankrupt. They knew because they received monthly account statements of their investments. Also, if their investment would have been sold, they would have received a trade confirmation. In addition, they spoke with Respondent Beckett on the telephone on multiple occasions after the date they claim they instructed Respondent Beckett to sell, but never complained once. It was not until Lehman Brothers went bankrupt that Claimants decided to claim that they told Respondent Beckett to sell their investment. Claimants later realized their claim had no merit and dismissed the case in its entirety.
Bill Singer's Comment
In rat-tat-tat fashion, the FINRA Arbitrator goes through the facts in this case and mows down the allegations against Respondent Beckett. As noted in the cited quote above, the Arbitrator approaches the task in a meticulous and convincing manner.
Claimants knew they owned Lehman. Never having received a trade confirmation indicating a sale, there was no basis for them to assume otherwise. Moreover, there's no record of Claimants' contemporaneously complaining about a failure to timely execute any Lehman sell orders.
Finally, in this classic case of Non-Sellers' Remorse, the FINRA Arbitrator implies that Claimants simply woke up too late after the Lehman bankruptcy. This was not the result of any mistake or misconduct by the stockbroker. This was simply a failure by Claimants to pull the trigger on the desired sales.
A short, sweet and righteous ruling by this FINRA Arbitrator. Kudos for her lucid explanati0ns.
SIDE BAR: Although this arbitration ends in a win for the brokerage firm and its registered persons, there is much value here for public customers - the mirror image is quite helpful.
If you are long securities that you are thinking of selling, you can't expect to use your brokerage firm as an insurance policy. You can't not place a sell order and then expect that the firm will cover you in the event that the shares plummet in price. At some point you need to form a clear state of mind in which you have decided to sell and you need to place that sell order - just as there are no "mental" bets at a casino, there are no "mental" buys/sells on Wall Street.
Many customers decide to sell a position but then engage their stockbroker in a dialog; and during that discussion, the broker persuades the customer not to sell. The explanations are the stuff of lawsuits:
- Don't sell in a panic, the shares will bounce back.
- This is merely a head fake and you should gut it out.
- You should dollar cost average down your position by adding more shares.
Of course, your gut instinct to sell was correct but you allowed yourself to be talked out of it by your broker. All of which leaves you furious when you see the losses you sustained after you change your mind.
Yes, you can still sue the broker dealer and your stockbroker. Of course, you're going to have to prove that there was some fraud involved in talking you out of your sale, or you're going to have to advance some alternative legal theory as to why your "change of mind," is the Respondent's fault. In some cases, public investors win on such allegations. However, it's not a simple proposition.
Consider the rationale of the FINRA Arbitrator in the case that we just reviewed. If you've given your stockbroker an unequivocal order to sell shares, then you should have a timely confirmation of that trade. That will come to you by mail and should also be noted online. NEVER take the broker's "word" that the sell went through. NEVER rely upon assurances that there is some back-office snafu preventing the confirmation of your order. If you can't get proof of the sale, send some written communication (email, fax, letter, overnight courier package, etc.) complaining about the failure of the brokerage firm to confirm your sale. Note the date and time that you gave the order and indicate the price that you believe should be reflected. You might further attempt to telephone not the stockbroker but reach out to his/her manager, compliance officer, or even the firm's General Counsel. Of course, make sure to retain copies of all communications. Take the names, email addresses, and phone numbers of everyone you contact. And make sure to timely complain.
The Monthly FINRA Disciplinary Cases Are Now Updated by Bill Singer