Securities Industry Commentator by Bill Singer Esq

January 23, 2019

Customer Venting Is Not Unsuitable
In the Matter of the Arbitration Between Carolyn Song-Pegg, Claimant, v. Fifth Third Securities, Inc., Respondent (FINRA Arbitration Decision 18-02309 / January 21, 2019)
In a FINRA Arbitration Statement of Claim filed in June 2018, associated person Claimant Song-Pegg sought the expungement of a customer complaint from her Central Registration Depository record ("CRD").  Respondent Fifth Third Securities, Inc. did not oppose the requested expungement. The customer filed an Affidavit supporting Claimant's request but did not participate in the hearing. The Sole FINRA Arbitrator recommended expungment and made a FINRA Rule 2080 finding that the customer's claim, allegation, or information is factually impossible or clearly erroneous, and false. The Arbitrator offered this rationale:

The Claimant discussed the investing strategy with the customer, who had a high net worth. The customer was upset about a one-day drop in the investment and emailed the Clamant [sic] about his concern. He later said that he was only venting and never intended it to be a complaint. He was happy with the Claimant and continued with the investment. 

Furthermore, he never said that the investment was unsuitable. That was the language used by Respondent. Therefore, the allegation is clearly erroneous. Moreover, the claim is false became the investment was suitable for a high net worth customer. In addition, there was never any real complaint and no settlement was necessary and no monies were paid out. 

Not Making the Cut
In the Matter of the Arbitration Between Devonne Kjellsen and Janet Kjellsen , Claimants, v. Morgan Stanley. Respondent (FINRA Arbitration Decision 17-03250  / January 21, 2019)
In a FINRA Arbitration Statement of Claim filed in December 2017, public customer Claimants asserted breach of fiduciary duty, negligence, and negligent supervision in connection with alleged recommendations by Respondent Morgan Stanley that were over concentrated in energy investments in violation of asset allocation and diversification standards. Claimants sought $85,000 in compensatory damages plus punitive damages, costs, and fees. Respondent Morgan Stanley generally denied the allegations and asserted various affirmative defenses. Respondent filed a Motion to Dismiss under FINRA Rule 12206, which the sole FINRA Arbitrator granted without prejudice to any right Claimants have to file in court. The Arbitrator found that the case was filed after FINRA's six-year eligibility period. 

Signing Off
In the Matter of Bruce Zaro, Respondent (AWC 2018057636001, January 22, 2019).
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Bruce Zaro submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, FINRA imposed upon Zaro a $5,000 fine and a two-month suspension from association with any FINRA--regulated broker-dealer in any capacity.  As set forth in part under the AWC heading "Facts and Violative Conduct":

In October 2017, Respondent signed his Firm customer's name on a Distribution Request associated with an IRA account established for the benefit of a living trust. The unauthorized signature caused the transfer of funds from the IRA account to another of the trust's accounts, instead of to the accounts requested by the customer. The resulting transfer also caused potential tax consequences for the accountholders. The Firm maintained the Distribution Request as part of its books and records. 

The customer discovered the unauthorized signature on the Distribution Request in or around December 2017 when reviewing her accounts, and complained to the Firm. The Firm was able to reverse the transfer and effect the requested distributions prior to the customer incurring any negative tax consequences. 

By signing his customer's name to the Distribution Request without the customer's knowledge or authorization, Respondent violated FINRA Rule 2010. By engaging in this conduct and submitting the Distribution Request to the Firm as an original, Respondent also caused the Firm to maintain inaccurate books and records in violation of Rule 17a-3 of the Exchange Act. In doing so, Respondent violated FINRA Rules 4511 and 2010.
The 2019 Letter identifies emerging issues for regulatory focus as a) online distribution platforms;
b) firms' compliance with FinCEN's Customer Due Diligence (CDD) rule; and
c) firms' compliance with their mark-up or mark-down disclosure obligations on fixed income transactions with customers.