It's a somewhat dirty, little secret on Wall Street that virtually all disputes against FINRA member firms are subject to mandatory arbitration before FINRA's arbitration forum. There are some notable exceptions, but those carve-outs were imposed upon the industry amid much gnashing of teeth. Not only is the securities industry afforded the luxury of washing its dirty laundry in its own washing machine but many of the arbitration rules promulgated by FINRA resort to nebulous terms and invoke subjective factors. Making matters worse for defrauded investors or mistreated employees, FINRA's default protocol is to not provide explained decisions from its arbitration panels. Which means that trying to decipher some decisions is often a guessing game as to why a Claimant did or didn't win -- assuming that you can even figure out just what winning means.

TD Ameritrade Customer Files Arbitration Claim

On November 29, 2022, public customer Adam Strege filed a FINRA Arbitration Statement of Claim against FINRA member firm TD Ameritrade, Inc. and a bank (a non-FINRA member). In the Matter of the Application of ADAM STREGE for Review of Action Taken by FINRA (SEC Opinion, '34 Act Rel. No. 99267, Admin. Proc. File No. 3-21253 / January 3, 2024)
https://www.sec.gov/files/litigation/opinions/2024/34-99267.pdf
In somewhat pertinent part, the SEC Opinion offers this context:

[A]lthough not entirely clear from his statement of claim, he appears to have alleged that TD Ameritrade violated FINRA rules because its employees recommended that he open a margin account, even though it does not offer a function for setting stop-loss orders per day and per position. Strege alleged that he lost around $38,000 due to his use of a margin account that lacks such a function, as he repeatedly pressed “Buy” even when he only intended to press it once, and he has a disability that prevents him from being able to set a stop-loss order manually for each trade. Strege also alleged that TD Ameritrade violated the Americans with Disabilities Act by failing to provide the requested stop-loss function as a reasonable accommodation for his disability. Strege further alleged that TD Ameritrade provides incorrect buy and sell prices and that TD Ameritrade did not place “many of the trades” that it had claimed to place. And Strege alleged that TD Ameritrade “murders its customers to rob their brokerage accounts.”

Strege’s statement of claim also made some other unusual allegations that were seemingly unrelated to his claims against TD Ameritrade and the bank, such as an allegation that he had filed a lawsuit accusing his employer and mother of murdering four congressmen and committing various other crimes. And Strege attached to his statement of claim a 104-page document entitled “Email sent to 30 million People” that made many extraneous assertions that are difficult to follow. Among other things, the email referred to numerous acts of violence (although seemingly never any violence committed or contemplated by Strege himself) and asserted that Strege was falsely arrested based on untruthful claims that he threatened the Social Security Administration.

at Page 2 of the SEC Opinion

As the SEC Opinion further asserts, a FINRA senior case specialist informed Strege that his Statement of Claim required additional disclosures and information, which seemingly prompted Strege to file an Amended Statement of Claim. Thereafter, on December 1, 2022, the FINRA specialist sent a second letter to Strege requesting information; and, contemporaneously with that letter:

[T]he senior case specialist sent Strege a letter stating in pertinent part: “FINRA has determined that pursuant to FINRA Rule 12203(a), the Director denies the use of the forum.” The signature block in this letter indicated that it was from the Director of FINRA Dispute Resolution Services, even though the letter’s “From” line listed the senior case specialist’s name and title.

at Page 3 of the SEC Opinion

In response to Strege's effort to appeal the denial of FINRA's forum, a FINRA regional director wrote to Strege on December 5, 2022, that there was no appeal process by which the Director's denial of the forum could be challenged. On December 6, 2022, acting pro se, Strege filed an appeal of FINRA's denial-of-access to the SEC.

Unspecified Risk to Health or Safety

Although FINRA had apparently asserted its Rule 12203(a) in support of its Director's decision to deny Strege the use of its arbitration forum, the self-regulatory-organization oddly failed to cite the specific conduct by Strege that triggered resort to the Rule. 

SIDE BAR: FINRA Code of Arbitration Procedures for Customer Disputes Rule 12203:

(a) The Director may decline to permit the use of the FINRA arbitration forum if the Director determines that, given the purposes of FINRA and the intent of the Code, the subject matter of the dispute is inappropriate, or that accepting the matter would pose a risk to the health or safety of arbitrators, staff, or parties or their representatives. Only the Director may exercise the authority under this Rule. . . .

FINRA barred its arbitration forum to pro se Claimant Strege based upon a citation raising the concerns of a "risk to the health or safety of arbitrators, staff, or parties . . ." but FINRA never proffered a formal explanation as to the nature of Strege's conduct that allegedly posed the requisite risk.  FINRA's conduct comes off as an example of conclusory bureaucratic arrogance at its worst. It's just another case of "because we say so." 

FINRA's Denial Letter Provides Inadequate Basis for SEC Review

In parsing through the respective positions of FINRA and Strege, the SEC Opinion admonished FINRA, in part, as follows [Ed: footnotes omitted]:

However, the denial letter does not explain why the Director decided to deny use of the forum, other than by citing Rule 12203(a). The letter does not indicate, for example, whether the Director denied use of the forum on subject-matter grounds or health-and-safety grounds. In its opposition to Strege’s application for review, FINRA attempts to explain the Director’s decision to deny use of the arbitration forum, stating that the Director issued the denial on health-and-safety grounds. FINRA’s brief acknowledges that Strege “did not directly threaten physical violence against a party, arbitrator, or FINRA employee,” but it argues that “[b]ased on the consistent theme of violence in Strege’s claims, including allegations of violence by the parties to the arbitration, the Director reasonably exercised his discretion in determining that permitting Strege to proceed to arbitration could pose a safety risk to arbitrators, parties and their representatives, and FINRA employees.”

Even assuming that the Commission determined to consider the brief’s explanation for the Director’s decision, it does not provide an adequate basis for us exercise our review function to determine the questions raised in this appeal. For example, FINRA’s brief does not address whether, as one possible option, Strege’s arbitration hearing could be held remotely and, if so, whether that would mitigate any health or safety risk. Accordingly, we remand the proceeding to FINRA so that it can consider in the first instance this or any other issue that it finds to be relevant. In doing so, we express no opinion on the underlying merits of FINRA’s decision to deny access to its arbitration forum. 

at Pages 5 - 6 of the SEC Strege Opinion

The Limited Review

The SEC Opinion acknowledges and references a number of filings and arguments made by Strege that the federal regulator declined to consider. In part, the Opinion asserts that [Ed: footnotes omitted]:

Although not entirely clear, some of Strege’s filings also seem to allege freestanding substantive claims against FINRA and the Commission. For example, Strege states in one filing that “[the Commission] and FINRA both do nothing to help poor people and disabled people Trade,” and he states in another filing that he might file a federal lawsuit alleging that the Director and the Commission “conspire to Murder people to rob the[ir] Brokerage Accounts” and “FINRA and [the Commission] are acting without Jurisdiction.” But, again, our review is limited to FINRA’s denial of access to its arbitration service. This administrative proceeding is not the proper forum for requesting that we alter our oversight of FINRA or its policies. Nor, similarly, is this administrative proceeding the appropriate forum for challenging the Commission’s substantive policies or actions, as again it solely concerns Strege’s application for review of a particular FINRA action.

at Page 7 of the SEC Opinion

SEC Remands to FINRA

Accordingly, the SEC ordered that the proceeding be remanded to FINRA "because we are unable to determine the basis for FINRA's action and therefore cannot determine whether FINRA's action complies with these requirements." at Page 4 of the SEC Opinion. 

Bill Singer's Comment

In Strege, FINRA exercised its powerful prerogative but without creating a record upon which its justification was based. If this were a one-off gaffe or hiccup, it would be one thing; however, FINRA often renders decisions lacking in explanations to the chagrin of more than a few courts. Although FINRA's lackluster Board of Governors should have long ago taken note of this recurring issue and demanded reforms, it has not. This is not the first instance of an unexplained decision bouncing back into the regulator's lap. FINRA's Governors are charged with overseeing the self-regulatory-organization but fail consistently fail to speak up, speak out, and demand accountability. Those who should demand better at FINRA just don't seem to give a damn. 

Also see: 

Former Merrill Lynch Rep Stuck In FINRA Arbitration Expungement Turnstile (BrokeAndBroker.com Blog / January 2, 2024)
https://www.brokeandbroker.com/7213/finra-ingle-sec-expungement/
In a recent case on appeal to the SEC, it turns out that FINRA had accepted a former Merrill Lynch registered representative's Arbitration Statement of Claim and charged him for said filing. Then FINRA moved his case forward towards discovery and hearing dates. A FINRA arbitrator held an evidentiary hearing. About a week after the hearing, but before the arbitrator issued an award, a FINRA Case Administrator sent the Claimant-rep a letter denying use of the FINRA arbitration forum. The Claimant had entered FINRA's expungement turnstile but then was trapped inside it.

An Unsympathetic Federal Court Sustains Unexplained FINRA Arbitration Award (BrokeAndBroker.com Blog / December 27, 2023)
https://www.brokeandbroker.com/7194/buck-compton-finra-6cir/
And as one year fades away and a new one looms over the horizon, we come upon yet another mandatory FINRA arbitration that was adjudicated pursuant to an unexplained award. Mandatory arbitration or not, explained decision or not, it's hard to muster much, if any, sympathy for the losing industry respondent in a 2022 FINRA Arbitration that recently wound up before a federal appellate court. 

JP Morgan Securities Ordered To Pay $1.4 Million In Damages In Unexplained Arbitration (BrokeAndBroker.com Blog / September 21, 2023)
https://www.brokeandbroker.com/7166/jpms-finra-unexplained/

Federal Court Can't Find Any Basis For FINRA Arbitration Decision In HSBC Managing Director Case (BrokeAndBroker.com Blog / February 10, 2022)
https://www.brokeandbroker.com/6280/finra-gross-expungement/

UPDATE: No Rationale And No Explanation In FINRA Arbitration Decision (BrokeAndBroker.com Blog / July 20, 2020)
https://www.brokeandbroker.com/5331/finra-reserved-decision/

The BrokeAndBroker.com Blog Unexplained Decision Archive: 
https://www.brokeandbroker.com/index.php?a=topic&topic=explained-decision