Weighing in on all things financial services, top securities industry lawyer, Jenice L. Malecki, commented on two matters going on at the Financial Industry Regulatory Authority (FINRA).
First, under fire again, it looks like another FINRA arbitration is poised for potential vacatur because of the conduct of an over-reaching, advocatory-styled arbitrator who would not give a customer their day in court. A Florida state court is now entertaining a case where the Alabama Securities Commission is seeking to vacate an award that granted expungement of customer complaints from a UBS broker’s record.
Ms. Malecki discussed with Financial Planning Magazine how this is not only bad for the customer, but also bad for the broker. It taints the proceedings and runs up the bills unnecessarily. Moreover, this broker will also now have a hotly contested court case on his record when all he did was follow FINRA’s rules. The broker did not exclude the client, the arbitrator did. There needs to be a stronger and better monitored process at FINRA for the sake of all interested parties, as well as stronger monitoring of that process by FINRA – not just letting arbitrators act like self-appointed judges without oversight. Even the best judges in the world are subject to oversight, but FINRA arbitrators are not. The scenario presented is not shocking. It was just a matter of time before something like this happened, and FINRA should have seen this coming for years.
Given the state of Alabama’s and the National Securities Administrators Association’s strong positions on expungement, Ms. Malecki has also stated that she is not surprised that the State of Alabama intervened in the Florida confirmation proceeding for the award. That said, intervention like this is extraordinary, and it is Ms. Malecki’s expectation that this type of activism will only continue and grow.
When it comes to expungements of customer complaints, it is not a black and white issue as many industry players want the public to believe, particularly when anyone can file an unverified complaint against a financial professional, justified or unjustified, without evidence. Complaints can ruin a career, even standing in a community. There are also times that complaints are justified, so both sides need an avenue to be heard. Unfortunately for many brokers who want to remove an unjust complaint on their record, it is not unheard of that they may feel coerced into a settlement by their firm or prior firm with no say in the matter.
When it comes to a broker’s disciplinary record being made public, Ms. Malecki is on record that she appreciates that regulators want customers to be able to do their own due diligence on an investment professional. But it does not help in that endeavor if inaccurate or false information is entered in the Central Registration Depositor (CRD). There needs to be some middle ground. Everyone deserves a fair day in an arbitration proceeding to be heard; the broker and the customer both should both have that right. The process is in place, and both the broker and customer should have their opportunity to pursue what the rules allow.
In other news, Ms. Malecki added comment on a multi-million-dollar expungement and defamation award that just did not add up. Financial professional, Gerald Fasanella, brought a defamation case in arbitration because his CRD record states: “The advisor was terminated after customers alleged that the advisor executed trades in their accounts without their authorization.”
The facts of the underlying case are opaque, as FINRA awards are, but for the award to be legitimate, the arbitrators, in Ms. Malecki’s opinion, had to believe that there were no complaints of unauthorized trading. If one is to look at Mr. Fasanella’s BrokerCheck, there are, in fact, no contemporaneous unauthorized trading complaints listed. They should be there if they existed, but they are not. Getting a $3 million award against a brokerage firm for a false U5 filing is not routine, so the arbitrators must have been presented with compelling evidence. Ms. Malecki stated that she would hope FINRA would go back on a regulatory basis to find out if there are any conduct rule violations around when the Form U5 termination notice was filed.
Finally, in other news at Malecki Law, Ms. Malecki will be speaking at a year-in-review webinar hosted by Securities industry defense firm Bressler, Amery & Ross, “A Recap of 2021 Virtual Proceedings 2nd Annual Hearings in Review on Friday May 13, 2022 at 1pm. Registration for this event is still open.