RIA Compliance BlogOn November 23, 2016, Wells Fargo successfully defended a class action lawsuit relating to the recent fake account scandal, Mitchell v. Wells Fargo Bank NA. This class action lawsuit, filed by three Wells Fargo customers in the United States District Court for the District of Utah, called for at least $5 million in damages, as well as potential punitive damages, stemming from the bank’s opening of at least 2 million accounts that its customers did not authorize. However, Wells Fargo succeeded in having the case referred to arbitration, citing clauses in its account agreements compelling arbitration in the event of a dispute, as well as a September 2015 case from the United States District Court for the Northern District of California that also involved Wells Fargo’s alleged opening of unauthorized accounts. Continue reading ›
Articles Tagged with Arbitration
California Court Decision May Allow Brokers to Expunge Their Records More Easily
In a decision last month, the California Court of Appeals may have opened the door for brokers to bypass the Financial Industry Regulatory Authority’s (FINRA) rigid expungement rules in order to remove matters from their CRD records. Currently, brokers must abide by Rule 2080 in order to expunge their records. The FINRA rule allows for expungement only upon meeting one of three tests: (1) the claim is factually impossible, (2) the broker was not involved in the conduct or (3) the information is false. The rule states that a broker who seeks expungement “must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.”
In its recent decision, the California Court of Appeals held that a court may expunge a broker’s CRD record in the interest of fairness and equity, regardless of FINRA’s rule. Edwin Lickiss filed a petition in the court in April 2011 seeking expungement of 17 customer complaints and a regulatory action from his CRD record claiming that they were old and irrelevant and negatively affected his profession. The customer complaints against Mr. Lickiss had resulted in total payments of $831,000, and Mr. Lickiss was required to personally pay a $5,000 settlement. FINRA objected to Mr. Lickiss’s expungement request, stating that he was trying to “sanitize his record and prevent regulators, brokerage firms and investors from learning of this history for what amounts to ‘time served.'” The trial court dismissed the complaint, citing the requirements of Rule 2080. The court of appeals reversed the trial court’s decision, holding that it should have looked to equitable principles instead of FINRA rules.
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FINRA Proposed Rule: Expungement Procedures for Unnamed Persons
The Financial Industry Regulatory Authority (FINRA) has proposed a rule which would allow individuals who are not named as parties to a customer-initiated arbitration case to seek expungement relief by initiating “In re” expungement proceedings. Currently, unnamed persons do not have a prescribed way to seek these types of expungements, and must seek relief by:
- Asking their current or former firm that is a party to the arbitration to request expungement on their behalf;
- Seeking to intervene in the arbitration filed by the customer; or
- Initiating a new arbitration case in which the unnamed person requests expungement relief and names the customer or firm as respondent.
According to Regulatory Notice 12-8, “FINRA believes that the current options do not always adequately address a number of issues that can arise in connection with expungement requests.”
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SIFMA To FINRA: Change Punishment for Unpaid Promissory Notes
In a letter sent to the Financial Industry Regulator Authority (FINRA) last November, the Securities Industry and Financial Market Association (SIFMA) wants FINRA to give harsher punishments to brokers who have failed to pay back promissory notes to firms. It specifically sought to prevent brokers from being able to plead poverty to escape arbitration payment orders. The purpose of the notes is to provide cash for recruiting and retention incentives. They are typically designed as forgivable loans as long as the broker stays at the firm for a specified amount of time. If the brokers choose to leave early, then they are required to pay back the note.
As a result of not paying the promissory note back, firms have gotten more aggressive in filing arbitration claims for repayment, and in most cases the firm wins. In 2011, there were 778 promissory note cases filed which is a decrease from 2010 during which 1,152 cases were filed. If a broker does not pay the promissory award, FINRA files an action against him/her that could lead to suspension. Once a monetary award has been issued in a FINRA arbitration proceeding, the broker has 30 days to pay the award. If the broker can show an inability to pay back the note; however, he/she will not be suspended and can continue to work for another firm.
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