Cremo v. Oppenheimer & Co., Inc, FINRA ID #15-01548 (Los Angeles, CA, 3/31/16).
Unopposed expungement proceedings, by their very nature, tend to shed little or no light on how arbitrators weigh the evidence, even when they produce explained Awards. This one, however, offers a unique perspective by reaching contrary verdicts on two similar customer complaints.
Broker Gary Cremo initiated this arbitration proceeding against two of his former employers, Oppenheimer and Raymond James Financial Services, Inc., seeking to clean his CRD records of two customer complaints filed against Oppenheimer in 1995 and 1996, respectively, and one filed against Raymond James in 2011. None of the complaints themselves was arbitrated. The two brokerages declined to object to the requested expungement relief or participate in the proceedings. The three customers – whom the Panel required Cremo to serve with notice of the proceeding – also did not attend or object, but Cremo’s attorney spoke with them and two of them submitted written responses.
An IPO Investment at Oppenheimer
The two Oppenheimer complaints both involved investments in the initial public offering (IPO) of Pace American Group, an investment that failed “reportedly due to third party corruption and internal mismanagement.” Both customers were engineers who met Cremo through the same investment club. Both of their accounts were poorly documented. Both complainants “presumably understood the risks attached to acquiring an IPO, including the fact that such an investment could result in a loss.” Moreover, Cremo claimed, the alleged misconduct occurred while he was hospitalized.
Nevertheless, the Panel expunged only the 1996 complaint, but not the earlier one. The differences appear in the timing and result of the two complaints. The 1995 complaint, submitted a year after the events in question, resulted in a $10,000 settlement. In rejecting relief in that case, the Panel notes: “Parenthetically, this complaint may be false, but the limited available evidence fails to establish this fully.”
The 1996 complaint, on the other hand, was not made until two years after the purchase and Oppenheimer simply denied it. In addition, the customer expressed satisfaction with Cremo’s performance otherwise. The Panel explains: “The circumstantial evidence coupled with the drawing of reasonable inferences therefrom, strongly suggests that this customer complained about the Pace American Group loss only after he became aware of the above 1995 complaint and settlement, and especially considering this complainant’s discovery that Claimant had a month-long hospital stay allowing for a ready-made opportunity when wrongdoing ‘might’ have occurred. In other words, the substance and timing of the complaint make it so highly suspect as to be false.”
Raymond James and ARS
The 2011 complaint concerned the December 2007 purchase of $1,975,000 in auction rate securities (ARS) that became illiquid when the auctions supporting their value collapsed in February 2008. Cremo recommended ARS “as an alternative to other cash management vehicles with the understanding that this product offered improved returns with minimized risks – and liquidity.” Moreover, Cremo was aware that the customer faced “a potential divorce that required investment asset liquidity.” Nevertheless, the Panel places the blame on Raymond James, noting that a June 2011 order requiring Raymond James and other brokerages to reimburse ARS purchasers “minimizes complicity of its front line sales personnel” and finding “absolutely no evidence that Claimant made representations any different from any other registered representative trading the same or similar investments.” Therefore, the Panel recommends expungement of the ARS complaint, finding that Cremo is not involved and that the allegation is false.
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