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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
Request for Clarification Regarding Ruling on Claimant's Amended Statement of Claim
In this letter, Mr. La Brie addresses how the Arbitrator removed TD Ameritrade Clearing from the list of Respondents and effectively denied his claims against them before the Arbitrator had any evidence to consider. The Arbitrator had told La Brie to join them. Then, the Arbitrator denied La Brie's Amended Claim where he attempted to join them to the case. He ruled against some of La Brie's requests despite the Resppondent not objecting to La Brie's motion. This are the actions typical of a defense attorney, not a neutral arbitrator. This letter addresses these deviations from protocol.
July 5, 2012
Via E-mail
Douglas E. McLaren
c/o FINRA Dispute Resolution
Southeast Processing Center
Boca Center Tower 1
5200 Town Center Circle
Boca Raton, FL 33486
Dear Mr. McLaren,
Claimant requests that you clarify your ruling dated June 22, 2012 regarding Claimant's Amended Statement of Claim.
Claimant is concerned that your decision has had possibly unintended consequences. Claimant understood you to have stated that the pre-hearing conference was not intended to make any judgments on Claimant's claim, but Claimant is concerned that this has occurred.
My proposed Amended Statement of Claim included four additions to the original Statement of Claim, was intended to do four things,
1. to add factual allegations necessary to state a claim against Respondent for Failure to Supervise their brokers;
2. to add factual allegations necessary to state a claim against Respondent and TD Clearing for Failure to Execute a Customer's Order, specifically the Order of Claimant;
3. to add factual allegations necessary to the Clearing Dispute against Respondent and TD Clearing for Respondents' Intentional and/or Negligent Misrepresentations to Claimant when they failed to execute and/or clear the trade.
4. and to add TD Ameritrade Clearing as a respondent.
In their written response, Respondents did not oppose the addition of the factual allegations necessary to make the three claims outlined above, but only opposed the motion to add TD Ameritrade Clearing as a Respondent to the Claims, as amended.
Your Honor called for a conference which was held on June 15, 2012, on Claimant's request to amend its Statement of Claim. According to FINRA, the reason for the conference was to discuss whether you should allow Claimant to make the aforementioned 4 amendments to his Statement of Claim. Soon after Claimant started explaining why the amendments adding factual allegations were necessary, the Respondent's counsel interrupted him stating that the hearing was only to deal with adding TDA Clearing as a Respondent and you confirmed this narrowing of the issues regarding Claimant's efforts to amend its Statement of Claim. Claimant attempted to return the conference to the subject of whether the Arbitrator would permit Claimant to add factual allegations to make out the claims, as amended, that it was making against Respondents and TD Clearing. Claimant requested, and was granted, 10 minutes to continue. Enclosed is the transcript of the Claimant's presentation.
There was no further discussion or opposition to the addition of factual allegations and claims against Respondent, rather the discussion changed from adding TDA Clearing as a Respondent to Claimant's obtaining the documents from TDA Clearing. It appeared that you were concerned that Claimant was seeking to amend its claim to add TD Clearing for the sole reason of facilitating discovery from TD Clearing. This was not Claimant's reason for seeking to amend his claim; rather, he was seeking to ensure that Respondents included all those who were involved in the dispute, to clarify his claims and to add factual allegations to support a broader array of claims that discovery had demonstrated he should make.
It is often the case that no discussion of motions ensues in cases which Claimant, Respondent, and Arbitrator all accept the amendments. Thus, Claimant wasn't alarmed there was no discussion of the amendments after his presenting the facts.
Needless to say, Claimant was surprised to receive a ruling refusing to give Claimant leave to amend his Statement of Claim to add factual allegations necessary to make out its claims, as amended, especially considering that the addition of these factual allegations was not opposed.
Claimant would like clarification on whether Administrator intended to deny Claimant the opportunity to add these factual allegations and amend the claims he is asserting against Respondent. If you did not intend that result by your ruling, then Claimant could amend his claim to add the factual allegations, but not to add TD Clearing as a party.
Can you please clarify whether:
1. whereas Respondent provided recordings in Discovery showing that it had given Claimant erroneous information regarding his trade and the incidents of securities he held in his account with Respondent, and stated that Respondent had no policy that instructs its employees to relay information that the OCC requires that its members, such as Respondent relay to its customers, or to otherwise research the mandates of the OCC as it might effect a customer's securities managed by Respondent, you intended to deny Claimant the opportunity to pursue a claim for "failure to supervise" as requested on the Amended Statement of Claim and consented to by the Respondent?
2. whereas Respondents admitted to have not executed Claimant's trade, you intended to deny Claimant the right to pursue a claim of "failure to execute" as requested on the Amended Statement of Claim of Claim and accepted by the Respondents?
3. whereas TDA Clearing did not clear trades that Respondent reported as having cleared, and did not correct erroneous information it gave Claimant about securities he held in his investment account at Respondent, even though Claimant relied to his detriment on this erroneous information, you intended to deny Claimant the right to add a claim for misrepresentation?
4. or will Claimant be permitted add factual allegations to his Statement of Claim in order to make out claims for (i) "failure to supervise", (ii) "failure to execute", (iii) clearing dispute and/or (iv) intentional and/or negligent fraud and misrepresentation by Respondent to its customer, the Claimant.
5. the agenda for conferences could be provided, so that Claimant will be informed of changes the Respondent and the Arbitrator have made to the topics of discussion. That way, we can ensure that all the Claimant's and Respondents' issues are addressed and both parties can be prepared for the discussion. Claimant and Respondents can be allowed to decide whether the topics for discussion are worth the resources required.
Additionally, Claimant would like to remind the Arbitrator that in the hearing on Claimant's motion to amend, Arbitrator stated he would issue a ruling whether he will enforce his order to the Respondent to provide documents showing the name and address of the carrier for the phone number used by Mr. Cornett. To date, Claimant has not received said ruling.
Thank you for your assistance.
Sincerely,
Laurent J. La Brie
cc: TD Ameritrade Clearing
Scott Cornett
Enclosure: Transcript of Claimant's presentation
Transcript of Claimant's Presentation in Conference of June 15, 2012
As you can tell, your honor, I have elected to represent myself at this hearing. The Respondents' tactics to stall and obfuscate have forced me to take this action for economical reasons. For instance, the Respondents were given a 2 hour Discovery hearing where they argued that TDA Clearing should be named on the claim in order for Claimant to get some List 1 documents. Today we are having a 4 hour hearing where they are attempting to argue that TDA Clearing should NOT be named.
The reason for the need to join TDA Clearing to the claim is basic. TDA Clearing received the memo from the Options Clearing Corporation ("OCC"), a self-regulatory organization which clears trades of options for its member broker/dealers, wherein the OCC told TDA Clearing to "ADVISE THEIR CUSTOMERS" of the actions the OCC was taking. Despite TD Ameritrade Clearing and TD Ameritrade having very similar names, the same physical address, and the same in-house legal staff as well as not documenting multiple millions of dollars in financial transactions between them, Respondents maintained in the Discovery Hearing that TDA Clearing is not the same corporate entity. If this is true, and TDA Clearing was charged by the OCC with the duty to relay information to its customers, then TDA Clearing must be listed among the Respondents.
Claimant would like now to review the details of this issue that have led us to the Amended Statement of Claim and today's hearing.
Failure to Supervise:
On December 4, 2008, the OCC had issued a mandate to its members to advise their customers of a dividend by UDR, Inc. This same OCC Memo advised its members that the option quotation symbol for "UDR" was changed to "UQW". Claimant held a Put to sell shares of UDR, Inc. to a third party at a specified price in his investment account maintained by Respondents. The OCC required its member broker/dealers to explain to their customers how this dividend would affect the exercise of options or puts that they had purchased in their investment accounts. If the dividend were issued in shares, it was going to affect the total amount of shares customers would receive when they exercised their options.
In Discovery, Respondents produced tape recordings to Claimant that showed that in a call Claimant made after the memo was distributed, not only did Respondents not inform Claimant of the dividend, but, in response to a direct question from Claimant, Respondents misrepresented to Claimant that changes in the way UDR's stock was being quoted were due to factors other than the declared dividend. Contrary to the representation of the Respondents, this was not an arbitrary change of trading symbol, but there was a reason behind it. In fact, the changes in UDR's stock quotation were due to the declared dividend, not the trading volume of the stock, as misrepresented by Respondents to Claimant. NASD Conduct Rule 3010(b) requires broker-dealers to establish and maintain written procedures that are reasonably designed to achieve compliance with applicable securities laws and regulations, and applicable rules of the NASD.
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.
Failure to Execute:
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. 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.
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.
Although Respondents have created logs with numerous material omissions, wrong phone numbers and other errors, they have not produced any evidence from a third party to substantiate their claim to have attempted to call the Claimant. In fact, whereas Your Honour ruled that by March 30, 2012, Respondents should produce "any relevant additional information related to these entries in its possession, custody or control to Claimant" Respondents have held that ruling in contempt, to date not releasing either the phone records or information they have in their possession giving the name of the telephone carrier. The response in Respondents' letter of May 7, 2012 was that "TD Ameritrade telephone providers would have no record of a call that resulted in a 'busy signal.'" How do the Respondents know their provider would have no such record if they have no documents in its possession, custody or control to show who that provider is? Clearly the Respondents do have documents telling who the provider is or else they could not honestly make that statement. I would like to ask your honour to enforce your ruling that the Respondents have held in contempt.
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. 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.
Clearing Dispute:
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. 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.
Claimant's claims against Respondents are not as narrow as Respondents have misstated. Claimant clearly stated on page 17 of the Statement of Claim that Respondents have committed both a breach of contract and a breach of duty. In CLAIMANT'S REPLY TO RESPONDENTS' OPPOSITION TO CLAIMANT'S MOTION TO AMEND STATEMENT OF CLAIM, Claimant discusses the breach of duty, as well as the fact that discovery has yielded new information that has clarified Claimant's Amended Statement of Claim.
Claimant refers to this document for further details but in summary, Claimant maintains the following:
TDA Clearing received the memo from the OCC which told it to "ADVISE THEIR CUSTOMERS" of the actions OCC was taking. Despite TD Ameritrade Clearing and TD Ameritrade having very similar names, the same physical address, and the same in-house legal staff as well as not documenting multiple millions of dollars in financial transactions between them, Respondents maintained in the Discovery hearing that TDA Clearing is not the same corporate entity. If so, and if TDA Clearing was the entity to receive the duty as a member of the OCC, and it breached the duty to inform its customers, causing TDA to breach its contract with the Claimant to automatically exercise Claimant's options, then TDA Clearing must be listed among the Respondents.
Claimant's claim, as amended, is now more clear, which will facilitate resolution of this arbitration.
Thank you, your honor.
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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