Former Wells Fargo Advisors Senior Vice President Moves Federal Court to Undo 2017 FINRA Settlement

1. On three occasions, once in November 2012 and twice in April 2013, Respondent Robert Edward Loftus deposited checks that were drawn on his personal checking account into the brokerage account that he held with his member firm employer. Wells Fargo Advisors, LLC ("Wells Fargo''), when he knew or should have known that he lacked sufficient funds to cover the checks.

2, Loftus deposited the worthless personal checks in order to benefit temporarily from the "float'' on the checks (i. e., to derive the use and benefit of the funds from the time they were credited to his account until other funds were deposited into the account). and. more specifically. to artificially inflate the balance in his Wells Fargo account and prevent four checks that he had written against his Wells Fargo account from bouncing. Wells Fargo paid the four checks in reliance upon the artificially inflated balance in Loftus's Wells Fargo account. 

3. By engaging in this conduct. Loftus failed to observe high standards of commercial honor and just and equitable principles of trade in the conduct of his business, in violation of FINRA Rule 2010.

The FINRA Rules also create a comprehensive process for the review of any adverse disciplinary action. After FINRA's Department of Enforcement files a complaint, an appointed hearing panel makes an initial determination on the issue. FINRA Rule 9213(a)-(b). Next, an aggrieved party may appeal the hearing panel's decision to FINRA's National Adjudicatory Council, which may affirm, reverse, or modify the decision. FINRA Rule 9349(a). The aggrieved party may then petition the SEC for it to review that determination, 15 U.S.C. § 78s(d)(2), after which a further appeal lies to the relevant United States Court of Appeals, 15 U.S.C. § 78y(a)(1). 

As part of its disciplinary responsibilities, FINRA is statutorily required to maintain a database of its disciplinary actions. 15 U.S.C. § 78o-3(i)(5). It does so through its Central Registration Depository ("CRD"), portions of which, including final regulatory actions, are made available to the public through the BrokerCheck tool on FINRA's website. See BrokerCheck, FINRA, https://brokercheck.finra.org/; see also 15 U.S.C. § 78o3(i)(1)(B) (requiring an SRO to make portions of CRD records public through a "readily accessible electronic or other process"). 

Loftus has transparently failed to follow Congress's prescribed administrative process for challenging a FINRA enforcement action and this Court therefore lacks jurisdiction to review plaintiff's disciplinary order at all, let alone order its expungement. See, e.g., Santos-Buch v. Fin. Indus. Regulatory Auth., Inc., 591 F. App'x 32, 33 (2d Cir. 2015). 

[L]oftus claims that he "is not challenging a disciplinary action of FINRA" at all, and instead "is only seeking a ruling from this Court that FINRA should have granted him a hearing in which to have his request for expungement adjudicated." (Plt.'s Resp. at 10, ECF No. 21.) As an initial matter, this representation is inaccurate: much of Loftus's complaint is devoted to relitigating the facts of his 2017 disciplinary proceeding (see Compl. ¶¶ 19-41), and he repeatedly requests that this Court "look at the underlying facts for the disciplinary proceeding, and make a determination that the Plaintiff did not engage in 'check kiting', and therefore merits the expungement of the record." (Plt.'s Resp. at 12; Compl. ¶¶ 52, 64.) As explained above, the Court has no jurisdiction to consider these arguments. 

However, to the extent plaintiff alleges a right to a FINRA expungement hearing enforceable through a private cause of action, such a claim is indeed independent of the merits of his disciplinary proceeding and not subject to administrative exhaustion. See Santos-Buch, 591 Fed. Appx. at 34. However, Loftus has failed to establish any legal entitlement whatsoever to such a hearing. 

[F]INRA, a private corporation and self-regulatory organization, is not a state actor, and courts have spoken in one voice in rejecting attempts to challenge its enforcement actions on the basis of due process. See, e.g., Santos-Buch, 32 F. Supp. 3d at 484-85 ("[T]he Second Circuit has repeatedly held that [FINRA] is a private actor."); see also D.L. Cromwell Inv., Inc. v. NASD Regulation, Inc., 279 F.3d 155 (2d Cir. 2002); Perpetual Sec., Inc. v. Tang, 290 F.3d 132, 138 (2d Cir. 2002); Desiderio, 191 F.3d at 206.

The only "newly discovered evidence" Loftus highlights is the NAC' s denial of his appeal. This is categorically not newly discovered evidence that would satisfy the strictures of Rule 60(b )(2) because it is not evidence that "existed at the time of trial or other dispositive proceeding." Teamsters, 247 F.3d at 392. Indeed, Loftus initiated his appeal to the NAC after this Court dismissed his suit and in response to that dismissal. (See Mot. at 4, ECF No. 26.) Such evidence is therefore insufficient to warrant Loftus relief from judgment under Rule 60(b )(2). 

The Court reiterates that FINRA is "a private corporation and self-regulatory organization, . . . not a state actor, and courts have spoken in one voice in rejecting attempts to challenge its enforcement actions on the basis of due process." Loftus, 202 WL 325773, at *5 ( collecting cases). Moreover, here lies no "manifest injustice": Loftus consented to the disciplinary order entered against him and waived his right to appeal that order. 

The Court therefore declines to use its equitable power to revisit its earlier opinion. 

IV. Conclusion 

Loftus' s motion for reconsideration and relief fails under Local Civil Rule 6.3 and Federal Rules of Civil Procedure 59(e), 60(b)(2), and 60(b)(6). It is hereby denied. 

• Loftus
• FINRA
• Offer of Settlement
• SDNY
• Expungement
• Due Process
• Arbitration
• Exhaustion of Administrative Remedies
• CRD
• BrokerCheck
• FRCP Rule 60
• NAC
• Newly Discovered Evidence
• Extraordinary Circumstances
• BrokeAndBroker
• Bill Singer