In November 2009, Dr. Donald Steinberg filed an arbitration claim with the Financial Industry Regulatory Authority alleging a whole host of sins against Morgan Stanley Smith Barney, Citigroup Global Markets Inc. and a broker. Foremost among Steinberg's gripes was the now-regretted purchase of Alpine Total Dynamic Fund, peppered with allegations of misrepresentations/non-disclosures, omission of facts, suitability, underwriting, breach of contract, failure to supervise, fraud and negligence.
And what will make this boo-boo better? The client tossed out some numbers — $55,000 in compensatory damages plus interest of $7,800, and, for good measure, attorney's fees, other professional fees, and punitive damages. (In the Matter of the FINRA Arbitration Between Dr. Donald Steinberg TTEE FBO Dr. Donald Steinberg Revocable Trust U/A/D 3/18/92, Claimant, vs. Morgan Stanley Smith Barney, Citigroup Global Markets Inc., and Thomas Michael Konopka, Respondents; FINRA Arbitration 09-06859, June 16, 2011.) The respondents generally denied the allegations.
In February 2011, a little over a year after Steinberg fired the opening salvo, the war was called off when the claim was withdrawn. Was this a clever way to disguise a settlement? Hey, could be — although the FINRA arbitration decision states that “there was no settlement agreement or amounts paid to any party.” Who knows what the lawyers did or didn't cook up? On the other hand, maybe the client had an epiphany and realized that the case was garbage. In that regard, maybe decency and honor triumphed. Maybe.
Sadly, the FINRA decision doesn't explain why the case was withdrawn, and we lack facts to make an educated guess. “Pick a card, any card” may be the stuff of magic tricks, but it doesn't work for me when it comes to understanding a FINRA arbitration.
Shortly after the case was withdrawn, the respondent firms requested an expungement of the arbitration from broker Thomas Konopka's Central Registration Depository records. Without the client's opposition or participation, a hearing was conducted in June and, subsequently, subject to the provisions of “Notice to Members 04-16: Expungement,” the FINRA arbitrator recommended the expungement of Konopka's CRD.
In explaining his rationale, the arbitrator noted that “Claimant failed to produce any documents supporting his claim and ultimately withdrew it in its entirety. All claims were withdrawn, suggesting they were baseless.” In coarser terms, would someone please take out this garbage?
In addition to Steinberg's failure to back up his allegations, the arbitrator found that he remained a client of the firms for 15 months after filing the claim — during which time the disputed investment remained in the customer's account. Although there could be many reasons why an unhappy client would remain with a brokerage firm or would decline to sell a poorly performing security, it doesn't appear that this FINRA arbitrator found any of Steinberg's explanations convincing.
Further, the FINRA arbitrator favorably noted that Konopka had an unblemished record for 25 years. How refreshing! It's nice to see that a FINRA arbitrator recognized a veteran broker's clean history without dismissively treating that fact as if it were nothing more than an indication that some registered person simply escaped detection by regulators and public investors' lawyers.
The Unstoppable Tsunami
Also, the arbitrator characterized Steinberg as an experienced investor, with accounts at several firms, who ignored Konopka's recommendations. Moreover, notwithstanding the client's savvy, the arbitrator also suggested that Steinberg's losses resulted from global conditions — not the alleged failure of Konopka's advice (followed or not). When the whole world is melting down, as we recently saw in the Great Recession, there are “global conditions” at play against which even prudent defensive portfolio strategies may not successfully protect against any and all losses. Sometimes it's just not the stockbroker's fault. Sometimes, even if you have a warning about an oncoming tsunami, about all that you can do is run for your life.
In conclusion, Konopka appears to have justly deserved the expungement, and the FINRA arbitrator is to be commended for thoughtfully and intelligently delving into the facts and circumstances of this arbitration and seeing that justice was done. Kudos!