An irreverent Wall Street Blog
Wife Says JP Morgan and Stockbroker Scammed Her In ReFi of Ex-Husband's Mortgage
March 8, 2019
A public customer alleged in her FINRA Arbitration Statement of Claim that J.P. Morgan and her stockbroker had engaged in a scheme to move cash from her account into some mortgage refi for her ex-husband's benefit. She sought about $500,000 in losses. If this dispute played out in a court, the public would have access to the Complaint, the Answer, all sorts of discovery and motion-practice information, transcripts, and a detailed Opinion. Instead, we get a FINRA's Arbitration Decision that discloses virtually nothing about what happened. It's said that in space, if you scream, no one can hear you -- who thought that FINRA would use that line to market mandatory customer arbitration to its member firms?
Case In Point
In a FINRA Arbitration Statement of Claim filed in March 2017, public customer Hamm asserted breach of fiduciary duty; fraud; constructive fraud; violation of the Texas Securities Act; violation of SEC Rule 10(b)(5), 17 C.F.R. §240.10b-5; violation of FINRA Rule 2111 - Suitability; breach of contract; negligence; violation of Texas Deceptive Trade Practices Act; and negligent hiring, supervision, training and retention. Claimant sought at least $500,000.00; exemplary damages, treble her exemplary damages, interest, costs, and fees. In the Matter of the Arbitration Between Sandi L. Hamm, Claimant, v. J.P. Morgan Securities, LLC and Erick George Revelle Kuebler, Respondents (FINRA Arbitration Decision 17-00612, February 28, 2019)
http://www.finra.org/sites/default/files/aao_documents/17-00612.pdf As explained in part in the FINRA Arbitration Decision:
[T]he causes of action related to Claimant's allegation that, immediately upon funding her account, Respondents improperly used Claimant's money to fund a down payment for the refinancing of a mortgage for the benefit of Claimant's now ex-husband. Claimant further alleged that Respondents subsequently moved her remaining funds into a Type 2 account and used those funds for trading on margin and purchasing municipal bonds, in order to conceal the transfer for the down payment. Claimant asserted that these actions were unauthorized, manipulative, and deceptive and, as a direct result, she suffered substantial economic harm.
Respondents generally denied the allegations and asserted various affirmative defenses; and Respondent Kuebler sought the expungement of the matter from his Central Registration Depository records("CRD").
Award
The FINRA Arbitration Panel found:
Respondent J.P. Morgan liable and ordered it to pay to Claimant Hamm $102,565.09 in compensatory damages plus interest; and $600 FINRA filing fee.Respondent Kuebler liable and ordered him to pay to Claimant Hamm $11,396.12 in compensatory damages plus interest.
FINRA and/or the Panel assessed the following fees:
Claimant Hamm: $2,000 Initial Claim Filing FeeRespondent J.P. Morgan: $3,025 Member Surcharge; $6,175 Member Process Fee; $400 Discover-Related Motion Fees; $19,600 Hearing Session Fees
Bill Singer's Comment
Given that Claimant was seeking at least $500,000 in damages, the Respondents may not have fared all that poorly by contesting the claims and ending up with just shy of $114,000 in compensatory damages plus another $29,000 or so in assessed fees.
Somewhat lost in the six-figures of damages sought and damages awarded, however, are the very, very serious allegations made by Claimant Hamm -- and which were sustained by three independent arbitrators as demonstrated by their award. Claimant alleged that J.P. Morgan and her stockbroker Kuebler engaged in a scheme to disguise their "unauthorized, manipulative, and deceptive" use of her funds in furtherance of their effort to "conceal the transfer for the down payment" on a mortgage refi for her husband (her "now ex-husband"). As is FINRA's penchant, we are told virtually nothing of substance about the dates or mechanics of the alleged fraud. We are told nothing about who did what or how. It's all conclusory. It's all simply the rendition of an award without much in the way of explanation or rationale. See, for example, "Debating The Riddle Wrapped In An Enigma Of FINRA Intra-Industry Arbitration" (BrokeAndBroker.com Blog / February 2, 2019) http://www.brokeandbroker.com/4414/finra-mandatory-arbitration/
FINRA's mandatory customer arbitration system is a failure because of case after case such as Hamm v. J.P. Morgan Securities, LLC et al. In light of the serious nature of the allegations and the attendant award, it would seem a fair inference that some regulatory misconduct was involved. Given that predicate, where the hell is the regulatory referral from this FINRA Arbitration Panel to FINRA? It's as if public customer Hamm screamed in space (and in a FINRA arbitration hearing room) but no one heard her. I mean, seriously, how could this arbitration not trigger FINRA Arbitration Rule 12104(e)?
FINRA Rule 12104: Effect of Arbitration on FINRA Regulatory Activities; Arbitrator Referral During or at Conclusion of Case(a) Submitting a dispute to arbitration under the Code does not limit or preclude any right, action or determination by FINRA that it would otherwise be authorized to adopt, administer or enforce.(b) During the pendency of an arbitration, any arbitrator may refer to the Director any matter or conduct that has come to the arbitrator's attention during a hearing, which the arbitrator has reason to believe poses a serious threat, whether ongoing or imminent, that is likely to harm investors unless immediate action is taken. Arbitrators should not make referrals during the pendency of an arbitration based solely on allegations in the statement of claim, counterclaim, cross claim, or third party claim. If a case is nearing completion, the arbitrator should wait until the case concludes to make the referral if, in the arbitrator's judgment, investor protection will not be materially compromised by this delay.(c) If any arbitrator refers a matter or conduct for investigation under paragraph (b) of this rule, the Director will disclose the act of making the referral to the parties. A party may request that the referring arbitrator(s) recuse themselves, as provided in the Code, no later than three days after the Director notifies the parties of the referral. If a party does not make the recusal request within the prescribed timeframe, the party forfeits the right to request recusal of the referring arbitrator(s).(d) The Director will evaluate the arbitrator referral to determine whether to transmit it to other divisions of FINRA. Only the Director shall have the authority to act under this paragraph (d).(e) At the conclusion of an arbitration, any arbitrator may refer to FINRA for investigation any matter or conduct that has come to the arbitrator's attention during and in connection with the arbitration, either from the record of the proceeding or from material or communications related to the arbitration, which the arbitrator has reason to believe may constitute a violation of the rules of FINRA, the federal securities laws, or other applicable rules or laws.