Arbitrators Find firm Liable for Negligent Supervision But Order Expungement for “Unnamed” Broker
Posted on Categories Arbitration Awards, ExpungementTags ,

By George H. Friedman, SAA Publisher & Editor-in-Chief

Although Credit Suisse is held liable for negligent supervision, the Arbitrators nonetheless recommend expungement of the claimant broker’s record (who was “unnamed” in the sense that he was not named as a party in the underlying arbitration).

The unanimous Award by an All-Public Panel in Marmaduke v. Credit Suisse Securities (USA) LLC, FINRA ID No. 18-02720 (Boca Raton, NY, Dec. 9, 2021), is a bit of a head-scratcher. How so? The Panel finds Credit Suisse liable for negligent supervision to the tune of $150,000 (Claimant had sought damages: “in a range between $975,523.00 and $8,024,714.00 to be determined by the Panel”). No relief was awarded for: “Claimant's remaining counts of breach of fiduciary duty, negligence, fraud, breach of contract, and violation of Section 10(b) of the Securities Exchange Act and rule 10b-5 of the Securities and Exchange Commission.” Yet, the Arbitrators recommend expungement of the complaint from the rep’s CRD record, an unusual situation even when the broker isn’t named as a respondent, finding that: “the claim, allegation, or information is factually impossible or clearly erroneous.”

Expungement Recommendation Explained

In a thoroughly explained Award, the Panel says:

“The preponderance of the evidence from Claimant, the Unnamed Party … and other witnesses, shows that Claimant had a history of investing in bonds, money markets, etc. and that he repeatedly rejected Unnamed Party[]’s suggestions of various combinations of lower risk investments. Claimant says that he was averse to the risks involved in equities, bonds, etc., but he was adamant in his demand for returns than were higher than the low-risk securities like bonds, money markets, etc. Claimant’s demands for alternatives were reinforced by his strong opinions regarding the alleged weakness of the American economy and the Dollar in particular. Claimant emphasized his desire for offshore investments as a hedge against America’s financial future. To that end, he investigated and made a South American investment after making trips to Panama and South America.

“The testimony and emails also reveal Claimant feared that the United States was falling behind the Chinese economy. The evidence shows that Claimant was interested in China as a hedge against America’s weak future before Unnamed Party … recommended the alternative investment in the Chinese economy. Claimant made a short-term investment in gold but rejected precious metals as an alternative investment. Retrospectively, Claimant acknowledged that he was wrong, and Unnamed Party …was right about the current American economy. Respondent’s exhibits show that Unnamed Party … provided Claimant with extensive information regarding the alternative investments at issue; his only complaint against Unnamed Party[] was that he did not break it down and make it clear enough to prevent him from making the alternative investments, which appears to be a classic case of buyer’s regret.

 

“Based upon the evidence before the Panel and the testimony regarding Unnamed Party[]’s clean record over an extended career, the Panel has granted the request for expungement.”

Some Conjecture

At first blush, we thought the Award was logically inconsistent. While we recognized that the bulk of the compensatory damages claims were denied, we initially found it hard to see how the Panel could find CS liable for negligently supervising the unnamed rep while at the same time recommending expungement. But after thinking about it, we’re not so sure. This language in the Award is instructive: “In considering expungement, the Panel relied on the following evidence: the testimony of Claimant and other witnesses for Respondent, especially the Branch Manager, regarding management’s supervision of Claimant’s account, or lack thereof ….” In this case, the unnamed rep also had a willful client and a clean record going for him.

(ed: *As we said up front, this is just conjecture. **The “Unnamed Party” was, of course, identified by name in the Award; otherwise, it wouldn’t be possible for FINRA to execute the expungement recommendation, but we saw no need to mention that name here. ***We invite readers to share their thoughts at George@SecArbAlert.com.)