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JP Morgan Customer Seems To Have Accused Stockbroker of Not Exercising Unauthorized Discretion
April 7, 2021
Over a decade ago, when the stock markets were cratering in the wake of the Great Recession, investors saw their pre-2009 gains vanish. Lots of black ink became red. As was all too common in those days (but, let's be fair, often justified), customers complained that they were given lousy investment advice by their stockbroker. And that wave of customer complaints flooded onto the industry records of thousands of men and women. A recent case illustrates that once posted online, a customer complaint may have the half-life of xenon-124 -- trust me, that's a long half-life.
Case in Point
In a FINRA Arbitration Statement of Claim filed in September 2020, associated person Claimant Chen sought the expungement of a customer dispute from his Central Registration Depository records ("CRD"). Respondent JP Morgan generally denied the allegations and asserted various affirmative defenses. In the Matter of the Arbitration Between Juan Chung Chen, Claimant, v. J.P. Morgan Securities, LLC (FINRA Arbitration Award 20-02933)
https://www.finra.org/sites/default/files/aao_documents/20-02933.pdf
Phoning It In
After being advised that Claimant had served the customer at issue with a copy of the Statement of Claim and notice of the expungement hearing, the sole FINRA Arbitrator conducted a telephonic hearing on March 23, 2021. Although Respondent JP Morgan participated in the hearing, the firm took no position on the expungement request. The customer did not participate in the hearing.
Expungement Recommendation
The FINRA Public Arbitrator, Paul S. Biederman, made a FINRA Rule 2080 finding that the customer's claim, allegation, or information is factually impossible or clearly erroneous; and Chen was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds; and the customer's claim, allegation, or information is false. In recommending expungement, the Arbitrator offered this rationale:
The customer is a high net worth individual who was a discretionary account customer of Respondent when he was assigned to the Claimant when Claimant joined Respondent's firm in 2006. The customer converted to non-discretionary status in 2011 during a period of market turbulence. This meant that the customer's direction and compliance were necessary for any trading activity. During this period of negative market activity, while on his way to a vacation, the customer stopped in New York for a meeting with the Claimant and his support group to sort out a strategy. During the meeting, the customer told Claimant to make changes in his account that "limited exposure" but without any specific instructions as to actual trades to implement. Claimant attempted to elicit that information by attempting to contact the customer on multiple occasions but to no avail. During this period and upon the customer's return, the account in question absorbed significant losses and the customer filed a complaint alleging "failure to follow instructions". Subsequently, Claimant and his associates, with supporting documentation, informed the customer of his responsibilities as a non-discretionary customer to personally direct and approve all trading activity. At this point, apparently convinced of his mistake and the honest efforts of Claimant, the customer dropped the complaint while remaining a customer of Respondent albeit with another advisor/broker. Meanwhile, the original complaint remains on Claimant's BrokerCheck and CRD Reports even though the citation reads "closed, no action". Since the complaint was withdrawn, Claimant's alleged culpability does not really need to be judged here. Based on the customer's own action, the claim is clearly erroneous, and the Claimant was not involved in any wrongdoing. Relying on the merits, the evidence is clear that there is no question that the expungement request should be granted.
Bill Singer's Comment
Every so often, a FINRA Arbitrator manages to get it all right, and when that happens, it's a thing of beauty to behold. Kudos to Arbitrator Biederman for an overall superb job in penning an Award that's replete with content and context so as to make it intelligible, and, further, offers a thoughtful rationale.
As Arbitrator Biederman explains, the customer at issue started out in 2006 as having granted discretion to Claimant Chen; however, in 2011, the customer had converted to a non-discretionary status. As Biederman aptly notes: "This meant that the customer's direction and compliance were necessary for any trading activity." Following the transition of the account to non-discretionary, the customer met with Claimant to strategize about his investments. As to the mechanics whereby any strategy was to be implemented, Arbitrator Biederman found that:
[D]uring the meeting, the customer told Claimant to make changes in his account that "limited exposure" but without any specific instructions as to actual trades to implement. Claimant attempted to elicit that information by attempting to contact the customer on multiple occasions but to no avail. During this period and upon the customer's return, the account in question absorbed significant losses and the customer filed a complaint alleging "failure to follow instructions". . . .
For whatever reasons, the customer seems to have initially complained to JP Morgan about Chen's alleged failure to follow instructions -- despite that no actual instructions were transmitted. Thereafter, the customers seems to have reconsidered his allegations and in what comes off as a sincere expression of his remorse, he "dropped the complaint while remaining a customer of Respondent albeit with another advisor/broker." Well, okay, the remorse was a tad strained and tempered, but, if you look carefully, you can see it, sort of, well, look again -- okay, so now you see it? So the withdrawn customer complaint gets posted on Claimant Chen's BrokerCheck and Central Registration Depository ("CRD") records even though JP Morgan deemed the matter to have been "closed, no action." And all of that stays on Chen's industry record until -- well, you know, until he can afford to hire a lawyer and try to make it all go away. And if you don't have the bucks to hire the legal talent, well, welcome to Wall Street's equivalent of the half-life of xenon-124.
Compliments to Chen's legal team of Dochtor Kennedy, MBA, J.D. and Erica Binnix, Esq., AdvisorLaw, LLC. https://advisorlawllc.com/