Pointing Fingers: A Peek Behind an Explained Award
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Leggett v. Wells Fargo Clearing Services, LLC, FINRA ID #17-01077 (Atlanta, GA, 8/1/19) is unusual because it not only includes explanations for two expungements, which sheds some light on the Panel’s reasoning, but because we were also able to obtain the pleadings, which lay out the parties’ contentions. Those pleadings reveal two widely divergent tales of who was responsible for what went wrong.

Dramatis Personae

The claimants in our drama were Robert Leggett and Bryson Holdings, LLC (“Bryson”), a company whose brokerage account Leggett controlled. Their brokers were Non-Party Jacob McKelvey and Respondent Jay Pickett, both of whom were registered with Wells Fargo Clearing Services, LLC (“WF”), although McKelvey worked for PNC Investments when Leggett initially opened the accounts in 2013; he only moved to WF in 2014 and Pickett took over for him in 2015. Although WF was a clearing firm, McKelvey and Pickett dealt directly with Leggett and provided investment advice to him. Eventually, Leggett moved the accounts to a new firm in 2016 and brought this claim against WF and Pickett (but not McKelvey) in 2017. That is more or less the extent of the agreement between the two sides’ stories. 

Leggett’s Version

According to Leggett, his investment objective was to hold undervalued stocks for a long time for his own account and to preserve capital in the Bryson account, and he wanted them in managed accounts consistent with those objectives. However, when McKelvey moved to WF, the accounts’ investment objectives were mislabeled “Trading & Speculation,” WF’s riskiest rating, concentrating the accounts in risky equities. When Leggett met with McKelvey’s supervisor and reiterated his conservative objectives, the firm replaced McKelvey with Pickett and agreed to charge him a flat fee for trades. In spite of that, Pickett undertook an even riskier naked options strategy. WF and its brokers also churned the account, engaged in “wash sales” that prevented Leggett and Bryson from deducting some of their losses on their taxes and overcharged them for commissions and margin interest.

Wells Fargo’s Response

Au contraire, WF replied: Leggett, who represented that he had more than 15 years of experience with stocks and options, made his own investment decisions and even did his own intensive investment research, averaging 400 stock and 40 options online trades per year, often using margin even for larger trades. Leggett’s self-directed strategy was to take concentrated positions in volatile stocks, knowing the risks but hoping for quick gains. In fact, Leggett’s options trading was integral to this self-directed strategy, often ignoring his broker’s recommendations that he adopt a more conservative strategy (although he did accept advice to use hedging tools). The “wash sales” were also Leggett’s idea, because he believed that he could make more profit than he lost in taxes. 92% of the losses were due to unsolicited online trades. Although WF agreed to a flat fee for some trades, that did not apply to the larger and more complicated ones, and the margin interest was consistent with industry standards.

The Arbitrators Weigh In

The Arbitrators rule for WF, holding Leggett liable for $51,000 in costs and all forum fees; they also award expungement relief to McKelvey and Pickett. The Panel focuses on two emails Leggett sent in 2016. In the first, on April 18, he accuses McKelvey of misleading him about an Amazon call option. Leggett testified that he relied on McKelvey, because he did not have options experience and did not know how they worked. However, the Panel cites a text message from Leggett five days earlier in which he admitted experience with options. In the second email, on November 8, Leggett complained to Pickett about a certain trade. Based on Leggett’s testimony and a November 11 email in which he admitted “that there was simply a misunderstanding about our discussion,” the Arbitrators rule that this claim is also false. In general, the Panel finds Leggett’s testimony to be inconsistent, untrue, in conflict with and uncorroborated by the documents, and therefore not credible.

(ed: *Terry R. Weiss and Stefanie M. Wayco of DLA Piper LLC, based in Atlanta, GA, represented WF and Pickett. **This summary was written by guest author Harry Jacobowitz, a J.D., former SAC database manager and currently a freelance legal researcher with 14 years of experience performing complicated searches in SAC’s Award database. He is available to conduct SAC Award database searches on a variety of topics and using a variety of variables, delivered in the form of reports that contain detailed information on each Award and links to the Awards themselves. To request a search from him, email searches@sacarbitration.com.) (SAC Ref. No. 2019-30-04)

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