by Bill Singer
BrokeAndBroker Broke The Story First! Read About FINRA's E*Trade Regulatory Cases. @ $500,000 in Fines
July 19, 2010
BrokeAndBroker Broke the Story First!
May 5, 2010 Blog Was Ahead of the Curve
Here's what BrokeAndBroker.com published on May 5, 2010 at http://www.brokeandbroker.com/index.php?a=blog&id=394. Make sure to see the end of this article for a dramatic update.:
Loudamy v. E*Trade
E*Trade customer Laura Loudamy owned some Dell Inc. common stock but encountered some problem getting those shares transferred by the brokerage firm. Loudamy. Acting pro se (as her own lawyer), Loudamy filed a FINRA arbitration complaint alleging that E*Trade failed to transfer her Dell shares. Was it a failure to transfer those shares into or out of her account? Alas, the FINRA arbitration decisions doesn't specify. What is clear, is that Claimant Loudamy sought $6,050.00 in compensatory damages plus interest and $12,100.00 in punitive damages. In the Matter of the Arbitration Between Laura Loudamy, Claimant, versus. E*Trade Securities LLC, Respondent (FINRA Arbitration 09-04164, April 19, 2010).
The FINRA Arbitrator ordered E*Trade to pay Loudamy $6,050 in compensatory damages plus interest, $425 in filing fees, but denied the punitive damages.
Ummm, Bill -- you ask with some puzzlement -- why did you write this one up? Not a big deal of a case, you might say. Ever fast on my feet, I respond that you're right. Well, to some extent. In and of itself, Loudamy isn't that big a deal. However, like I said, that's in and of itself. Now, consider this other E*Trade FINRA Arbitration case.
Wekser v. E*Trade
E*Trade customer Marty Wekser wasn't a happy camper. Seems that he had an issue with E*Trade about the brokerage firm's failure to follow his instructions to transfer funds. Acting pro se, Wekser filed a FINRA arbitration complaint alleging the failure to follow his transfer instructions and sought $617 in compensatory damages plus $500 in punitive damages. In the Matter of the Arbitration Between Marty Wekser, Claimant, versus. E*Trade Securities LLC, Respondent (FINRA Arbitration 09-06261, April 23, 2010)
The FINRA Arbitrator found Respondent E*Trade liable and ordered it to pay $617 in compensatory damages plus interest but denied punitive damages.
Yeah, Bill -- you say that with less puzzlement but still confused -- okay, so, E*Trade had two failure-to-transfer cases and lost both of them to pro se Claimants. Fine. Sort of interesting (but not really, you mumble under your breath). Still a step ahead of you, I brilliantly riposte (wow, Singer even uses fancy French words!). I'm going to give you the fact that E*Trade is a big company and all of that, and, sure, these things happen. Stuff gets lost in the mail. Transfer requests fall between desks and the window. Still . . . what are the odds of two failure-to-transfer arbitration losses within four days of each other? E*Trade lost Loudamy on April 19th and Wekser on April 23rd?
Appearing pro se, Customer Lin also chose to save the big bucks charged by a lawyer and filed his own arbitration complaint with FINRA against E*Trade. Yup, you guessed it, he alleged that the brokerage firm failed to process his transfer request. Lin sought $7,276.31 in compensatory damages plus $447 in costs. In the Matter of the Arbitration Between, Sukmanee Rattanavong Lin, Claimant, versus. E*Trade Securities LLC, Respondent (FINRA Arbitration 09-05683, April 23, 2010). By the way, April 23rd is the same day as the Wekser Decision.
The FINRA Arbitrator found Respondent E*Trade liable and ordered it to pay $7,276.31 in compensatory damages and ordered the Respondent to reimburse Lin $325 in filing fees.
Bill Singer's Comment: What conclusions should you or the regulators draw about these three failure-to-transfer cases? Tell you what, I'll leave that to your and the regulators' discretion. I just call 'em as I see 'em. Still, you gotta love those cute talking baby television commercials. http://www.youtube.com/watch?v=U8Ev5HgGACg
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ON JULY 19, 2010, BROKEANDBROKER PUBLISHED THESE REGULATORY STORIES:
- http://www.rrbdlaw.com/enforcement-actions/index.php?cid=1#2007009471101
- http://www.rrbdlaw.com/enforcement-actions/index.php?cid=1#2007009471102
AWC/2007009471101/July 2010
E*Trade introduced several new money market sweep funds and, when entering certain back-office processing instructions relating to some of the funds, the firm made an error that resulted in the system failing to recognize these fund positions and customers being erroneously charged margin interest for that day. When the firm became aware of this coding error and corrected the problem, it did not identify or reimburse affected customers until later in the year; the firm reimbursed affected customers a total of $43,938.57 in erroneous margin interest charges several months later.
The Firm acquired customer accounts through conversions from other firms, and it erroneously charged margin interest to conversion customers who traded options.
The Firm failed to designate an employee to review, reconcile and resolve fractional share differences between its Depository Trust Company (DTC) position and the actual quantity of securities on deposit at the DTC.
The Firm's systems failed to accept delivery instructions if customers had pending dividends or unsettled positions in their accounts.
FINRA also found that the firm failed to establish a system reasonably designed to supervise and written procedures reasonably designed to prevent and/or correct erroneous margin interest accruals in customer accounts holding certain money market sweep funds, prevent and/or correct erroneous margin interest charges to converting customers who traded options at the time of the conversion and had available cash in their accounts, ensure the review and reconciliation of fractional share differences with the DTC, and ensure the prompt transfer of physical certificates to customers. In addition, the Firm failed to accurately mail account statements to customers, liquidated fractional shares in customer accounts without their authorization and failed to report customer complaints in an accurate and timely manner.
Moreover, in connection with its conversion to a new back office system, a functionality that impacted the segregation of long positions in suspense accounts was not activated as required and, as a result, the firm's possession and control system failed to issue segregation instructions on long positions in suspense accounts.
AWC/2007009471102/July 2010
E*Trade failed to adequately prepare for, and respond to, its acquisition of another member firm and, prior to the conversion, it identified approximately 88,000 converting customers whose login information was likely to be incompatible with the firm's systems. The Firm communicated with those customers and provided them with temporary login IDs and instructions, but an additional number of conversion customers who the firm had not initially identified also had login information that was incompatible with the firm's systems. The login problem led to higher-than-expected call volumes, which the firm was not equipped to handle, and the problem was not completely resolved for several months and the conversion customers continued to inquire about their passwords and access to their accounts. The Firm had over 17,000 unanswered emails from converting customers regarding conversion issues.
The Firm disclosed that a technological problem had prevented it from transmitting customer orders to various market centers on a particular day and, as a result, the firm's customers were unable to enter orders online or log on to the firm's website. The Firm's website experienced sporadic slowness and continued delays because requests had accumulated in excess of what the systems were normally able to process. In addition, the Firm failed to establish a system reasonably designed to supervise, and written procedures reasonably designed to ensure, customers' ability to log in to their accounts and contact customer service for assistance, ensure customers' ability to enter orders online on one particular day and to timely enter orders online.