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Gregor Samsa Awakes As A FINRA Unnamed Party
November 2, 2018
There are times when I swear that FINRA's rules were drafted by Franz Kafka. For those of you unfamiliar with the author's works, he's the guy who wrote "The Metamorphosis," which is a story about salesman Gregor Samsa, who goes to sleep one night a human being and wakes up the next morning a giant insect. In a recent FINRA arbitration, we come across another salesman who went to sleep one night with a sterling reputation and awoke to find out that he had a dreaded FINRA "record." The thing is, just like Samsa, he hadn't done anything to cause his condition.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in July 2017, public customer Claimant Coughlin asserted breach of fiduciary duty; violations of California's Securities Act; violation of FINRA Conduct Rule 2110 in connection with apparent purchases of shares of Linn Energy, LLC, Breitburn Energy Partners L.P., and Atlas Resource Partners, L.P. Claimant Coughlin sought $146,000 in compensatory damages, punitive damages, interest, costs, expenses and attorneys' fees. In the Matter of the FINRA Arbitration Between John Coughlin, Claimant, vs. Stifel, Nicolaus & Co., Inc., Respondent (FINRA Arbitration 17-01880, October 19, 2018)
Respondent Stifel Nicolaus generally denied that allegations and asserted various affirmative defenses.
Settlement
In June 2018, the case settled but Claimant Coughlin's counsel advised FINRA that he would represent non-party Stephen Rohde in his request for expungement, which was filed pursuant to a motion in July 2018. No . . . that's not a typo: The public customer Claimant's counsel was going to represent unnamed, non-party, registered representative Rohde in furtherance of the expungement application.
Side Bar: According to online FINRA BrokerCheck records as of November 2, 2018, Claimant Coughlin settled with Respondent Stifel, Nicolaus on May 15, 2018, for $20,000 of which there was no contribution from Rohde. BrokerCheck records further disclose that Rohde was first registered in 1991, and had been registered with Stifel, Nicolaus from October 2013 to April 2015.
Stifel, Nicolaus Non-Opposition
Respondent Stifel, Nicolaus filed a Statement of Non-Opposition to Rohde's Motion for Expungement, in which the firm did not oppose or take a position on Rohde's expungement request.
Claimant's Declaration
The FINRA Arbitration Panel noted that public customer Claimant Coughlin had filed a declaration supporting the requested expungement; and, the FINRA Arbitration Decision states that "Claimant was aware of and actively engaged in the
expungement hearing and supported Rohde's request for expungement."
Expungement Recommendation
In recommending expungement, the Panel made a Rule 2080 finding that the claim, allegation, or information is factually impossible or clearly erroneous; and that the registered person was not involved in the alleged investment-related sales
practice violation, forgery, theft, misappropriation, or conversion of funds. The arbitrators offered this rationale:
The Panel finds that Rohde was not involved in the facts underlying the Statement of Claim. Claimant neither named Rohde as a respondent in the arbitration nor mentioned him in his complaint. Rohde was Claimant's broker at the time in question, and Claimant remains a client of Rohde. But, none of the allegations in the Statement of Claim relate to investment advice or actions on the part of Rohde. Claimant did not allege any investment advice related causes of action.Claimant based his complaint upon an alleged conflict of interest between Respondent's investment bankers and Respondent's research analysts whom he alleged issued "phony reports" to "push" certain stocks which were financially beneficial to Respondent. Rohde did not work in those departments. Rohde was not involved in the preparation of the allegedly false reports as he was not in the research department; nor was he involved in the rating of stocks as he did not work in the banking division. Indeed, Claimant conceded in his Statement of Claim that the brokers who relied on these reports were "as much a victim as their customers."Claimant also testified that none of his complaints were against Rohde and that he specifically chose not to direct any claims against Rohde, whom he trusts. Claimant has followed Rohde to four different brokerage firms and has recommended him and continues to recommend him to family and friends. Rohde currently manages Claimant's IRA and family trust accounts. Claimant voluntarily testified in support of Rohde's motion that Rohde had "nothing to do with his losses" with Respondent and that his complaints "bypassed Rohde completely."Putting aside the subject of this motion, Rohde has never had a single complaint of any kind, during his 27-year career as a broker, even though he has worked with hundreds of clients and executed thousands of trades. He has never been the subject of discipline or noncompliance. His CRD is otherwise spotless.Accordingly, the Panel finds under FINRA Rule 2080(b)(1)(B) that Rohde was not involved in the alleged violation. The Panel further finds, for these same reasons, under FINRA Rule 2080(b)(1)(A) that the claim is factually impossible as to Rohde since he had no involvement in the preparation or generation of the allegedly false reports that form the basis of the Statement of Claim.
Bill Singer's Comment
Sometimes about all that I can do is shake my head and wonder about the lunacy that exists on Wall Street and in FINRA's rulebook. Going with that thought, let me re-state a portion of the FINRA Arbitration Decision:
The Panel finds that Rohde was not involved in the facts underlying the Statement of Claim. Claimant neither named Rohde as a respondent in the arbitration nor mentioned him in his complaint. Rohde was Claimant's broker at the time in question, and Claimant remains a client of Rohde. But, none of the allegations in the Statement of Claim relate to investment advice or actions on the part of Rohde. Claimant did not allege any investment advice related causes of action.
Keep in mind that Rohde did not work in Respondent Stifel,Nicolaus' investment banking or research departments, which were the targets of the disgruntled customer's ire and lawsuit. The FINRA Arbitration Decision explains that "Indeed, Claimant conceded in his Statement of Claim that the brokers who relied on these reports were "as much a victim as their customers." For those of you who may still harbor some doubts, consider this:
Claimant also testified that none of his complaints were against Rohde and that he specifically chose not to direct any claims against Rohde, whom he trusts. Claimant has followed Rohde to four different brokerage firms and has recommended him and continues to recommend him to family and friends. Rohde currently manages Claimant's IRA and family trust accounts. Claimant voluntarily testified in support of Rohde's motion that Rohde had "nothing to do with his losses" with Respondent and that his complaints "bypassed Rohde completely."
"MetaFINRAsis"
an unpublished novella by Bill Singer
an unpublished novella by Bill Singer
Once upon a time, this guy goes to sleep with a pristine Wall Street reputation and wakes up the next day with a customer's complaint splattered all over his industry record. This guy bugs out. He reads the customer complaint and realizes that he was never involved in the facts in dispute and the customer didn't even name him as a Respondent. Even more frustrating, the public customer apparently still reposed trust in this guy because this guy was still the customer's stockbroker. This guy bugs out even more. Then things take another bizarre turn. The case settles and the public customer's lawyer announces that he will be representing this guy in furtherance of an expungement application. Stunned, this guy realizes that he is caught in a web of legal fiction whereby he is essentially suing his former employer broker-dealer in order to remove a customer complaint from his record despite the fact that the customer never named this guy in the caption, never accused him of any wrongdoing, and the customer's lawyer is representing him in the expungement process. At this point, this guy's brain explodes.