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A Customer Complaint That Wasn't and A Servicing Broker Who Wasn't
May 6, 2022
There are those investor advocates who detest FINRA's expungement program because they fear it launders Wall Street's dirty linen. Frankly, that's a fair concern. Unfortunately, there are cases when a stockbroker was wrongly named in a complaint or the allegations raised are absurd. Then what? FINRA's answer is to resort to an arbitration process that forces the victim to shoulder significant forum fees and legal costs as the price of entry. It may be a nice cash register for the self-regulatory-organization but that doesn't justify placing a regulatory matter before an arbitration panel. It's not sound investor protection. It's not affordable remediation for a victimized stockbroker.
Case In Point: Keever
In a FINRA Arbitration Statement of Claim filed in September 2021, associated person Claimant G. Ward Keever sought the expungement of a customer dispute from his Central Registration Depository record ("CRD"). Respondent LPL Financial LLC supported the expungement request.
In the Matter of the Arbitration Between G. Ward Keever, Claimant, v. LPL Financial LLC, Respondent (FINRA Arbitration Award 21-02449)
https://www.finra.org/sites/default/files/aao_documents/21-02449.pdf
https://www.finra.org/sites/default/files/aao_documents/21-02449.pdf
The customer at issue was notified about the pending FINRA Expungement Hearing but did not participate. Respondent LPL participated in the videoconference hearing. In recommending expungement, the sole FINRA Arbitrator made a FINRA Rule 2080 finding that the customer's claim, allegation, or information is factually impossible or clearly erroneous, and false. In recommending expungement, the Arbitrator offered this rationale:
The customer became a client of Claimant in 2005 by opening a fee based, discretionary account. Her investment objectives were growth and income with a moderate risk tolerance and a long-term perspective. Claimant met with the customer frequently over time in order to develop a financial plan that would diversify her existing investments. Claimant recommended and purchased investments that were entirely suitable for the customer. The account was profitable. Nevertheless, the customer's daughter complained to the firm in 2021 alleging excess commissions and unsuitability. The firm investigated the complaint and denied it with no subsequent action being taken by the daughter. The Occurrence should be expunged on the ground it is clearly erroneous and or false. Since the customer had a fee-based account there were no commissions charged. Moreover, the customer herself never had any cause to object to any purchases or sales in her account, which, as noted, was profitable over time and which were suitable for her given her objectives and risk tolerance
FINRA assessed the following fees:
Claimant Keever:
- $1,600 initial claim filing fee
- $2,300 in hearing session fees
Respondent LPL Financial:
- $2,000 Member Surcharge
- $3,850 Member Process Fee
Case In Point: Amato
In a FINRA Arbitration Statement of Claim filed in September 2021, associated person Claimant Joseph Amato sought the expungement of two settled customer disputes from his Central Registration Depository record ("CRD"). Respondent Alexander Capital, L.P. supported the expungement request.
In the Matter of the Arbitration Between Joseph Amato, Claimant, v. Alexander Capital, L.P., Respondent (FINRA Arbitration Award 21-02257)
https://www.finra.org/sites/default/files/aao_documents/21-02257.pdf
https://www.finra.org/sites/default/files/aao_documents/21-02257.pdf
The customers at issue were notified about the pending FINRA Expungement Hearing but did not participate. Respondent LPL participated in the videoconference hearing. In recommending expungement, the FINRA Arbitrator Panel made a FINRA Rule 2080 finding that the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. In recommending expungement, the Panel offered this rationale:
[A]mato, was not the broker for either Customer. He did not supervise the brokers who handled the Customers' accounts and had no interactions with either Customer.
FINRA assessed the following fees:
Claimant Amato:
- $1,600 initial claim filing fee
- $2,300 in hearing session fees
Respondent Alexander Capital:
- $2,000 Member Surcharge
- $3,850 Member Process Fee
Bill Singer's Comment
In Keever we have a complaint filed in 2021, but the complaint was not a "customer" complaint but one filed by the customer's daughter. Frankly, I don't understand why a non-customer complaint found its way onto Keever's CRD. An independent FINRA Arbitrator found that the allegations raised by the daughter pertaining to excess commissions were ridiculous because "the customer had a fee-based account there were no commissions charged." As to the daughter's allegations about unsuitability, the Arbitrator found that "the customer herself never had any cause to object to any purchases or sales in her account, which, as noted, was profitable over time and which were suitable for her given her objectives and risk tolerance."
Notably, online FINRA BrokerCheck records as of May 6, 2022, disclose that Keever entered the industry in 1989 and joined LPL in 1999. Other than the 2021 complaint filed by a customer's daughter and denied by LPL, his record is unblemished.
In seeking to clear his name, Keever had to hire a lawyer at a cost which was likely not inconsiderable. And for what? For expunging a complaint that was not filed by a customer and that raised allegations found to be mistaken by an independent arbitrator. As to the non-lawyer fees incurred by the parties in the FINRA Expungement Hearing, Keever racked up $3,900 and LPL, $5,850. As a result, FINRA got paid $9,750. Nice bit of side biz for the self-regulatory-organization, no?
In Amato we have two customers complaining. and Alexander Capital resolved the matters with settlement; however, it does not appear that Amato paid one cent towards the settlements. The fascinating aspect of these customer complaints is that three independent FINRA Arbitrators found that "Amato, was not the broker for either Customer. He did not supervise the brokers who handled the Customers' accounts and had no interactions with either Customer."
Notably, online FINRA BrokerCheck records as of May 6, 2022, disclose that Amato entered the industry in 1997 and was registered with Alexander Capital from March to December 2012. Under the heading "Customer Dispute - Settled" (which may be the matter or matters recommended for expungement), Alexander Capital received a complaint alleging "failure to supervise" from April 2012 through November 2016 and seeking over $231,000 in alleged damages. That complaint was settled for $13,000 and without any contribution from Amato, who asserted from the start that he had been "incorrectly named," which now seems to be affirmed by a panel of three independent FINRA arbitrators. Under the heading "Customer Dispute - Pending" is another failure-to-supervise allegation for the period June 2016 to December 2019 seeking over $68,000 in damages, which Amato defends by noting that he "was not the Registered Representative, nor the Supervisor."
In seeking to clear his name, Amato had to hire a lawyer at a cost which was likely not inconsiderable. And for what? For expunging two customer complaints that were not filed by a customer of his and did not even involve the stockbrokers who were assigned to the two accounts -- and Amato had no interactions whatsoever with the two customers. As to the non-lawyer fees incurred by the parties in the FINRA Expungement Hearing, Amato racked up $3,900 and Alexander Capital, $5,850. As a result, FINRA got paid $9,750. Nice bit of side biz for the self-regulatory-organization, no?