FINRA Panel Rules Against Wells Fargo / Wachovia -- but was it a victory or loss?

July 28, 2010

In a Statement of Claim filed June 9, 2009, Alexander Moskvin and Claire Moskvin (the "Moskvins" or "Claimants") alleged that Respondent Wells Fargo Advisors, LLC f/k/a Wachovia Securities, LLC,  engaged in fraud, omissions and misstatements, common law fraud, fraudulent inducement, unsuitable investments, breach of fiduciary duty, negligence, failure to supervise, breach of contract, breach of the covenants of good faith and fair dealing, respondeat superior, and violations of New York Business Law Article 22-A. Frankly, a fairly comprehensive list of alleged no-no's.  Unfortunately, while the legal allegations are presented to us with exacting detail, the FINRA decision doesn't exactly provide us with more meaningful explanations beyond the legalese. In the Matter of the Arbitration Between Alexcander Moskvin and Claire Moskvin, Claimants, vs. Wells Fargo Advisors, LLC f/k/a Wachovia Securities, LLC, Respondent (FINRA Arbitration 09=03489, July 12, 2010).

About the only substantive explanation of the underlying claims set forth in the decison is that they "relate to unspecified equity and mutual fund investments."  Umm . . . okay . . . like that's a big help.  Unspecified investments. Gee, thanks for narrowing the case down for us.

And just what damages did the Moskvins seek for their unspecified investments?  Well, the Claimants sought $226,865.86 in compensatory damages plus 4% interest from May 8, 2008 until payment, punitive damages, costs, and attorneys' fees.

The Respondent generally denied the allegations and asserted various affirmative defenses. While the FINRA decision doesn't explain too much about the investments that Claimants' alleged went awry, we are presented with details about the New Account Document that was prepared by Respondent and signed jointly by the Claimants. According to the Decision:

The document which was executed by the Claimants contained several instances of incorrect information which Claimants discovered after they had executed and returned the documents. While the Claimants did not directly instruct the Respondent to correct the executed documents, there were many pieces of correspondence from the Claimants which strongly suggested that the New Accounts Documents should have been revised. The Respondent did not comply with these suggestionns. The Claimants on the other hand acted with some degree of irresponsibility while managing their non-discretionary account. The panel has issued an Award to the Claimants based upon the evidence presented taking into account the actions and inactions of both parties.

The FINRA Panel found Respondent liable for $90,000 in compensatory damages plus 4% interest as sought.

Bill Singer's Comment: Lemme see if I got this. 

Apparently, the Claimants alleged that they sustained just shy of a quarter of a million in losses as a result of stock and mutual fund investments.  Those investments are characterized as "unspecified" in the Decision -- which either means that the trades were never presented to the Arbitration Panel for its consideration or that they were not specified in the written pleadings but, perhaps, detailed during the oral hearings. Frankly, that issue should have been clarified in the decision.  

Notwithstanding the illusory or actual nature of the transactions at issue, what remains unclear to me is whether the Panel disputed the Claimant's computation of some $227,000 in damages and determined that the correct losses were only $90,000 in losses.  That's one possibility.

Another possibility is that the Panel was troubled by Claimants' perceived contributory negligence in not responsibly managing their account and, as a sanction for such lapses, the Panel reduced the damages from about $227,000 (or whatever number the Panel calculated as the actual losses) to $90,000. 

Finally, another possibility (my - -  we're full of possibilities with this case, aren't we?) is that the Panel merely tossed the Claimants a $90,000 bone because of the arbitrators' belief that Respondent needed to be punished for its sloppy recordkeeping. 

Ultimately, an arbitration decision serves many functions. It educates the investing public. It educates the industry. It explains the facts in sufficient detail so as to render its lesson intelligible. In this matter, I just don't understand how the Panel arrived at its $90,000 award.  I'm not criticizing the dollar amount -- but I'm sure as hell scratching my head and trying to figure out exactly what went on here and whether the dollars awarded constituted a victory for the Claimants or the Respondent. 

Frankly, that's not an acceptable conclusion for a FINRA arbitration.