| April 11
April 11 There is hope for Wall Street brokers
whose professional histories are marred by complaints from
customers about securities that went sour after their brokerage
firms promoted them as safe.
Brokers who sold securities that ultimately failed, but
which their firms had pushed as cash-like investments, are
finding some success in cleaning up their records and their
One former broker for a unit of UBS AG, Edward
Graham Dulin Jr., recently scored big: An arbitration panel
ordered UBS Financial Services Inc to pay Dulin $5.4 million for
business he lost because of details that appeared on Dulin's
public record about arbitration complaints against UBS from 39
of his customers. In addition, the panel recommended erasing all
of those complaints from his record.
Dulin, who now works for Bank of America's Merrill Lynch
unit, sold his clients so-called principal protected
notes issued by Lehman Brothers Holdings Inc before the credit
crash in 2008. Those notes plummeted in value after Lehman filed
for bankruptcy in September 2008.
Dulin persuaded arbitrators from the Financial Industry
Regulatory Authority (FINRA) that UBS misled its advisers about
Lehman's financial health, prompting him to recommend the notes
The case is already sparking interest among brokers who are
weighing whether they should pursue similar claims, lawyers say.
Public records for hundreds of current and former UBS brokers
reflect details about customers' arbitration claims involving
Lehman notes. UBS has faced at least 336 arbitration claims from
459 customers, according to court records.
Rules from FINRA, Wall Street's industry-funded watchdog,
require that details about those arbitration claims appear in
the public disclosure records of brokers who facilitated the
deals, even if they are not named in the cases.
The regulator also runs the forum in which brokers must
resolve most employment disputes against their firms and request
recommendations to clean up their public records.
Dulin's award followed a similar decision last September. An
arbitration panel ordered Los Angeles brokerage Wedbush
Securities Inc to pay a former broker, Michael Farah, $4.3
million after he alleged that the firm failed to properly
disclose the risks of mortgage-backed securities he sold to his
Brokers with bad records may be taking encouragement from
this, but the rulings are unusual and future arbitration panels
do not have to reach the same results. That is because
arbitration rulings do not create precedent as court decisions
do. What's more, not all brokers may have strong cases.
PUSHING THE LIMIT
Brokers whose records are riddled with other problems are
not likely to find legal help, no matter how many securities
from failed product classes they sold to clients, lawyers say.
Lawyers typically want to pick cases they think they can win.
Furthermore, "The broker has to be a strong person who can
handle litigation for an extended period," said Rosemary
Shockman, a lawyer in Phoenix who was one of two attorneys who
represented Dulin. That case dragged on for more than two years
and required 21 days of hearings.
Expect firms to push back hard. UBS filed a counterclaim
against Dulin, requesting that he pay the firm $3.9 million for
settlements UBS paid to his clients. It was ultimately denied.
Furthermore, the failure of a product class may not matter
if clients weren't a good match for securities the brokers
believed they were selling, say industry lawyers. In other
words, getting bad product information from the firm doesn't
absolve individual brokers from having to meet the requirement
that they only recommend investments that are suitable for
clients, said Francis Curran, a securities lawyer in New York.
Not all brokers can score millions of dollars in product
cases, but there are other successes: Some brokers who sold
failed products are persuading arbitrators to recommend clearing
disclosures from their records.
For example, a FINRA arbitration panel on April 4
recommended erasing (or "expunging," in FINRA parlance) several
arbitration cases involving Lehman notes from the records of two
former UBS brokers who now work for Morgan Stanley. The
brokers, unlike Dulin, did not seek damages from the firm.
UBS helped the brokers by filing papers in the proceeding
saying that "expungement is warranted," according to the ruling.
UBS supports brokers' requests for expungement when evidence
shows that the allegations against them were "false or clearly
erroneous" under FINRA rules, a UBS spokesman said. That was the
case involving the two brokers, the spokesman said.
A Morgan Stanley spokeswoman declined to comment.
As in other record-scrubbing cases, industry rules require
the two brokers to get a court order confirming the expungement
Their cases don't involve money, but the outcome of having a
clean record has value, brokers say. That is especially true for
brokers who are also registered with the U.S. Securities and
Exchange Commission as investment adviser representatives.
Industry rules require firms to automatically send copies of
their professional histories to clients every time new
complaints and other disclosures appear.
The damage is difficult to shake, said one former UBS broker
who recently filed an arbitration claim to clear his record of
black marks about Lehman notes. "Would you work with someone who
dumped this thing on your lap that says you're the worst person
in the world?"
(Reporting by Suzanne Barlyn; Editing by Linda Stern and