Street Legal Dec. 2010: Honor Impugned, Advisor Strikes Back

Street Legal Dec. 2010: Honor Impugned, Advisor Strikes Back

FINRA backs an advisor's effort to clear his name.

On schoolyards all over the world, it starts when one kid taunts the other with, “I dare you.” Soon, things escalate into a fight — a nose is bloodied and an eye blackened. Thereafter, in the principal's office, amid many tears and sniffling, each child points a finger at the other and proclaims, “He started it!”

You know, at times, Wall Street ain't that different from schoolyards.

The Dare and the Dreaded Double-Dare

Take the recent Financial Industry Regulatory Authority arbitration that started in January by member firm Jesup & Lamont (J&L) against its former employee, Aaron Foley. J&L sought $35,000 in compensatory damages and $10,500 in various fees from Foley as a result of his alleged non-payment of a balance on an outstanding promissory note. Foley generally denied the allegations. Of course, in keeping with these intra-industry cases, Foley found that his industry record had a nasty, new disclosable matter. J&L reported a letter from client Jane Fisher as a customer complaint against Foley. J&L characterized the allegations as an unauthorized transaction and the unauthorized dissemination of confidential account information (resulting in an alleged loss to the customer of $5,000).

Apparently, Foley wasn't prepared to simply defend against J&L's complaint but took things a step further — he filed his own complaint against his former firm seeking $1 million in compensatory damages and asking for an expungement of what he viewed as defamatory statements on his Form U4. In the Matter of the Arbitration Between Jesup & Lamont Securities Corp., Claimant, versus Aaron Foley, Respondent (FINRA Arbitration 10-00038 Sept. 7, 2010.)

You Started It But I'll Finish It

J&L made headlines this year over financial troubles. In June, FINRA instructed the firm to cease doing securities business because of alleged net capital deficiencies. Thereafter, the 133-year-old firm announced massive layoffs; in July, it filed for Chapter 11 bankruptcy protection. It had 300 reps. Moreover, J&L abandoned its FINRA arbitration case against Foley when it failed to appear at the arbitration hearing. On the other hand, Foley appeared at the FINRA hearing, intent on clearing his good name.

Foley testified that Jane Fisher's account was supervised by another broker, who suddenly departed from J&L, and that the account was then transferred to Foley. Foley testified that in order to protect Fisher's assets (and with her consent), he sold certain positions in the client's account and deposited the proceeds in either a money market account or other conservative investments. Subsequently, Fisher wrote a letter requesting that J&L determine if her account was being properly maintained according to her financial goals.

Foley further testified that J&L had a reputation for putting false or inaccurate comments on a broker's U4 as a means to prevent the broker from leaving its employment. Former J&L Branch Manager James Devers testified that he had never received a letter of complaint from Jane Fisher or any other client of Foley's. Devers corroborated Foley's assertion that J&L had engaged in the tactic of putting erroneous or false statements on brokers' U4s to prevent brokers from leaving the member firm. As Foley's immediate supervisor, Devers only found out about the comments on Foley's U4 with the commencement of the FINRA arbitration. Devers testified that the allegations on Foley's U4 were false and, in fact, never occurred.

The Panel Rules

The FINRA arbitration panel denied J&L's claims in their entirety. The panel determined that Fisher had never expressed any concern or dissatisfaction with the actions of Foley, and that her letter was not a “customer complaint” but just a request for information. Moreover, the panel unanimously concluded that J&L's references to a “customer complaint” were false and defamatory, and never should have been placed on Foley's U4.

The panel recommended full expungement of Foley's U4 and his Central Registration Depository (CRD) records of all references to the alleged Fisher complaint. Also, the panel ordered J&L to pay Foley $127,500 in compensatory damages, plus interest at the rate of 12 percent annually from Sept. 1, 2010 until the award is fully paid.

For good measure, J&L also had to pay Foley's FINRA filing fee of $375.

Writer's BIO:

Bill Singer
is the publisher of RRBDLAW.com and BrokeAndBroker.com

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