Unnamed Respondent Broker Seeks Vindication in Settled Arbitration

January 27, 2011

Pursuant to losses of at least $188,530.00, allegedly sustained in connection with their purchase of the Oppenheimer Champion Income Fund C, Claimants filed a FINRA Arbitration Statement of Claim in March 2010, asserting causes of action including breach of fiduciary duty and of contract, fraud, and failure to supervise. In the Matter of the Arbitration BetweenRobert Craig Reynolds, individually and as Trustee of the Reynolds Living Trust U/A 6/14/03; Susan H. Pitsch Reynolds, Individually and as Trustee of the Reynolds Living Trust U/A 6/14/03 and as Trustee of the 403-B Plan FBO Susan H. Pitsch-Reynolds, Claimants vs. Sagepoint Financial, Inc., Respondent (FINRA Arbitration 10-01168 , January 19, 2011).

Respondent Sagepoint generally denied the allegations and asserted various affirmative defenses.

All's Well That Ends . . .

On January 5, 2011, the parties advised FINRA that they had settled the matter. Thereafter, Respondent Sagepoint requested the expungement of matter from the Central Registration Depository (CRD) record of non-party registered representative Don Joel Michael Scholl.


Following a January 11th hearing, which Claimants did not attend or oppose, the FINRA Arbitration Panel recommended the expungement of all reference to the arbitration from non-party Scholl's CRD.

The Panel found that

  • Scholl did not recommend the subject transaction;
  • Claimants disregarded Scholl's advice;
  • Claimants admitted the transaction was unsolicited by Scholl;
  • Any misrepresentations or omissions regarding the subject transactions were made by fund management; and
  • The settlement amount is not excessive in relation to savings for cost of defense.

Pursuant to NASD Notice to Members 04-16 (Expungement:NASD Adopts Rule 2130 Regarding Expungement of Customer Dispute Information From The Central Registration Depository), non-party Scholl must obtain confirmation from a court of competent jurisdiction before the CRD will execute the expungement directive. Unless specifically waived in writing by FINRA, parties seeking judicial confirmation of an arbitration award containing expungement relief must name FINRA as an additional party and serve FINRA with all appropriate documents.

Bill Singer's Comment:

Truly one of the idiosyncratic idiocies of Wall Street regulation.  

An unnamed, non-party has his/her industry record marked up based upon mere allegations in an arbitration. For godsakes, if something is going to become part of a registered person's "permanent record," then how about at least requiring the public customer to name the broker as a Respondent? Instead, a member firm is required by FINRA to file a regulatory report about the unnamed broker -- the theory is that even when the public customer doesn't name names, the employer firm is on notice as to whom the finger was pointed at. 

Apparently, FINRA doesn't care that a non-party broker can't submit an Answer and explain his or her side of things -- nor can they demand the right to appear and testify at the arbitration hearing -- nor can they demand that an arbitration hearing actually occur if the employer decides that it's simply cheaper to settle. 

You got all of that -- really? I'm impressed! 

The final fillip of silliness is that the FINRA Arbitration Panel determined that as to the very transaction at issue, Scholl did not recommend it and may have advised against  it. Plus, don't forget that the Claimants admitted -- admitted  -- that Scholl didn't even solicit the trade in dispute.  Still, FINRA demands the paperwork and then sets up an obstacle course through which the broker must run in order to clear his name.

And given all that transpired in Scholl's situation,why couldn't he simply had the offending commentary deleted from his CRD by an order of the arbitration panel? In this specific case with these specific facts, why the hell should Scholl (or his employer) have to incur the added time and financial costs of notifying FINRA, filing in court, and then obtaining the order?  Frankly, that's a simple answer: Because FINRA is a mind-numbing bureaucracy that is sometimes impervious to commonsense and fairplay.