Take It Or Leave It -- FINRA Arbitrator Calls Wells Fargo's Conduct Unconscionable.

In a FINRA Arbitration Statement of Claim filed in November 2009, Wells Fargo Advisors (formerly known as "Wachovia Securities, LLC.") sought $32,602.48 in principal balance plus interest due on a Promissory Note with Respondent Wade Cook dated October 30, 2007. Wells Fargo additionally sought the costs of collection of the proceeding, including attorneys' fees. In the Matter of the Arbitration Between Wells Fargo Advisors, LLC, Claimant, versus Wade P. Cook, Sr., Respondent (FINRA Arbitration 09-06393, October 13, 2010).

The FINRA Arbitration Decision does not indicate whether Respondent Cook, who represented himself pro se, denied the allegations or asserted any affirmative defenses, although such are presumed.  We are informed that Respondent Cook sought payment from Wachovia of his last two paychecks for May 15, 2008 and May 30, 2008 --and he requested receipts for those two checks, as well as an explanation of why he was not paid and where the funds were transmitted.  

The Wachovia Wage And Hour Case

Respondent Cook initially sought postponement of any final decisions in his arbitration pending the resolution of Howard Schneider,Wayne Ribnick. Robert Huntley. and Llovd Cohen vs. Wachovia Securities (Los Angeles Superior Court Case No. BC282338). The plaintiffs in that Los Angeles Superior Court cases were also part of a certified group in the separate, federal class action representing all individuals who were employed by Wachovia Corp., Wachovia Securities, LLC, and/or First Union Securities, Inc. as a Financial Advisor or Financial Advisor Trainee; see, In Re Wachovia Securities LLC Wage and Hour Litigation (United States District Court, Central District of California) (the "Wachovia Wage and Hour Litigation").

In Wachovia Wage and Hour Litigation, it was alleged that Wachovia had misclassified various employees/agents as exempt from the Fair Labor Standards Act's overtime pay provisions and, further, that Wachovia violated various state laws by making purportedly improper deductions/chargebacks from wages. Additional allegations included the failure to reimburse for business expenses, failure to make timely wage payments upon the termination of employment, and failure to comply with California state meal and rest break laws. In April 2009, the federal court noted that the Settlement Agreement in the federal class action did not necessarily cover ongoing litigation in various Los Angeles Superior Court cases, including the Schnieder v. Wachovia case referenced above. See, Joint Stipulation of Class Action Settlement and Release at http://www.cpmlegal.com/pdf/Wachovia/Joint_Stipulation_of_Class_Action_Settlement_and_Release.PDF

FINRA Arbitrator Rules

During the June 1, 2010, FINRA arbitration initial pre-hearing conference, Respondent Cook moved to postpone submission of  In the Matter of the Arbitration Between Wells Fargo Advisors, LLC, Claimant, versus Wade P. Cook, Sr., Respondent to the FINRA Arbitrator, and therefore an award, until settlement of the Los Angeles Superior Court case was approved by the Court. The FINRA Arbitrator denied this request because he concluded that the settlement terms in the Superior Court case did not affect the claim in the FINRA arbitration or Respondent's defense of it.

The sole FINRA Arbitrator hearing this case found Respondent Cook liable to and ordered him to pay to Claimant Wachovia

• $32,602.48 in compensatory damages;
• $4,901.00 and $289.09 in pre-judgment interest; and
• Post-judgment interest at the rate of 7.35% (with a suspended period from August 16 to September 19, 2010).

However, the FINRA Arbitrator denied Claimant Wells Fargo's request for attorneys' fees and further costs because he found that certain:

[P]rovisions of the Note were procedurally unconscionable in that papers presented by Respondent indicates that these provisions were not negotiated and were presented on a "take not or leave it basis." Further attorneys' fees and costs to collect sums provided to an employee as part of his employment are found to be the costs of employment and doing business. The provisions for costs, including attorneys' fees, are found severable from remainder of the Note.

[Ed: "take not" is in the original; probably should be "take it"] 

The FINRA Arbitrator also ordered Claimant Wells Fargo to produce directly to Respondent Cook copies of his last two payroll checks, which apparently was undertaken on or about September 16, 2010.

Bill Singer's Comment:  Back in February 2010, I authored a "Street Legal" column for "Registered Rep Magazine" titled "Some Expense-ive Lessons." http://registeredrep.com/advisorland/regulatory/finance_expenseive_lessons/ That column discussed FINRA regulatory cases in which the regulator charged former member firm employees with misconduct involving the submission of false expense reports or the failure to pay bona fide business expenses.  At the end of my column, I mused (some might say groused) as follows:

Assuming that FINRA is justified in disciplining registered persons who abuse the business expense process, why do we see so little regulatory concern for compensation and workplace abuses by member firms? Speak to enough brokers and you will hear the stories about employers who wrongfully withhold commissions (often as a post-termination maneuver) renege on salary/bonus promises, or engage in workplace discrimination/harassment. Funny thing, though - I can't find nearly as many fines and suspensions imposed upon such firms as I find imposed upon their employees for similar misconduct. When was the last time that FINRA designated such employer practices as failing to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business?

Oh, yes, I know - it's different. It's always different for member firms with FINRA. And perhaps therein lies the problem.

Similarly, in a "Broke And Broker Blog" article from June 2010 titled "Broker Loses EFL / Promissory Note Arbitration But Wins Dramatic Counterclaim" at http://www.brokeandbroker.com/index.php?a=blog&id=461,  I noted the following:

I applaud the FINRA Arbitration Panel in Morgan Keegan v. Kotos for awarding $200,000 in Kotos' Counterclaim against his former member firm for  falling "significant short of industry standards." What I'm not understanding is whether this same Panel referred the matter to FINRA for a regulatory investigation.  Given that the Panel found in favor of Claimant MK on its demand for repayment of its loan to Respondent Kotos, the stinging rebuke by the Panel about Claimant's manner of terminating its employee is all the more dramatic.  Moreover, the  breathtaking award of $200,000 to Kotos on his counterclaim strongly suggests that the Panel was deeply and profoundly troubled by what it deemed the member firm's failure to comply with industry standards. 

Just in case the Arbitrators did not make such a referral,   I have taken the initiative in that regard.  I have forwarded a copy of this article to FINRA's Office of the Whistleblower and FINRA's Office of the Ombudsman with a request that they investigate the issues in this arbitration

FINRA's Referral Black-Hole

Funny thing about my contacting FINRA's Ombudsman's Office and/or its Whistleblower's Office concerning the arbitration cases above in which FINRA panels slammed FINRA member firms.  The nice folks at those FINRA offices promptly confirmed receipt of my referrals -- and then those diligent regulators sort of disappeared on me.  It's not uncommon.  As with most such complaints to FINRA on behalf of individual registered persons, my referrals were sucked into some regulatory black hole.  Oh, sure, I know the routine: Mr. Singer, we can't discuss any ongoing investigation with you, and, of course, we're not saying that there is one. It's a nice sidestep -- well executed, at that.  However, it's also very cynical. 

When FINRA wants to make an example of a member firm or individual, the self-regulator doesn't think twice about issuing the most lurid press release. Don't get me wrong -- I have no problem with the issuance of the Complaint, but it's the self-serving press releases that bother me.  I mean, geez, whatever happened to "innocent until proven guilty"?  Consider this randomly selected example http://www.finra.org/Newsroom/NewsReleases/2010/P121294 So, lemme see if I got this -- it's okay for FINRA to issue a public press release piling on a firm or individual after the issuance of a Complaint but it's not acceptable for FINRA to confirm that it's substantively investigating a referral?  Okay, sure, that makes sense . . . somewhere, perhaps.

Isn't it odd that months later, after I notified FINRA of findings by its own arbitration panels that suggest misconduct by its member firms, that I have had no further contact from the regulator beyond its initial confirmation of receipt.  After all, unlike FINRA's provocative press releases that sling mere allegations, I referred to the regulator findings made after hearings and the airing of evidence before its own FINRA Arbitration Panels.

Okay, so, why don't you all give me some help?  Here's the deal, in today's BrokeAndBroker Blog entry, I've reported -- verbatim -- the following condemnation by a FINRA Arbitration Panel:

these provisions of the Note were procedurally unconscionable in that papers presented by Respondent indicates that these provisions were not negotiated and were presented on a "take not or leave it basis." 

[Ed: "not" is in the original; should be "it"] 

Let me spell it out. In Wells Fargo v Cook, the FINRA member firm's conduct is found by a FINRA arbitration panel to be "procedurally unconscionable" and forced upon an employee in a non-negotiable "take it or leave it basis."  I would call to the attention of the diligent regulators at FINRA their own FINRA Rule 2010 -- the most basic, fundamental rule on FINRA's books:

Standards of Commercial Honor and Principles of Trade

A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.

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