Explained Award: AP Bats .500 on Two Expungement Requests
Posted on Categories Arbitration Awards, Expungement, Professional ConductTags , ,

An arbitrator grants one request for expungement but denies another, with a multi-paragraph explanation for the latter ruling.

Lombardo v. Joseph Gunnar, FINRA No. 20-00011 (New York, NY, Aug. 7, 2020), an Associated Person vs. Member dispute, was administered under the Special Proceeding option for simplified cases. Using the soon-to-be eliminated “$1 trick” the Claimant AP sought expungement under FINRA Rule 2080(b)(1)(A): “the claim, allegation, or information is factually impossible or clearly erroneous.” The deceased Customer’s estate did not participate, nor did the firm (which did not oppose the expungement request).

One Customer Complaint Expunged …

In recommending expungement of one Customer complaint, sole Public Arbitrator Brian John Gallagher states: “Claimant testified that the customer maintained a non-discretionary account in which he traded tech stocks during 1998-2001, following the recommendations of a popular tech analyst named Richard Skelton. The customer initiated all trades and received confirmations and statements without any complaint. Claimant and another tech analyst recommended to the customer that he pursue a more diversified and balanced investment strategy (including preferred stocks, mutual funds, etc.). The customer declined, wishing to invest only in tech stocks following Skelton’s published recommendations. The customer also maintained other accounts at other firms and did ‘exceptionally well’ until the tech crash in 2000. He then closed his account. In 2005, Respondent advised Claimant that the customer had complained of ‘Poor Performance.’ Respondent investigated and denied the claim. An abandoned complaint of ‘Poor Performance’ of a non-discretionary OTC portfolio during a down market does not implicate any misconduct and does not appear to present any meaningful investor-protection or regulatory value.”

… But Another Denied

Having recommended expungement of one complaint, the Arbitrator denies another largely based on a failure of proof: “Given Claimant’s history with Respondent as reported on the CRD, it appears that Respondent did not consider Claimant to be at fault. The prompt settlement could be described as ‘nuisance’ value. Respondent did not demand any contribution from Claimant as it had in two other settlements, and it did not report the matter until two years later and then only because the SEC wanted a report on Claimant’s CRD. However, it cannot be ignored that the SEC – with access to a more complete documentary record than is available here – determined that disclosure would further meaningful investor protection and ordered the complaint listed on Claimant’s CRD. Unfortunately, due to the passage of time and the loss of records, Claimant was not able to present documentary support for his claims regarding the nature and conduct of the account or the customer’s allegations .... Given the contrary SEC action and lacking any documentary support, Claimant could not prove the negatives required by Rule 2080.”

 

(ed: Seems to us that the Arbitrator was sympathetic to the AP’s position on Count no. 2, but was constrained by the requirements of Rule 2080 and the loss of evidence over the years.)