FINRA Arbitrators Expunge Customer Settlement Contribution From Merrill Lynch Broker
April 22, 2015
Among the false perceptions that many have is the reliability of so-called official records. If it's something maintained by a regulator, we tend to believe that there are so many levels of checks and balances that a falsehood would not ultimately makes its way into a database accessible by the public. In fact, as has been demonstrated over and over again, our expectations and reality don't always match. In a recent FINRA expungement arbitration, FINRA's online BrokerCheck records asserted that a former Merrill Lynch registered representative had contributed half of the financial settlement paid to a complaining customer -- except the rep adamantly insisted that he had not made any contribution.
Case In Point
In a Financial Industry
Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in July
2014, Claimant asserted that Respondent Merrill Lynch had defamed him on his
Central Registration Depository records ("CRD"). Specifically, Claimant asserted that
following his resignation from Respondent, the former employer made false and defamatory comments concerning his alleged contribution to
the monetary portion of the settlement of a customer arbitration. Claimant sought an expungement of the
comments from his CRD. In the Matter of the FINRA Arbitration Between
[Ed: Claimant's name has been redacted at the sole discretion of
BrokeAndBroker.com] Claimant, vs. Merrill
Lynch, Pierce, Fenner & Smith Incorporated,
Respondent (FINRA Arbitration 14-02212, April 16,
2015).
Respondent Merrill Lynch generally denied the
allegations and asserted various affirmative defenses.
Unsettling Development
At the February 27, 2015, expungement hearing,
Respondent did not contest the requested expungement. As noted in the FINRA Arbitration
Decision:
[T]he Panel finds that Claimant did not contribute to the settlement and that the settlement agreement was not conditioned upon a customer's agreement not to oppose expungement.
Claimant did not request the expungement of information that identified him as a party to the underlying case, which was settled with a full release, nor does the Panel make such a recommendation. The sole issue addressed by the Panel is expungement of any statement or assertion that Claimant made any contribution to the settlement of the underlying case.
Expungement Recommended
In accordance with its findings, the Panel
recommended the expungement of any statement or assertion on CRD that Claimant
had made any contribution to the settlement at issue. In support of that recommendation, the Panel
noted that:
Bill Singer's Commenta) The Form U4 signed by Claimant did not state his having contributed to the monetary settlement; and
b) The Form U4 of a different date, which apparently was never seen by Claimant and was not signed by him, inaccurately reflected that he had contributed 50% of the monetary settlement amount, and it was this Form U4 that led to the false information on Claimant's CRD records.
. . .
As Claimant offered in evidence and testimony, and Respondent confirmed, there is no evidence that Claimant contributed to the settlement of the underlying case. Indeed, Claimant was never involved in the settlement process, never signed the settlement document, and never received a copy of the settlement document. In the document itself, it was Respondent that was required to pay the settlement amount, there being no mention of Claimant participating in the monetary contribution. At the time of his voluntary resignation from Respondent, some six years after the event in question. Claimant did not pay any assessment, nor was his account debited for any amount relating to the settlement of the underlying case. The Panel reviewed Claimant's submission. Respondent's submission, the underlying settlement agreement between the customer and Respondent, testimony by Claimant, and statements by Respondent's counsel during the hearing. Respondent's counsel neither contested nor refuted any of Claimant's pleas or submitted evidence. . .
CLAIMANTS CLAIM MISREPRESENTATION AND NEGLIGENCE IN MANAGING THE ACCOUNT
The customer complaint became NASD Arbitration
01-03227, which purportedly settled on May 8, 2002 for $97,000. The disclosure on Claimant's BrokerCheck: the "Individual
Contribution Amount: $48,500," appears to be the contested defamation in
the above expungement arbitration:
As clearly noted on the BrokerCheck report, Claimant commented:
I DENY ANY AND ALL ALLEGATIONS. THIS MATTER WAS SETTLED BY EMPLOYER FOR BUSINESS REASONS TO AVOID THE EXPENSE AND UNCERTAINTY OF LITIGATION. ID DID NOT CONTRIBUTE TO SETTLEMENT.
Claimant's BrokerCheck records
disclose an unrelated "Customer Disputer - Closed-No Action/Withdrawn/Dismissed/Denied"
involving a March 21, 2002, complaint alleging unauthorized trading and use of
margin, and unsuitability. The customer purportedly sought $67,000 but the
matter was "Closed/No Action" on June 6, 2004. Claimant's noted that he denied
"any and all allegations."
The one aspect of this case that I truly don't understand is why Claimant didn't complain sooner. After all, the settlement purportedly occurred in 2002, and I'm assuming that the regulatory filings that resulted in the BrokerCheck disclosure were also made in 2002. Given that the Claimant remained registered with Merrill Lynch until 2007, the erroneous disclosures were on file for about five years during his remaining tenure with the firm; and, thereafter, he waited until 2014 to file the arbitration Complaint seeking expungement. A likely explanation for this odd delay of recognition may be found in the FINRA Arbitration Panel's finding that there were two Form U4s: one which Claimant saw and signed and did not reference any settlement contribution; and a second U4, which Claimant did not see, did not sign, and which contained the misstatements about the settlement contribution.
An important lesson from this case is the need for registered reps to regularly review their CRD and BrokerCheck records to see what is being disclosed. In my law practice, I have come across instances where there are errors on both CRD and BrokerCheck, or on one or the other. The fault for such mistakes is rarely a data entry error by CRD or FINRA (although those do occur) but tends to be caused by sloppiness in a member firm's Compliance Department or by the inattentiveness of the subject registered person.