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Registered Reps
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If a Customer Arbitration Goes Badly, Advisors and Firms Must Work Together to Salvage the Situation |
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Thursday, April 25, 2013 14:21
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In FINRA arbitrations brought by disgruntled customers, Claimants routinely sue both the rep and the firm. If the arbitration Panel issues a severe Award against you that makes no sense, your only recourse may be to bring a civil lawsuit demanding the Award be vacated pursuant to the Federal Arbitration Act. The question arises however: what happens if you want to sue to vacate, but your firm just wants to pay up and move on--can you move forward alone?
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Recently, a Federal Court in Michigan issued a decision that bears directly on this issue. In Intervest International Equities Corporation v. Aberlich, (12-CV-13750, E.D. Mich.) Defendant Aberlich was an investor who obtained a large damage Award against several parties in an underlying FINRA arbitration. After the decision was issued, Intervest filed a civil lawsuit to have the decision vacated. Aberlich sought to have Intervest's case thrown out, arguing that because not all of the Respondents in the underlying FINRA case had joined the lawsuit, the judge did not have the authority to take up Intervest's action to have the Award thrown out.
The judge agreed with Aberlich, finding that it was essential that all the same parties to the FINRA case also be parties to the lawsuit challenging the Award, and that the court could not provide complete relief without all the same parties being in the new case. The court reasoned that, because Claimants and all the Respondents agreed to be bound by the Award by virtue of their Arbitration Agreement, it could not consider whether the Award should be vacated or confirmed without all the Respondents from the arbitration participating in the challenge, and that to rule otherwise would be prejudicial to both the Claimants and the non-participating Respondent.
This decision has important implications for your professional reputation in the event you are sued in a FINRA customer arbitration. In the event the Award does not go your way, and you want to file a lawsuit to get the decision overturned, your firm will have to agree to participate in the separate lawsuit. Absent that participation, you may be stuck without a remedy, much like Intervest was in this case. Having a frank discussion early on with your firm's legal department about its willingness to challenge a negative Award in the event the arbitration goes badly will help inform your litigation strategy, and whether you have a need to retain separate counsel to represent your interests.
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FINRA Considers Proposal Mandating Greater Consumer Access To BrokerCheck Through Web Links |
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Monday, September 24, 2012 11:43
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Tags: broker-dealers | FINRA | registered reps | regulation FINRA has drafted a proposal mandating that broker-dealer websites contain a link to its BrokerCheck system. The proposed amendment would also cover any website maintained by or on behalf of anyone associated with of member firms. This Website Is For Financial Professionals Only
The move makes it clear that FINRA wants consumers to have greater awareness of and access to BrokerCheck. FINRA is also weighing what additional information should be included on the public database.
There was considerable pushback in February of 2012 on an effort to include broker test scores. So much so that FINRA chief Richard Ketchum declared in May that FINRA had no interest in collecting such data.
But investment-related civil actions brought by a state or foreign regulatory body against those associated with a suit that has been dismissed because a settlement agreement was reached may become permanent information on BrokerCheck records.
Currently, many of the 4379 FINRA licensees provide no links to BrokerCheck, nor do broker profiles listed by firms.
BrokerCheck shows work profiles and regulatory histories of both current and former registered reps and broker-dealers.
FINRA has been searching for ways to better inform investors about broker and firm regulatory histories to equip investors with improved due diligence capability.
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Broker Says Record That Shows Investor Complaints Totaling $1.4 Million Should Be Expunged Out Of Fairness And A California Appeals Court Agrees |
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Thursday, September 06, 2012 11:56
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Tags: Dodd-Frank | FINRA | regulation The Financial Industry Regulatory Authority says that stringent criteria must be met before a broker can have a complaint from a client expunged from his or her record. On August 23, a California court completely upended that requirement. This Website Is For Financial Professionals Only
The First Appellate District in San Francisco said that a broker can seek to have a complaint expunged simply based on fairness or equity. Other authorities say this could damage the disclosure system in the financial industry.
They expect to see a jump in expunged records as a result of the ruling and say that it could open the floodgates for expungement requests outside the state of California, as well, since brokers would no longer be bound by FINRA rules.
The broker who brought his case before the court claimed that FINRA’s BrokerCheck reporting system damaged his career. He claimed that 13 of the 17 complaints had to do with the same investment and that his clean record since 1997 merited removal of the complaints.
FINRA has fought the broker’s attempts to have the complaints removed and a state court late last year denied his request to do so.
The appeals court ruled, however, that removal was not solely controlled by FINRA regulations. The court sent the broker’s case back to the trial court for another hearing.
FINRA thinks the broker’s record should retain the fact that he defended almost $1.4 million in investor claims against him, even though his clean record since indicates the equivalent of time served.
The expungement question has come more into focus as greater transparency about broker disciplinary action has been disclosed to the public.
FINRA began disclosing all complaints in August 2010 regardless of how long ago they occurred. The Dodd-Frank Act mandates that information disclosed to the public about brokers should even include their exam scores, any broker termination information, and other historical data on the BrokerCheck system.
In an investor climate that is still reeling from the shenanigans of Madoff, Stanford, and others, it seems ludicrous to think that such records could be discharged simply because a broker cries, 'That's not fair!'
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Merrill Lynch Discrimination Suit Gets Class Action Status |
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Monday, February 27, 2012 17:46
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Tags: Merrill Lynch Brokers who claim Merrill Lynch steered them into less lucrative practices now have formal clearance to combine their interests in a class action suit.
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Roughly 700 African-American reps who worked at Merrill have signed onto the suit over the last six years, arguing that the firm pushed them away from top accounts and into support positions.
However, Merrill has fought back with claims that it's a "progressive" company that didn't want to foster any sort of racist environment.
The lastest round goes to the brokers. Circuit Court judge Richard Posner says he "has trouble seeing the downside" in allowing a class action suit to proceed.
As he points out, what Merrill wanted is irrelevant. If it used race as a factor in human resources decisions, it rings the discrimination warning bells.
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California Advisor Stole $3 Million From Clients, SEC Alleges |
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Wednesday, February 22, 2012 15:00
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Tags: sec | securities fraud Modern Ponzi schemes normally create at least the illusion that there's a unique investment product to tempt victims. However, there are always exceptions.
This Website Is For Financial Professionals Only
The SEC argues that Brenda Eschbach simply took $3 million in fresh client funds and deposited them in her own account.
There was apparently a bit of hype about "private non-traded real estate investments," but the vehicles never existed -- Eschbach allegedly asked clients to write out checks to herself or a shell company, which she cashed.
She also appears to have posed as transfer agent for these "private REITs."
When a client wanted his money back, the scheme unraveled very quickly.
One unusual note: the SEC is taking the rare step of keeping Eschbach's broker-dealer affiliations out of the official complaint.
Whether this indicates that they are still looking into potential failures to supervise or simply don't want to entangle innocent institutions in this mess remains to be seen.
However, Eschbach's affiliations are a matter of public record: the troublesome transactions started when she was an Ameriprise rep and continued into her two-year tenure with Purshe Kaplan.
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