Thursday, February 2, 2017

Extreme (Expungement) Makeover: Is Scrubbing a 30-Year Record Really Legal?


We have written extensively about problems with FINRA’s BrokerCheck system. Our blog posts on BrokerCheck can be found here.

Others have written about expungement abuses. For example, see Susan Antilla’s “The Unbelievable Story of One Broker and Her Firm Fighting to Clean Her Tarnished Record” available here.

Two weeks ago a FINRA panel rendered an extraordinary expungement award, recommending expungement of 8 awards and 3 settlements. The award in Joseph Anthony La Ferla, Jr. vs. UBS Financial Services Inc. is available
here

A former broker, Mr. La Ferla (CRD 725905), sued his previous employer UBS FSI in a FINRA arbitration requesting expungement of the 8 awards and 3 settlements from 1984 to 1991 currently reflected on his BrokerCheck report. 

Mr. La Ferla’s current BrokerCheck report reflecting 11 customer disputes is available here.  


Since the panel recommended expungement of all 11 awards and settlements, before long Mr. La Ferla’s BrokerCheck report may well be changed to answer No to the question “Are there events disclosed about this broker?” and the Customer Dispute panel will read NA instead of 11 unless FINRA opposes the cleansing of this broker’s history. His BrokerCheck report as it existed on January 31, 2017 is available here.

8 Disclosed Awards
The 1st of 8 listed awards is of a 1991 $180,000 NYSE award rendered in the customer’s favor over allegations of churning and covered call writing in an IRA. There is no mention of whether the broker or the brokerage firm was ordered to pay the award.
The 2ndt of 8 listed awards is a 1987 $10,000 AAA award rendered in the customer’s favor over allegations of churning, unsuitability and misrepresentations. The broker statement says he did not contribute to payment of the award.
The 3rd of 8 listed awards is a 1989 $51,655 (or possibly $65,825) NYSE award rendered in the customer’s favor over allegations of churning, unsuitability and misrepresentations. The broker was ordered by the panel to pay the Claimant $14,170.
The 4th of 8 listed awards is a 1988 $31,000 NYSE award rendered in the customer’s favor over allegations of churning, unauthorized trading, unsuitability and misrepresentations. The broker statement says he did not contribute to payment of the award.
The 5th of 8 listed awards is a 1990 $20,000 NYSE award rendered in the customer’s favor over allegations of churning, unauthorized trading, unsuitability and misrepresentations. The broker statement says he did not contribute to award.
The 6th of 8 listed awards is a 1989 $30,295 NYSE award rendered in the customer’s favor over allegations of churning, unsuitability and misrepresentations. The panel found the broker and brokerage firm jointly and severally liable for the entire award although the broker statement says that he did not contribute to the payment of the award.
The 7th of 8 listed awards is a 1989 $35,000 NYSE award rendered in the customer’s favor over allegations of churning, unsuitability and misrepresentations. The broker statement says his employer paid the award.
The 8th of 8 listed awards is a 1991 $180,000 NYSE award rendered in the customer’s favor over allegations of churning, unsuitability and other claims. The panel found the broker, a second broker and the brokerage firm jointly and severally liable for the award.

The Broker Has 3 Disclosed Settlements
The 1st of 3 listed settlements is a 1991 $40,000 settlement over covered call writing in an IRA account.
The 2nd of 3 listed settlements is a 1991 $35,000 settlement over covered call writing in an IRA account.
The 3rd of 3 listed settlements is a 1991 $35,000 settlement over covered call writing in an IRA account.
The Expungement Award
The 2016 FINRA Panel recommended expungement of the 8 customer awards and 3 settlements.
Paraphrasing the award:
The broker sued UBS for expungement of 8 awards and 3 settlements on his BrokerCheck.
UBS responded that it would not participate in the arbitration and did not oppose the broker’s request for expungement.
The panel required the broker to provide proof that he attempted to contact the Claimants in the 11 arbitration proceedings from 25 to 30 years ago and gave the Claimants 30 days to respond. No response was received from any of the Claimants in the 11 arbitrations.
The broker testified that he did not contribute to the 3 settlements although actual settlement documents could be located for only 1 of the settlements.
The broker testified he was not involved in the conduct which gave rise to 8 different arbitration panels rendering customer awards – despite 3 of the panels finding him either jointly and severally liable for the entire award ordering him to personally contribute to the award.
Shockingly, the panel has substituted its judgement based on the unchallenged testimony of events occurring over 30 years ago from a broker with 11 customer disputes resulting in settlements and awards. Only 0.07% of all brokers have 10 or more customer disputes so the panel has recommended a truly awful broker’s record be sanitized. At least 3 contemporaneous panels hearing all the evidence found this broker responsible and now 25 years later this panel recommended expungement of all 8 awards and 3 settlements.
Why would Mr. La Ferla go to the trouble of hiring a lawyer and scrubbing his BrokerCheck decades after the settlements and awards? The answer appears to be that Mr. La Ferla wants clients coming to his new advisory firm to believe he has a clean - rather than extraordinarily checkered - disciplinary history. Mr. La Ferla has started an RIA, The La Ferla Group. The new firm’s website includes an interesting “About Us” page available here that lists 4 previously FINRA-registered brokers. 


The bios for two of these brokers include prominent hyper-links to BrokerCheck reports so you can check out their clean disciplinary history. Mr. La Ferla’s bio omits a similar link to his BrokerCheck report with 11 customer disputes. Here’s betting a nickel that as soon as FINRA posts a pristine BrokerCheck report for Mr. La Ferla omitting the 11 customer complaints a link to his scrubbed BrokerCheck will appear giving the false impression that he has not been subject to customer complaints.

Someone should be looking into this.

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