A FINRA hearing Panel in Pittsburgh, Pennsylvania recently made an uncommon move when it expunged an arbitration from a broker’s CRD records despite finding the broker jointly liable to the customer.
In Bordas v. Wells Fargo, FINRA ID # 11-00484, the Claimants,
James and Linda Bordas filed an arbitration claim against Wells Fargo
Advisors, LLC and Ernest Coffindaffer for unsuitability, unauthorized
trading, forgery, misrepresentation, fraud, negligence, breach of
fiduciary duty, violations of the Securities and Exchange Act of 1934
and Rule 10b-5, respondeat superior, failure to supervise, and breach
of contract. The causes of action relate to the alleged
recommendation and purchase of municipal bonds and variable annuities
against the Claimants’ express wishes.
The Respondents asserted counterclaims for defamation per se,
tortious interference with business relationships, and tortious
interference with prospective business relationships.
At the close of hearing, Claimants’ requested a total award of
$10 million: $754,765.00 in lost capital; $707,200.00 in lost gain;
and the balance in non-economic and punitive damages.
Respondents’ requested $2,000,000.00 in compensatory damages, plus
attorneys’ fees of $381,561.60 and $65,564.63 in disbursements.
The Panel found Wells Fargo and Coffindaffer jointly and severally
liable to the Claimants in the amount of $97,250.00. Since
arbitration awards rarely discuss findings of fact, it is unclear
which claim(s) the award relates to. James Bordas was found
liable to Coffindaffer for defamation in the amount of $1,000.00.
All other claims against Claimants were dismissed with prejudice.
Despite finding Coffindaffer jointly and severally liable with
Wells Fargo, the Panel made a specific finding of fact that
Coffindaffer was not involved in the alleged investment-related sales
practice violation, forgery, theft, misappropriation, or conversion
of customer funds. Even though it is uncertain what claim(s)
the award was based on, one can assume that Coffindaffer was probably
not found liable for fraud or any claims involving an element of
willful intent especially since the Panel found that Coffindaffer’s
conduct was “not so egregarious as to warrant a permanent stigma on
The Central Registration Depository (CRD) is a database used by
FINRA and NASAA to store and maintain information on registered
securities and broker firms. CRDs contain qualification,
employment, and disclosure histories of registered individuals and
can be used like a background check on brokers. FINRA also
pulls information from CRDs for its BrokerCheck program, which
provides background information on brokers and firms to investors.
When a broker is named as a respondent in a customer-initiated
arbitration, the claim and any alleged wrongdoing are required to be
reported on the borker’s Form U4, which will eventually get
recorded in the CRD system and become available to the public through
BrokerCheck. Therefore, some information that can be disclosed on
one’s CRD could be damaging to a broker’s reputation.
Brokers may seek to expunge any reference to the allegations or
involvement in the arbitration from the CRD system. However,
FINRA provides rules that arbitrators must follow before awarding
expungement to a broker.
FINRA Rule 2080 requires that a court of competent jurisdiction
confirm an arbitration award granting expungement. FINRA must
be named as an additional party to these court proceedings. In
most cases, FINRA generally opposes the confirmation of an award to
expunge. However, upon request, FINRA may waive the requirement
to be named as an additional party in these proceedings if the award
directing expungement contains one of the following findings: (1) the
claim, allegation or information is factually impossible or clearly
erroneous; (2) the registered person was not involved in the alleged
investment-related sales practice violation, forgery, theft,
misappropriation or conversion of funds; or (3) the claim, allegation
or information is false.
FINRA Rules 12805 and 13805 provide that in order to grant
expungement, an arbitration panel must hold a recorded hearing session
regarding the appropriateness of the expungement. If the case
involves a settlement, the panel must review the settlement documents
and conditions of the settlement to determine whether concerns exist
about the broker’s involvement in the alleged misconduct. The panel
must also indicate which grounds exist under FINRA Rule 2080 to
support expungement. Finally, all hearing session fees must be
assessed against the party requesting expungement for any hearings in
which the sole topic is expungement.
Therefore, although the panel awarded expungement, Coffindaffer
will still have to obtain a confirmation of the expungement award by
the courts. While the Panel made a specific finding under FINRA
Rule 2080, FINRA may still oppose the expungement since he was sheld
jointly and severally liable to the customer. The Panel’s
finding that Coffindaffer’s conduct was “not so egregarious as to
warrant a permanent stigma on his CRD” may not be enough.
If you are a broker named in a customer-initiated arbitration and
would like to seek expungement of the allegations or involvement in
the arbitration from your CRD, contact the experienced attorneys at
Cosgrove Law Group, LLC.