Finra Panel Rebukes Frivolous Customer Claim Against RayJay Broker
(Updates in penultimate paragraph with comment from one of the arbitrators.)
In an award statement that lawyers for both customers and brokers called extraordinarily strong and stinging, arbitrators recommended expungement of a customer’s claim they castigated as “devoid of merit,” “overstated” and likely to cause “unwarranted harm” if allowed to remain on a Raymond James broker’s CRD and BrokerCheck report.Keith A. Davis, a broker in Orlando, Fla., sought to remove a claim of negligence and other allegations brought by a customer who had an unrealized gain of about $37,000 on a Linn Energy investment when he left Davis and RayJay, but sold at a loss three years later, according to the Nov. 22 decision from three Financial Industry Regulatory Authority arbitrators.
“The Customer’s Statement of Claim lacked credibility and was structured to elicit sympathy [for] a claim otherwise devoid of merit,” they wrote, noting, for example, that it discussed “speculative oil investments” over a long period when, in fact, only Linn Energy was involved over a period of less than nine months.
“The plural is great for effect but not the truth,” the arbitrators wrote in their unanimous decision.
They spurned “all the allegations” that appear on Davis’ Central Registration Depository regulatory records as being “devoid of any facts.” The investment appeared suitable, meeting the risk tolerances, investment objectives, investment experience, income and net worth stated in the customer’s account forms, they wrote. Davis’ BrokerCheck record says the customer alleged breach of fiduciary duty, negligence, breach of contract and violations of Finra rules.
The $55,000 claim was settled by Raymond James for $7,500 in 2017, against Davis’ wish, the two public and one industry arbitrator wrote. “This expungement will have no adverse effect on the investing public, regulators or both,” they concluded, but keeping the complaint on public display “does unwarranted harm to the financial advisor.”
Davis could not be reached for comment and his lawyer, Bruce W. Barnes of Safety Harbor, Fla., did not return a call for comment.
The customer, whose name and lawyer were not disclosed in the award document, did not object to Davis’ expungement claim and did not participate in the expungement hearing, the award decision said.
Lawyers representing brokerage firms and investors said the strongly worded decision is unique in tone, relatively rare in providing such a detailed analysis and clearly conveys the arbitrators’ pique.
“Sensationalism does not belong in Finra, and Finra needs to take a strong position on considering whether to sanction a lawyer for filing claims like these,” said Thomas Lewis, a partner at Stevens & Lee, who represents firms and brokers against customer claims. “A court would sanction a lawyer for filing something ‘devoid of merit,’ and could require the lawyer to pay attorney’s fees.”
A Finra spokeswoman did not immediately respond to a request for comment on whether the industry-financed regulator has considered whether it could impose such sanctions.
They are not discussed in expungement rule revisions aimed at making it harder to erase customer complaints that Finra has proposed to the Securities and Exchange Commission.
Andrew Stoltmann, a plaintiff’s lawyer and a director of PIABA, a trade group for the investors’ bar, said the group opposes sanctions, but understands how arguments like those marshalled in the Davis case could raise the issue.
“I don’t think I’ve ever seen such strong language in granting an expungement,” the Chicago-area lawyer said. “It’s disconcerting, but there are some frivolous claims that should get expunged.”
Most, he asserted, are filed by lawyers unfamiliar with securities arbitration. A PIABA-sponsored foundation recently published a report highly critical of the alleged ease with which brokers can expunge customer complaints.
The Davis decision was written by John P. Cullem, a lawyer who was the arbitration panel’s chairperson, according to Lewis Brewer, the other “public” member of the panel. Neither Cullem nor Howard A. Baker, a “non-public” arbitrator on the panel who worked for years as an American Stock Exchange executive, could be reached for comment.
Brewer, a lawyer and a former member of the state of West Virginia’s ethics commission, said he had no concerns as to whether the bluntly worded decision would make lawyers wary of picking him for further panels.
“I applaud these arbitrators for not being afraid to write what they are thinking,” said Lewis. “Any respectable attorney, whether claimants’ or respondents’ counsel, should like that.”