Connections: Wandering through BrokerCheck Looking for Links to Arbitration Awards
Posted on Categories Arbitration, Arbitration Awards, Broker-DealerTags , , ,

BrokerCheck is a big place to explore, but we had a method: before us were the latest Awards issued by FINRA-ODR and our effort was to see how those Awards were reflected in BrokerCheck.

In SAA 2019-06 (Feb. 6), we reported on the case of an unnamed broker in Wallace v. Fidelity Brokerage, FINRA ID #17-01603, who won expungement from the Panel, but whose BrokerCheck® record got worse as a result. You see, FINRA posted the settlement -- which in this case was a hefty $300,000 -- on the CRD record, but did not indicate: (a) whether the broker paid any portion of the settlement figure; or (b) that the broker has won a preliminary ruling for expungement relief. Evidently, FINRA has made the policy decision to post the settlement amount at the time it is reported, regardless of the Disclosure’s presumably ephemeral future.

We wrote in #06 that we were uncertain if this happened regularly, so, in preparing this coming week’s UPDATE/ARBchek (aka SAC’s Award Reporter), we located another Stipulated Award, Velandre v. UBS Financial, FINRA ID #16-03237, a settled Puerto Rico bond dispute in which an unnamed broker won post-settlement expungement relief. Again, the broker's CRD record reported the settlement amount ($60,000), so we conclude (from these and further examples) that this is standard practice at FINRA. While disclosure of the settlement amount caused us concern in the Wallace CRD record, we have to acknowledge that disclosure of the $60,000 settlement amount in the Velandre case probably works in the broker’s favor, because the damage request disclosed is $500,000. Indeed, in the Award itself the requested relief is listed as an amount in controversy between $500,000 and $1,000,000.

A Novel Concept

That started us thinking, wouldn't it be great if the CRD record would link directly to the relevant Award, so investors checking out Broker X could learn more details, as set forth in the Award, and decide for themselves? (ed: the customer also would not have to extrapolate, as we had to, to assure that the Award and the CRD record concerned the same complaint.) Well, it turns out that is exactly what FINRA has been doing -- only not in all cases. Before saying when there's an Award link, let us first describe how the link works. When you check a broker who has an arbitration disclosure and the Award has issued, a button appears in the Disclosure, i.e., “Arbitration Details.” Click on that link and it takes you to the FINRA Arbitration Awards Online with a listing for the Award in question. Pretty neat!

Another Real-life Example

Going back to our UBS broker in the Velandre Award, we checked his other Disclosures and found a 2010 settlement with a customer in another PR bond dispute. The claim sought $325,000 and the matter settled (albeit no settlement amount was disclosed -- for reasons we'll explain). A Stipulated Award issued and a link to that Award appears at the bottom of the Disclosure. We clicked the link, which carried us to the FINRA Arbitration Awards Online and an Award titled, Garcia and Serrano v. Popular Securities, FINRA ID #10-05324. Our UBS broker was neither named, nor mentioned, in the Award and the expungement relief that was granted pertained to a different broker altogether -- a current employee. At first, we feared a mistake; it turns out, however, the claiming customers were once those of the UBS broker, when he worked for Popular.

We don’t know which firm -- Popular or UBS -- has the reporting responsibility (probably both), but current employer UBS would not be in a position to report the settlement amount, if any, paid by Popular. Thus, no settlement amount appears in the Disclosure. This is interesting, because the UBS broker was tagged with a CRD Disclosure when his old customers filed their claims, Popular made the decision to seek expungement on behalf of a current employee and not the UBS broker, so he had no avenue for relief in the matter that settled. With the case closed, no developed record and a decade or more of time having passed, there's not much chance of gaining relief now.

A Constructive Suggestion

We do have one constructive observation: Currently, the date of the Disclosure stays the same as the Disclosure goes through its various iterations. For example, we found a CRD Disclosure dated February 2017, even though the Award was issued January 18, 2019. In our view, the February 2017 date is irrelevant at this point. One can’t tell what it originally related to and the misleading impression is created that it is the date of the Award/Judgment that is highlighted in the Disclosure. In fact, the Award was very recent, and that fact could be material to an investor who is thinking of using this broker and who is viewing this Disclosure. Also, it’s human nature to discount disclosures that are aged and it quite feasibly creates another misimpression, i.e., that the Award was rendered in February 2017 and the broker must have paid it -- because he’s still in the business! Payment of a very recent Award might well be outstanding.

(ed: *We took this BrokerCheck “connection” one step further and checked the CRD record for the “other” broker who won expungement relief in the Garcia-Serrano Award. His CRD record has been expunged, so we assume judicial confirmation was sought and achieved. Unfortunately for this broker, twelve new Disclosures (five settled, six pending, and one withdrawn) have been posted between 2014-2018. None of the “settled” Disclosures contains an Award link. **We found three expungement denials in the latest batch of Awards and checked each broker’s CRD record. No Award links appeared in any of the Disclosures. Our preliminary conclusion is that FINRA only establishes an Award link if the Award issued on the merits of the primary claims. Garcia-Serrano is a Stipulated Award, but the related Disclosure is the only one we've seen that displays a link to a Stipulated Award.)

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