An irreverent Wall Street Blog
5% Solution In FINRA Expungement Arbitration
July 13, 2018
In today's BrokeAndBroker.com Blog, we feature a FINRA arbitration in which a public customer seeks at least $2 million in damages against Raymond James. As is often the case in such sales-practices disputes, unnamed registered representatives are required to disclose on their industry records the customer's allegations. If the customers prevail with their claims, then the registered reps sort of get what's coming to them. If the customers fail, the reps are forced to pursue FINRA's time consuming and expensive expungement process. As today's case demonstrates, FINRA's version of mandatory customer and intra-industry arbitration is often unfair and seems little more than a Mickey Mouse profit-center for the self-regulatory-organization.
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in February 2017, public customer Claimant Colombino asserted securities and common law fraud, fraudulent misrepresentation and omission, unsuitability, over-concentration, negligence,
breaches of fiduciary duty and contract, and failure to supervise.
The claims purportedly related to investments in oil and gas master limited partnerships. Claimant Colombino sought about $2,000,000.00 in compensatory damages, "well managed account" damages, punitive damages, interest, attorneys' fees, and costs. In the Matter of the FINRA Arbitration Between Jerry Colombino, Claimant, vs. Raymond James & Associates, Inc., Respondents (FINRA Arbitration 17-00382, July 11, 2018).
Respondent Raymond James requested dismissal of the claims, attorneys' fees, cost, and the expungement of the matter from the Central Registration Depository records ("CRD") of unnamed party Michael Napolitano.
Settlement
Claimant notified FINRA on May 1, 2018, that the parties had settled. Given that Claimant sought $2 million and alleged a kitchen-sink's worth of claims, the cost of Respondent's extrication from this arbitration is likely going to be in the six or seven figure range, right?
Expungement
Respondent Raymond James moved for expungement of unnamed party Napolitano's CRD. Following the FINRA Arbitration Panel's expungement hearing, which Claimant did not oppose, participate in, or contest, the arbitrators recommended expungement. The Panel made a FINRA Rule 2080 finding that the claim, allegation, or information is false and offered the following rationale for its recommendation of expungement:
The Claimant engaged in sometimes self-directed, unsolicited frequent trading activity that was short-term, day-trading at times, and included heavy reliance on margin against the advice of Michael Napolitano. There were entries in Respondent's Note Ledgers that included warnings to Claimant about margin, and trading/investing ideas.
Bill Singer's Comment
Let me make sure that we're all on the same page.
Claimant Colombino alleged a rash of misconduct by Respondent Raymond James and had enough confidence in his claims that he demanded some $2 million in compensatory damages, and, on top of that, also asked for punitive damages, costs, and fees. Although the customer named only Raymond James as the sole respondent in the arbitration, unnamed party Napolitano's industry record was required to reflect the allegations, which the arbitrators pointedly found to be "false" as against him. Maybe as a firm Raymond James did something wrong and was at fault. Maybe other agents or employees of Raymond James did something wrong. None of that is stated in the FINRA Arbitration Decision. If Raymond James employees other than Napolitano engaged in misconduct, then we should expect a high-six-figure or even seven-figure settlement. What is stated -- clearly and unequivocally -- is that public customer Colombino's allegations as they pertain to unnamed party Napolitano are false. False. Period. End of discussion.
What were the costs of this abortion of a FINRA arbitration? FINRA collected a $2,000 Initial Claim Filing Fee and a $3,025 Member Surcharge and a $6,175 Member Process Fee and $2,800 in Pre-Hearing Session Fees and $1,400 in Expungement Hearing Fee. That adds up to a $15,400 haul for FINRA in a case that not only settled but for which three arbitrators deemed the customer's allegations against unnamed party Napolitano to be false! Why the hell should Respondent Raymond James have had to pay $1,400 in order to expunge false allegations against an unnamed party -- shouldn't that have been assessed against the Claimant pubic customer? This all comes off as so much Mickey Mouse finance by FINRA.
Also, keep in mind that the Panel's ruling is merely a "recommendation" of expungement and that Napolitano must next obtain confirmation from a court before CRD will execute any expungement, and, in furtherance of such final relief, Napolitano has to name in his motion papers FINRA as an additional party and serve FINRA with all appropriate documents. That's more time and more costs, fees, and expenses. To take things to their most absurd point, Napolitano lacked standing to file a counter-claim in the FINRA arbitration against Claimant Colombino because he was not named in the caption! Although Raymond James may pay the arbitration and court-related charges on Napolitano's behalf, many unnamed parties in his position are no longer with the named broker-dealer or their current/former employer may not be inclined to shoulder the financial burden.
In closing, frankly, the vast discrepancy between the dollars sought by Claimant Colombino and the dollars paid by Respondent Raymond James in settlement present this case in a manner that just doesn't warrant any further waste of my time. Online FINRA BrokerCheck records as of July 13, 2018, disclose that Respondent Raymond James settled Claimant Colombino's FINRA Arbitration claims on April 27, 2018, for $95,000, which is 4.75% of the $2 million in damages sought. Colombino is reported as not having contributed to the settlement.
Download a PDF copy of Bill Singer Esq.'s analysis of FINRA's Expungement Rules
- FINRA Rule 2080: Obtaining Customer Dispute Expungement
- FINRA Rule 2081: Prohibited Conditions Relating to Expungement of Customer Dispute
- FINRA Rules 12805 and 13805: Expunging Customer-Dispute Information Under Rule 2080