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Chronology of Court Case Against TD Ameritrade
Chronology of FINRA Arbitration Case Against TD Ameritrade
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Laurent J. LaBrie v. TDAmeritrade 
FINRA Claim 11-03725
Amended FINRA Claim Form
This Claim Form was modified on request of the Arbitrator to include TD Ameritrade Clearing and to add other charges which came to light in the Discovery process.
I added the following charges: Failure to Supervise, Clearing Dispute, and Failure to Execute. I also, at the request of the Arbitrator, added TD Ameritrade Clearing to TD Ameritrade and Scott Cornett as a third Respondent.
Failure to Supervise.
In Discovery, Respondents stated that at the time of the incident, they had no policy or written directive to the employees or brokers stating what research should be done and what information should be given a client under similar circumstances. Specifically, there is no guidance for their options specialists to check the memos of the organization of authority over options to determine the reasons for their actions. Instead, Respondents' defence for not having such policies was “accounts at TD Ameritrade are self-managed.” However, Page 3 of the Respondents' Account Handbook provided in Respondents' discovery packet encourages customers to call if they have questions. "Contact a Client Services representative for questions about your order status, your account, trades,” Thus, not having directions and policies for employees is failure to provide proper supervision.
Clearing Dispute.
On January 16, 2009, the OCC issued another Memo #25370 directing their members, among them, TDA Clearing to advise its clients that, because there were no further developments, the OCC had disabled the automatic exercising of these contracts. The OCC instructed that TDA Clearing “SHOULD ADVISE THEIR CUSTOMERS TO TAKE THE FOLLOWING CONSIDERATIONS INTO ACCOUNT IN DECIDING TO EXERCISE, OR NOT TO EXERCISE, THESE OPTIONS."
Per Item 4 of FINRA's prohibited conduct, as a broker-dealer, TD Ameritrade, Inc. owes a duty to its customers to keep them informed of developments in their investment accounts. This item prohibits brokers from, “[m]isrepresenting or failing to disclose material facts concerning an investment.” Surely the fact that an investment may become worthless if action is not taken, is among the most material of facts that could exist about an investment. FINRA Code does not allow this responsibility to be contracted away in cases where the investment is held in a self-directed account.1 Nor does FINRA allow its members to effectively avoid this duty by forming two separate legal entities, one that receives information and a separate one that deals with customers. As broker dealers under common ownership and management serving a common customer base, these two corporations had a duty to ultimately see that material customer information found its way to the common customer.
The OCC provided important information of UDR dividends to TDA Clearing, Inc. which materially affected Claimant’s investments. As TDA’s agent for processing trades of options and other securities, TDA Clearing had a duty to disseminate this information to TDA. In turn, TDA had a legal duty, established by FINRA regulation and the mandates of the OCC, to relay this information to its customers in a straightforward, honest way. If Respondents are now saying that they did not fail in their duty because TDA Clearing, Inc. did not disseminate the information to them, and TDA Clearing, Inc. is, in fact, a separate entity, then it should be added as a Respondent to the Claims.2
At the least, TDA Clearing, Inc. should be joined so that it can defend itself against TDA’s charge that TDA Clearing, Inc. was the one that failed in its duty to relay complete information as well as TDA's claim that TDA Clearing did not execute the two trades that TDA documented to the Claimant had, in fact, occurred.
The aforementioned notwithstanding, TDA has produced a call log it kept which it says demonstrates that it tried to call Respondent to clear up the confusion caused by its earlier advice to him, and “explain the specifics surrounding the exercise considerations for his UDR ns options”, namely the declared dividend. This would suggest that TDA was fully aware of the information that the OCC had required that TDA Clearing, Inc. provide to investment customers.
1 Claimant contends that Respondents had both a duty not to mislead and misrepresent material facts and a duty to disclose. Respondents claim that Respondents can contract away their duty to disclose material facts to Claimant. Claimant disputes Respondents’ reading of Claimant’s contract with Respondents. Even if Respondents did not have a contractual duty of disclose the developments in UDR’s stock, they clearly had a duty not to mislead Claimant into thinking there was nothing unusual with regard to his Put right of UDR stock.
2 Claimant notes thatTDA and TDA Clearing, Inc. are represented by the same in-house counsel for TDA.
Additionally, in Discovery, Respondents refused to produce certain documentation relevant to the handling of Claimant’s Put, saying this documentation belonged to TDA Clearing, Inc. When pressed, Respondents admitted that TDA Clearing, Inc. was the business affiliate it set up for the purpose of executing trades of securities, including options, for Respondents’ customers. Respondents disclosed that TDA Clearing, Inc., not they, was the broker/dealer member of the OCC. Respondents advised that TDA Clearing, Inc. acted as their agent in clearing trades of their customers. Yet they claim that this independent entity had not actually executed the transactions, contrary to the Discovery documents provided by the Respondents. Furthermore, for two months, TDA Clearing did not inform the Respondents of this non execution because Respondents allegedly do not document the millions of dollars in transactions with this independent entity.
Regarding Respondents' claim that TDA's relationship with TDA Clearing, Inc. was known or easily discoverable by Claimant prior to filing the original Statement of Claim.
Until the Discovery hearing, there was no indication to the Claimant that TDA Clearing was considered anything more than a division of TDA. The two share very similar names, have the same physical address registered with FINRA, do not maintain records of financial transactions between them, and use the same legal staff. These are evidence that the two entities are managed as one legal entity instead of two. Although the same legal staff represents the two entities, in Discovery they claimed to not have authority over the documents thereof. This required the joining.
Based on the Respondents' claim, Claimant moved to amend its Statement of Claim to add TDA Clearing, Inc. as a Respondent.1 Respondents have opposed this motion stating that Claimant’s claim is based in contract and, because there is no privity of contract between TDA Clearing, Inc. and Claimant, that Claimant has no standing to add TDA Clearing, Inc. as a Respondent.
1 Claimant’s Amended Statement of Claim also added and deleted allegations based on facts it had learned in discovery.
Failure to Execute
Claimant contends that both TDA and TDA Clearing, Inc. shared a duty, by virtue of their principal/agency relationship, FINRA regulations and OCC requirements, to inform the Claimant of material developments in UDR that would affect the exercise of puts purchased by Claimant in his investment account.1 They failed in this duty, and then used that failure as justification for allegedly not fulfilling Respondent’s contractual commitment to automatically exercise Claimant’s Put if the closing price was one penny in the money on the day of expiration. This is a failure to execute.
1 The OCC’s 1/16/2009 memo to its Members, including TDA Clearing, Inc., specifically provides, in all caps, that “MEMBERS SHOULD ADVISE THEIR CUSTOMERS TO TAKE THE FOLLOWING CONSIDERATIONS INTO ACCOUNT IN DECIDING TO EXERCISE, OR NOT TO EXERCISE, THESE OPTIONS.” TDA and TDA Clearing, Inc. failed to fulfill this directive.
Better Business Bureau does nothing to resolve issue
Chronology of Court Case Against TD Ameritrade
Chronology of FINRA Arbitration Case Against TD Ameritrade
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