Edward Jones Broker Wins Expungement

February 7, 2011

As is often the case with Financial Industry Regulatory Authority("FINRA") arbitrations, it's not always clear as to exactly what a public customer was complaining about.  While the gist of a public customer's case can be inferred from the FINRA Arbitration Decision, such a conclusion often requires some guesswork and inference. 

Why is that?

One explanation is that FINRA arbitrations are largely "private" disputes that are adjudicated within the confidential environment of a private arbitration forum in contradistinction to public courts.  As such, when trying to learn the details of a FINRA arbitration, the public can't simply stroll into a court clerk's office and sift through the pleadings, exhibits, and transcripts in the court's files.  About the only public aspect of FINRA arbitrations is the published decision that is readily available at http://www.finra.org/ArbitrationMediation/FormsTools/p018127

If you read through enough of FINRA's arbitration decisions, you will likely come away with far more questions than answers. Unfortunately, FINRA decisions often make oblique references to facts and events that cannot be fully understood solely from within the four corners of the decision.  In some cases, you may actually find that you can barely understand what the suit was about or whether anyone actually won. 

To make matters worse, when an arbitration settles but aspects of that dispute still require the issuance of a Decision, we are often confronted with the frustrating complication that the parties have sanitized the terms of their settlement so as to keep the nuts-and-bolts of the resolution confidential.  That leaves us with the confounding situation where we don't understand what the suit was about, don't understand the full extent of the settlement, don't have the necessary context to understand the Arbitration Panel's decision, and can't figure out whether anyone emerged with a victory.  Sort of like trying to finish a jig saw puzzle that has some pieces missing.

Case in Point

In a Financial Industry Regulatory Authority (FINRA) Arbitration Statement of Claim filed in March 2010, public customer Semones alleged failure to supervise, churning, negligence and unsuitability related to the purchase of various securities in his accounts.  Claimant Semones ultimately sought $125,454.79 in compensatory damages from Respondents Edward Jones and Paul Curran, both generally denied the allegations and asserted various affirmative defenses. In the Matter of the Arbitration Between Howard M. Semones, Claimant, vs. Edward Jones and Paul J. Curran, Respondents (FINRA Arbitration 10-01182, January 31, 2011).


In January 2011, Claimant Semones dismissed his claims with prejudice (essentially this prevents the re-filing of the same claims) against the Respondents.  Although the FINRA Arbitration Decision references the existence of the settlement, it does not detail the dollars or other terms involved.  We are simply informed that a settlement happened.

In doing a bit of sleuthing, I reviewed a public disclosure document on FINRA's regulatory site about Respondent Curran that states that the arbitration was settled for $10,000.00, but there is no indication as to whether Respondent Curran or his employer Respondent Edward Jones (or each together) paid that sum.


Following the settlement of the Semones arbitration, Respondent Curran requested an expungement of the matter from his Central Registration and Depository ("CRD") file -- for lack of a more precise explanation, consider this a stockbroker's "permanent record," to harken back to High School days.  The goal here was to remove the customer's allegations and clear Curran's name.

The sole FINRA Arbitrator hearing the matter conducted a hearing on the requested expungement. Claimant Semones did not appear at the hearing but agreed to be available to testify if needed.  The sense is that he did not oppose the expungement.

The Arbitrator recommended the expungement of all references to the above captioned arbitration from Respondent Curran's  CRD pursuant to Notice to Members 04-16, which will require Respondent Curran to obtain court confirmation before the CRD will execute the expungement directive. Also, 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. 

That's all well and fine.  Unfortunately, if you read the FINRA Decision it's not exactly clear as to what Semones alleged that Curran had done wrong.  We are not provided with a copy of the customer's Statement of Claim or the Respondents' Answers and, at best, the Decision gives us a sketchy recitation of some general allegations.  The Decision references some complaints that were apparently written by Semones and not his lawyer, but given the somewhat inarticulate nature of those allegations, we just don't fully understand the case.

In an attempt to better understand the nature of Claimant Semones's complaints, I consulted FINRA's public disclosure records concerning Respondent Curran, and this is how Semones's claim was reported to the regulator:


Okay . . . I mean, hey, at least we have some sense of what's what.

The Arbitrator Gives It a Shot

When all was said and done, the FINRA Arbitrator recommended expungement. In justifying her recommendation, the Arbitrator cited to some of Claimant Semones's written complaints/assertions (presented below in boldface): 

"First Request: Mr. Paul Curran refused to put me in a safer market for a recent retiree."

In response to that allegation, Respondent Curran denied refusing any buy/sell orders from Claimant. 

In trying to gauge whether the customer had, in fact, sought to invest in a "safer" manner, the Arbitrator noted that annual client information questionnaires showed that Semones's "Investment Needs" had changed from the 1996 iteration of "Cash, Income, Growth" to the  more aggressive 2008 iteration of  "Income, Growth, Growth & Income."  Further, even after the client's previous stated "Net Worth" of $150,000 was updated in 2008 to "$1,200,000," the more aggressive Investment Needs choices were left unchanged.  I'm inferring from that analysis by the Arbitrator that she took the position that if Semones's bothered to revise his net worth in 2008 that he could similarly have downwardly revised his investment needs to a less speculative orientation than "Income, Growth, Growth & Income." Notably, customer Semones had signed the document on which the net worth and investment needs were reflected.

Notwithstanding the 2008 documentation denoting a transition by Semones to more aggressive investing, the Arbitrator nonetheless inquired as to why Respondent Curran thought such an change was appropriate. The broker explained that the more aggressive position was consistent with his discussions with Semones and that the two of them had contemporaneously agreed that the customer's overall wealth was well-balanced among large bank C/Ds, real estate, the Edward Jones accounts, and his business (which was about to be sold).   Curran argued that Semones's safety concerns were raised after-the-fact -- that is, only voiced after the stock market's historic meltdown.  

If we are left to our own inferences, we come away from the analysis with the feeling that the Arbitrator concluded that much of Semones's grievances were fostered by losses that he sustained during the onslaught of the Great Recession and that leading into that market collapse, he had agreed to expose himself to more market risk, had signed off on account documentation evidencing such, and that Curran did not engage in any misconduct in connection with those facts.

"Second Request: My portfolio consisted of the following as of July 31, 2008 at the time of retirement: 

The Hartford $ 32,727.59 

Edward Jones(2) $144,739.98

 Sun America $41,405.42

 River Source $5,000.00

 Total $223,872.99 

 I took out $8,000.00

 $-90,418.20 Ending balance at Edward Jones and transferred to another firm

 LOSS $125,454.79"

It would be an understatement to say that the above statement of assets and alleged losses was clear and intelligible. Frankly, welcome to the world of securities industry arbitration -- and this less than pristine environment is fostered by both the industry and the public customers.  There is plenty of blame to go around. To her credit, the FINRA Arbitrator seems to have struggled mightily with Semones's assertions.

Ultimately, the Arbitrator deemed that the customer had significantly overstated the value of his Edward Jones portfolio by erroneously factoring in a double-counting of annuities and non-Jones products.  The Arbitrator calculated a loss of $46,321.78 and not the claimed $125,454.79. Furthermore, the Arbitrator calculated that from 1998  to the account's closing in 2010, there was an overall profit of $34,858.98 (with the IRA showing a profit of $5,676.74).

Of course, any given customer may not be able to accurately compute or understand the profits/losses in an account if that information was wrongfully withheld or presented in a confusing manner. Again, attempting to be thorough, the sole FINRA Arbitrator determined that Semones had received timely records detailing his various annuities holdings.  Further, except for those annuities that were described on statements as "Edward Jones," the other annuities were held outside of Semones's Jones account (and that status was duly noted on his account statements).

"Third Request: We are to believe I did not call Mr. Paul Curran to tell him I was retiring and selling my business." 

The Arbitrator did not find that the assertion was disputed, as Respondent Curran was clearly aware of Claimant's intention to sell his business and retire. 

"Sept 9, 2009 call indicates I didn't know of fees. Note fails to say I didn't know of selling annuities into mutual funds. It stands to reason I didn't know of fees." 

Semones apparently accuses Curran of selling annuities without his prior authorization.  Further, Semones also complains about the fees he was charged on those allegedly unauthorized transactions.

To the contrary, the Arbitrator concluded that Semones was fully aware of the transactions/activity in his account.  Moreover, the Arbitrator pointedly noted that the client's concern was not about the transactions but about the fees he was charged.   

"I did not get a prospectus on these trades until I called Edward Jones and I received prospectus and trade confirmation dated July 3, 2010. Are these trades legal?"

The Arbitrator noted that Edward Jones's procedure was that "buy" confirmations were accompanied by their related prospectuses, which are both mailed from the firm's St. Louis office at the time of purchase. The record included copies of relevant trade confirmations sent to the customer's address of record. 

"Please find enclosures to support my allegations of "Churning" and no intent to withdraw claim."

The customer enclosed a page printed off the Securities and Exchange Commission's web site that defines "Churning".  The Arbitrator interpreted that fact to mean that Semones was alleging some unspecified level of inappropriate trading activity in his account.

In considering that allegation of churning, the Arbitrator noted that one of Semones's accounts reflected between 11/18/1999 and 04/22/2010 only 15 Buys and 6 Sales; and the second account reflected between 02/23/1998 and 04/22/2010 only 5 Buys and 8 Sales in this account. The Arbitrator deemed such minimal activity as not rising to the level of churning.

For a more detailed explanation of churning: SEC Settles Churning Case Involving Elderly Nuns (The Street Sweeper by Bill Singer, January 7, 2011)

Bill Singer's Comment:

This case is instructive on several levels.  First, it demonstrates the difficulty that many industry Respondents may have in understanding the claims made against them by their former customers.  Second, this case provides insight into how an Arbitrator may dissect claims and defenses, and how those considerations may help decide a case.  Third, it underscores that notwithstanding all the facts, allegations, and analysis set forth above, that you can still come away from these cases scratching your head, if not utterly confused.  There are five holes in your jig saw puzzle but you only have two remaining pieces on the table.