A Marginal FINRA Arbitration Decision: TD Ameritrade Sued for Margin Sellout . . . I think

November 16, 2010

In a Statement of Claim filed in October 2009, public customers Wang and Ma sought $317,865.00 in compensatory damages, $180,000 in punitive damages (subsequently withdrawn prior to the Panel's Decision), interest, and costs resulting from Respondent TD Ameritrade's margin sellout of China Life Insurance shares in Claimants' trading account. In the Matter of the Arbitration Between Anna Wang a/k/a "Yidan Wang" and Hongwei Ma, Claimant vs. TD Ameritrade, Inc., Respondent (FINRA Arbitration  09-06875, November 8, 2010.)

The FINRA Arbitration Decision explains that:

Claimants further alleged that when Respondent sold the China Life Insurance shares, the shares were worth approximately $34.00 per share and that during the initial two weeks of November 2008, the closing price was approximately $40.72 per share. Unless spedfically admitted in its Answer, Respondent denied the allegations made in the Statement of Claim.

The Decision further explains that the compensatory damage of $317,865.00 was calculated by multiplying 47,300 shares of China Life Insurance (apparently the number of shares in dispute) by $6.72 share (apparently the cited difference between the $34 and $40.72 prices).

A Head Scratcher

Before disclosing how this case turned out, let me tell you what I was wondering about while reading through the fact pattern -- and what I had hoped would be explained in the FINRA Decision.

First, brokerage firms are not necessarily required to provide prior notice to a customer of the firm's intention to undertake a margin sellout. Although firms routinely provide some form of notice pertaining to a margin call, it is generally up to the customer to ensure that the account is fully funded.  Given recent fast-breaking markets, brokerage firms may feel it best to simply buy-in or sellout various positions in your account to protect the firm's solvency.

As such, the prelude to the ruling in this case piqued my curiousity.

  • What was the dollar amount of the margin call?
  • How much, if any, prior notice did TD Ameritrade give to the Claimants?
  • Did the Claimants fail to timely satisfy the call?
  • What dollars and securities were in the Claimants' account when the call was issued?
  • Why did TD Ameritrade decide to sell 47,300 shares of China Life Insurance -- was there nothing else in the account to best satisfy the call or had Claimants indicated a preference to sell that security?
  • What was the mark-to-market price of China Life Insurance shares when the margin call was issued? 
  • What was the mark-to-market price of China Life Insurance shares when the sell-out was undertaken?
  • What was the $6.72 discrepancy -- did TD Ameritrade fail to timely sell the shares or what?

Muddying the Waters

Sometimes, readers of the BrokeAndBroker Blog wonder if I "spin" certain facts in order to make regulators look foolish or to make arbitration decisions seem more obtuse than they are.  As such, rather than offer you my interpretation of the rationale of the FINRA Arbitration Panel's decision, let me offer the verbatim abstract from the conclusion of that document:

The Arbitrators acknowledge that they have each read the pleadings and other materials filed by the parties.

This case proceeded under the Public Arbitrator Pilot Program, which allows parties to choose whether to have a non-public arbitrator on the panel.

Claimants had an interpreter during the hearing in this matter.

The parties have agreed that the Award in this matter may be executed in counterpart copies or that a handwritten, signed Award may be entered.


After considering the pleadings, the testimony and evidence presented at the hearing, the Panel has decided in full and final resolution of the issues submitted for detennination as follows:

1. Respondent is liable to and shall pay Claimants $94,800.00 in compensatory damages in settlement of all claims.

2. Any and all relief not specifically addressed herein is denied.

Bill Singer's Comment:  It's nice that the Claimants had an interpreter during the hearing.  Any chance that those of us who read this stuff could also get one for this Decision? What the hell????

For far too long, this is the type of frustrating arbitration decision that emanates from FINRA -- and, frankly, it's not the Arbitration Panel's fault because this bare-bones explanation seems to be what FINRA is content to issue. Sadly, the FINRA Arbitration system fails to recognize the harm that such minimalism causes.

For example, the Claimants sought over $317,000 in damages based upon a precise calculation. The Panel found TD Ameritrade liable for a little over $94,000. Ummm ... how come? I mean, seriously, is it asking that much to connect the dots here?

Further, was TD Ameritrade legally required to give the margin notice? Was there a failed sellout and, if so, where how did the Panel arrive at the $94,800 calculation?

This could easily devolve into a tirade, so let me just stop here. You tell me, though, is this enough? How does such a decision help educate the investing public or the industry?