Why Did He File The Case? vs. Why Didn't He File His Case Sooner?

November 5, 2010

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In October 2009, former Morgan Stanley Smith Barney associated person Nathaniel Aaron Finkin filed a FINRA Arbitration Statement of Claim against his former employer. Seems that Finkin was really ticked off about the circumstances that resulted in his termination and he sued MSSB for libel and slander. Finkin asked for expungement from his Form U5 of any and all language that referenced his inappropriate use of email or other violation of his firm's or FINRA's policies/rules. Claimant represented himself (pro se). Respondent MSSB generally denied the allegations.In the Matter of the Arbitration Between Nathaniel Aaron Finkin, Claimant vs. Morgan Stanley Smith Barney,Respondent (FINRA Arbitration Number: 09-06253, November 2, 2010)

The FINRA Arbitration Panel determined that the Claimant sent six e-mails from his personal e-mail account to clients regarding Morgan Stanley Smith Barney business and the content of those e-mails were not approved by MSSB before they were sent.  Accordingly, the explanation of such circumstances on Claimant's Form U5 is not defamatory, and the case was dismissed.

Bill Singer's Comment: Okay, I see that Finkin represented himself but this one puzzles me, nonetheless.  I mean, either he sent the emails to his customers from his personal account (which is a violation unless approved by his FINRA member firm) or he didn't. 

Frankly, under such circumstances (assuming that there was no clever legal issue about whether the communications were personal or business-related), I would have told my client not to file the claim because he could still put his version of events before prospective employers and argue that this was a minor misunderstanding over half-a-dozen emails during the worst recession in a generation.  A lot of branch managers and compliance professionals would likely have nodded in understanding. 

Now, however, you have a formal FINRA Arbitration Decision that dismisses the Claimant broker's case and sort of undercuts his ability to spin the facts of his termination.  To some extent, this dispute is now carved in stone -- and the verdict went against the stockbroker.

Rip Van Winkle

In a FINRA Arbitration Statement of Claim filed in February 2010, public customer Brodkorb alleged that Respondent Kelly invested Brodkorb in unspecified equities and other unspecified high risk investments, which, although performing well at the time, were more aggressive than should have been pursued by an individual in retirement. Additionally, Claimant Brodkorb asserted that Respondent Kelly selected investments with significant up-front commissions and fees and that as a result of the investment strategy undertaken by Kelly, Claimant's account continued to suffer. Claimant asserted numerous causes of action including suitability, breach of contract, and fraud, and sought $250,000 in damages. In the Matter of the Arbitration Between Keith Brodkorb, Claimant vs. Wachovia Securities, LLC, Prudential Securities, Inc., and Joseph B. Kelly, Respondents (FINRA Arbitration 10-00761, November 1, 2010)

Respondents generally denied the allegations and asserted various affirmative defenses. Pointedly, Respondents argued that

  • Claimant's Statement of Claim was barred and ineligible pursuant to FINRA Rule 12206(a);
  • the Statement of Claim fails to state a claim upon which relief can be granted;
  • all transactions were authorized and/or ratified; and
  • all transactions were suitable.

In April 2010, Claimant voluntarily dismissed Wachovia Securities, LLC.

The FINRA Arbitration Panel unanimously granted the Motion to Dismiss without prejudice filed by Respondents Prudential Securities, Inc. and Joseph B. Kelly. FINRA Rule 12206(a) states:

No claim shall be eligible for arbitration where six years have elapsed from the occurrence of event giving rise to the claim. The Panel will resolve any questions regarding the eligibility of a claim under this rule.

The Panel concluded that undisputed evidence was presented that the account subject to the claim was closed in January of 2003, and that the Statement of Claim was filed in February of 2010. The Panel ruled the claims were barred as a matter of law by the Eligibility Rule and dismissed Claimant's claims without prejudice.

Bill Singer's Comment: Ya gotta give credit to any public customer  who says with a straight face that although my investments were "performing well at the time," they were "more aggressive" than appropriate for a retired individual.

Now hold on for a second here -- don't get me wrong -- under many circumstances I get that point and it is a fair one.  Just because a portfolio makes money doesn't mean that the transactions are suitable or the transactional costs justified. I'm no hypocrite and I represent both public customers and industry interests in my law practice. However, if you really think it through, it's sort of a no-lose proposition, maybe even a synthetic form of portfolio insurance.  After all, the client essentially takes the position that he is more than happy to enjoy the fruits of "aggressive" trading but only if it's profitable.  If it's not profitable, then the client is suddenly a retired victim. 

Wall Street is, at best, a roller coaster. While you may enjoy the thrill of the ride up, there's just no way to avoid the plummet thereafter -- stocks go up and down.  In Claimant Brodkorb's situation, it's truly difficult to buy the entire theory of his claim (even though such a theory is often meritorious with similarly situated customers) because he seemed content to accept his losses for nearly seven years.  Not only is it somewhat unfair to expect the stockbroker and the brokerage firm to have the wherewithal to competently defend against such an old claim, but the delay raises questions about the sincerity of the allegations.  Just to make the point, imagine that seven years after you filed your tax return, the IRS argues that your claimed deductions are bogus and that you need to produce all of the receipts for those events. Receipts as in the one that you CPA told you to discard after seven years.

Joseph D. Bonanno used the identity of a dead baby to become a registered stock broker and fiduciary investment advisor and got away with it for eight years. And yet again, the regulators failed to notice.