Explained Award Features Settlement and Hearing, Dismissal of Claims and Expungement Dissent
Posted on Categories Arbitration, Arbitration Awards, Broker-Dealer, Professional Conduct, Securities ArbitrationTags , , , , ,

For this case to unravel the way it did required that the Claimants pursue both the brokers and the firm as Respondents. Thats not terribly common in FINRA arbitration, and less common is the further example of a broker fighting the claims after the firm settles. We remark, then, as much on the case dynamics here, as we do the Panel’s dismissal and the Majority’s support for expungement relief.

Adelman v. Grobman, FINRA ID #17-01069 (Phila., 6/7/19), involved claims of fraud, breach of fiduciary duty, federal and state statutory claims, and negligence, among other things, but the “Case Summary” section of the Award is bare-bones, providing no clue as to the nature of the dispute. Claimants Ira and Robin Adelman named Oppenheimer & Co., Inc. and two brokers, Richard Grobman and Stephen Todd Walker. The claimed compensatory damages exceed $50,000, thus justifying a three-person Panel, but, by the time of hearing (and subsequent to Oppenheimer settling out), Claimant was asking for $25,538. Respondent Grobman was represented by counsel, but did not answer or sign a Submission Agreement. Within a few months of the commencement of the case, Claimants dismissed their claims against Mr. Grobman and, while he did not seek expungement relief, he did apparently appear and testify at hearing.

Merits Hearing Post-Settlement

The merits hearing in this matter took place from March 12-15, 2019, by which time Oppenheimer and the Claimants had entered into a settlement agreement. That left broker Walker (ed: now at a different firm, according to BrokerCheck) as the only Respondent and he wanted expungement relief, as well as a dismissal. Accordingly, rather than issuing an Award after the merits hearings concluded, the Panel held a separate telephonic expungement hearing on May 13, 2019. The “Award” section of the Panel’s decision deals with the two issues separately as well, the Panel first denying Claimants’ claims “in their entirety” and, then, granting expungement relief to broker Walker. The latter relief was issued by a Majority of the Panel, as one of the three Public Arbitrators dissented. Of interest, we thought, was the appearance of Robin Adelman and her counsel, not only at the merits hearing, but at the follow-up telephonic hearing on expungement. Counsel not only appeared, but made an opening statement, cross-examined Mr. Walker, introduced evidence through Ms. Adelman, and made closing arguments.

Panel’s Explanation/Majority View

The two-page explanation in the Award indicates at the outset that Panel unanimity led to the dismissal of all claims. Only a majority deemed the claims “false,” for purposes of FINRA Rule 2080. At the heart of the claims was the purchase of 2,500 shares of Duff and Phelps Select Energy MLP Fund at a cost of $50,000, the Panel reveals. The Panel reviewed the entire portfolio, Claimants’ financial circumstances at the time, their investment experience and savvy, email communications from Claimants, the fact that the investment produced a 6% return for Claimants, Morningstar ratings, and adjudged the investment suitable. It further found that “Respondent Walker recommended the Fund in good faith, not for some nefarious undisclosed reason.” The Panel also determined that “Walker was subject to the suitability standard, not the fiduciary duty standard.” He did not occupy a trustee’s role or manage any ERISA investments for the couple. Deeming reliance on a fiduciary duty “clearly erroneous,” as well as claims that the broker inflicted emotional distress, either intentionally or negligently, the Majority concluded that expungement was appropriate.

Dissent Notes CRD Omission

Arbitrator Mary S. Wyatte submitted a dissent. It was clearly limited to the expungement issue and relied on two factors. First, she wrote, “...expungement should be denied in order to preserve the transparency and integrity of the CRD system.” Secondly, the instant case did not accord with the requirements of Rule 2080. “Although the legal basis for Claimants’ complaint was clearly without merit, the facts upon which the complaint is based, for the most part, were not false or erroneous.” The first explanation regarding transparency drew our attention, because, as the dissent notes, “Mr. Walker currently has two disclosures on his CRD which involve complaints similar to Claimants’ complaint.” We checked the CRD through BrokerCheck, since, as we have previously noted (SAA 2019-19), settlement amounts are often posted by FINRA on the “Disclosure” record between the time an arbitration Award issues and the time expungement relief is confirmed by a court. In this case, we discovered, as the dissent noted, there is no disclosure at all of this dispute, either as a customer complaint or as an arbitration claim. The same is true of Mr. Grobman’s CRD disclosures.

(ed: *Well, the probability that Oppenheimer never reported this case to the CRD saves some time and expense for Messrs. Grobman and Walker. We were wondering why Mr. Grobman, who evidently participated in the hearing and was early exonerated from claims by Claimants, did not apply for expungement relief. Easy, there was no need to.... **The Panel’s explanation indicates that out-of-pocket damages on the Duff & Phelps investment was negligible, given the dividends paid out each year, so that might excuse the reporting of a customer complaint. The initial arbitration claim, though, asked for damages in excess of $50,000, plus treble damages of $150,000, and attorney fees and costs. ***That these two brokers had moved to other firms by the time this claim was filed in May 2017 identifies potential confusion as to who has the reporting responsibility, the Respondent firm or the new employer. In any case, we think the dissenting Arbitrator has a point about “transparency.”)

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