The Financial Regulatory authority (FINRA) administers an arbitration forum as a neutral administrator. ‘FINRA does not have any input into the outcome of arbitrations‘. FINRA arbitrators are independent contractors not employees of FINRA. The brokerage firms may benefit from the neutrality of financial regulatory authority ‘FINRA’ in the arbitration proceedings.

In the case detailed below, despite finding JP Morgan securities at fault, the arbitrators did not order JPMS to remedy its actions.

FINRA Arbitration Case Against JP Morgan Securities

Claimant: Customer (appeared pro se) vs Respondent: JP Morgan securities (JPMS; CRD#: 79).

In the Statement of Claim, as amended, Claimant asserted the following causes of action: violation of FINRA Rules 2010, 4511, 3110, 3120, 3310, 2232, and 4530 (b); violation of fair and equitable principles of trade; violation of §12(a)(2) of the Securities Act of 1933; violation of Section 17(a) of the Securities Act of 1933; violation of Section 10(b)-5 of the Securities Exchange Act of 1934; unauthorized trading in a non-discretionary account; securities and commodities fraud under 18 USC §1348; forging of statements; breach of the duty of due diligence, duty of honor, fiduciary duty, and affirmative duty; violation of the Texas Deceptive Trade Practices-Consumer Protection Act; violation of Texas securities statutes and Texas common law; aiding and abetting common law fraud; violation of consumer protection statutes; breach of good faith and fair dealing; gross negligence; misrepresentation; failure to supervise and train staff; breach of contract under the federal securities laws and FINRA regulations; common law fraud; conspiracy to commit fraud with malicious intent; statutory fraud; fiduciary fraud; omissions of material facts; violation of industry rules/standards and conduct; vicarious and control firm liability; respondeat superior; fraudulent concealment; restricting access to account statements against contractual obligation (per prospectus); and account manipulation to cover fraud. The causes of action related to Claimant’s allegation that Respondent failed to faithfully execute an account transfer request that Claimant initiated and stole assets from Claimant’s account. Unless specifically admitted in the Statement of Answer to Amended Statement of Claim, Respondent denied the allegations made in the Statement of Claim and asserted various affirmative defenses.

Arbitrators’ Explained Decision:

Excerpts quoted from the publicly available decision

"Although the Panel finds that Respondent made certain errors and mistakes in the record keeping related to Claimant's account, the Panel does not find that those errors or mistakes resulted in any legally cognizable damages to Claimant." 

The certain mistakes and errors referred to in the award included 1. Altering/changing customer’s account documents; 2. Denying that the documents were altered; 3. Unauthorized trading activity as seen in the self directed investment account documents; 4. Misrepresentations; 5. Securities with missing cost basis; 6. Failure to faithfully execute complete account transfer to another brokerage firm for two years and counting; 7. Failure to honor repeated written and verbal requests to change default liquidation method in a timely manner; 8. Blocking customer’s online account access after FINRA complaint.

The arbitrators accepted the culpability of JP Morgan Securities (JPMS), yet did not hold JPMS accountable. The arbitrators watered down the JPMS’ violations, which were backed with tangible proofs in the hearing sessions, as merely errors and mistakes.

The arbitrators are chosen by the parties and are paid per session. It is plausible that the brokerage firms would potentially choose the arbitrators who show leniency towards the banking industry despite finding them at fault. FINRA arbitration awards are publicly available.

The financial industry expert hired by the customer to assist in this case wrote in part:

“…JPMS documents are internally inconsistent and contradictory, resulting in inexplicable and unnecessary confusion for clients, such that the true nature of the activity is unverifiable, opaque and a violation of FINRA Rule 2210(d)(1) and Rule 2210(d)(1)(E). • JPMS communications to the client constitute a failure to disclose material information accurately to the client, in violation of FIRNA Rule 2210(d)(1) and Rule 2210(d)(1)(E)…”

The independent arbitrators showed extreme leniency despite accepting culpability of JPMS, which signifies the rampant nepotism and immunity brokerage firms enjoy.

 

https://www.finra.org/arbitration-mediation/about/arbitration-process/arbitrator-selection#:~:text=FINRA%27s%20arbitrator%20appointment%20process%20uses,of%20arbitrator%20names%20per%20list.