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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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Laurent J. LaBrie v. TDAmeritrade 
FINRA Claim 11-03725
MOTION TO COMPEL DISCOVERY
FINRA DISPUTE RESOLUTION
In the Matter of the Arbitration Between
* FINRA Case No. 11-03725
Laurent J. La Brie,
Claimant
TD Ameritrade, Inc. and Scott Allen Cornett,
Respondents.
MOTION TO COMPEL DISCOVERY
Claimant, Laurent J. La Brie (“Claimant”), through undersigned counsel, pursuant to FINRA Code of Arbitration for Customer Disputes, Rules 12503 and 12509, hereby files this Motion to Compel Discovery from Respondents, TD Ameritrade, Inc. (“TD”) and Scott Allen Cornett (“Cornett”).
TD and Cornett have failed to fully respond to Claimant’s Request for the Production of Documents.1 In spite of Claimant’s efforts through counsel to cooperate with TD in trying to understand the basis for TD’s refusal to provide certain documents, TD has provided no further explanation nor has it provided any of the documents requested, even though such documents are within its possession, custody or control. As a result of TD’s failure to respond, Claimant respectfully requests the Panel to order TD and Cornett to produce the documents requested, and order TD and Cornett to pay Claimant’s attorneys fees incurred in filing and prosecuting this Motion.
INTRODUCTION
On November 28, 2011, Claimant requested TD and Cornett to produce certain documents as part of this Arbitration. TD and Cornett responded on December 31, 2011, producing some of the documents requested, but objecting to the production of other documents within its possession, custody or control. Claimant, through counsel, attempted to address the objections from opposing counsel for TD and Cornett by phone, but was unable to obtain further cooperation from TD or Cornett. Claimant, again through counsel, followed up with TD and Cornett by letter dated February 6, 2012, again requesting TD’s and Cornett’s cooperation in the production of specific documents (attached as “Exhibit 1”). TD and Cornett again failed and refused to produce the documents requested. Most of the reasons given by TD and Cornett for this failure consisted of curious charges that Claimant’s requests sought information TD and Cornett thought was irrelevant or the requests sought information that Claimant just should not request. Counsel for Claimant called counsel for TD and Cornett and attempted to explain why Claimant wanted the documents but TD’s and Cornett’s counsel simply reiterated that TD and Cornett would not produce the documents and would not give any further explanation as to why they would not produce the documents.
The documents requested by Claimant and objected to by TD and Cornett are identified in Exhibit 1, and the disputes regarding their production are discussed below.
FINRA Rule 12508 provides the basis for objecting to the discovery propounded to TD and Cornett by Claimant. Rule 12508(c) states “arbitrators may consider the relevance of documents or discovery requests and the relevant costs and burdens to parties to produce this information.”
REQUEST 3
In Request 3, Claimant has requested documentation from the clearing company or other source that shows who sold the UDR Puts Claimant purchased on or about October 27, 2008. TD has refused to produce this documentation on the grounds that it is “irrelevant and outside the scope of the matter at controversy.” This documentation is relevant and within the scope of the matter of controversy. Among other things, Claimant is seeking to determine whether TD usurped Claimant’s trade and appropriated the benefit of the trade for its own account.2 Claimant is seeking to determine whether TD was the seller of the Puts at issue. If that was the case, then TD would have suffered a loss if it executed the trade, rather than reversing it, as it has provided in its Response filed in this arbitration. In this arbitration, both parties agree that a contract was written between Claimant and a seller of the option. TD knows the identity of the seller of this option, but it refuses to produce documents within its possession, custody and control showing the identify of this seller. These documents would show whether TD was acting as a “dealer” rather than a “broker” in selling the Puts.3 If TD was acting as a “dealer” in selling the puts, and therefore acting for its own account, then these actions would explain why it reversed Claimant’s trade, rather than the reason TD has advanced in its Response. The requested document will indicate the name of the seller of the Put who received the money from the sale and who would have received the benefit of not having to complete the purchase of the shares if the Put had not been exercised. This documentation is relevant to paragraphs 31 and 32 of Claimant’s Statement of Claim and Respondents should be compelled to produce them.
REQUEST 4
Claimant has requested documentation in TD’s possession, custody or control that is from the clearing company or other source that shows who bought the shares Claimant sold short on or about January 16, 2009, and the source of the money that was placed in Claimant’s account when the transaction was made. TD has refused to produce these documents asserting they are “irrelevant and outside the scope of the matter at controversy.” This documentation is relevant and within the scope of the matter of controversy. Claimant has alleged that he bought shares in order to cover the short position indicated on statements provided to him by TD, which short position was created when TD automatically exercised his Puts. TD has responded in this arbitration that it did not actually automatically exercise the Puts even though TD provided documentation to Claimant at the time showing that it had automatically exercised the Puts. TD has stated in its claim that it merely exercised the Put “on paper” and when it discovered the “paper” error, it reversed the “paper” trade. Claimant is trying to discover whether TD’s statements in its Response are true by examining all of the documentation for the various trades. TD does not assert that it does not have the documentation, it just asserts that its not relevant so its not going to produce it. According to TD, it reversed Claimant’s trade to purchase shares to cover the short position in the trade, because that was part of undoing Claimant’s “paper” trade position. 4However, in doing so, it sold the shares Claimant bought at a profit. At first, TD did not credit this profit to Claimant. Only after Claimant brought his claim, then TD credited Claimant’s account. This would suggest that TD was the party selling Claimant the shares Claimant bought to cover the short position. Claimant wants to investigate whether any of this self-dealing was going on by TD in the various trade positions – either the sale of the Puts or the sale of shares to cover the short position.
According to documentation that TD provided to Claimant , TD automatically exercised Claimant’s Put for him on 3/27/2009 and 4/3/2009. Documentation that TD subsequently sent to Claimant shows that Claimant then covered the short of stock created by the automatic exercise of that Put. The buyer (under the exercise of the Put – the other side of the trade) suffered a loss by Claimant’s action in covering the short position, until TD reversed the trades and restored the mysterious buyer’s money. Claimant is entitled to copies of all documentation reflecting the beneficiaries of TD’s actions. There is no good reason for TD to refuse to produce this documentation that it clearly has and conceal the true state of facts from discovery. The requested documentation is relevant to paragraphs 31 and 32 of Claimant’s Statement of Claim and Respondents should be compelled to produce it.
REQUEST 5
Claimant requested transaction records of any other client (including the last four numbers of their account numbers) that, during any time in the month of January, 2009, in their TD Ameritrade account, bought or sold UDR Puts or Calls (expiring in January, 2009) with any strike price, regardless of whether the transaction records show that the option (put or call) was exercised or that it was permitted to expire (unexercised). TD has refused to produce these documents on the grounds that they are irrelevant, outside the scope of the matter of controversy, and proprietary and/or confidential. Claimant has offered to enter into a non-disclosure agreement with TD to address TD’s confidentiality concerns.
These documents are relevant. They will show TD’s treatment of other clients with regards to this type of option. They will also show how many clients TD had to call over the 4 day period it was given by the OCC. This documentation is relevant to paragraphs 17, 18, 20, 21, and 22 of Claimant’s Statement of Claim and Respondents should be compelled to produce it.
REQUEST 8
Claimant requested documentation TD has received from a third party (other than TD's phone logs already provided), such as a telephone company, which shows the efforts made by TD to contact Claimant at the phone numbers provided by Claimant to TD regarding the trades of Claimant’s UDR options, selling short the stock and covering the short. Claimant also requested that TD include in its response a copy of the telephone recording of the employee dialing and the response on the other side of the telephone line. TD objected to this request, asserting that the request required TD to prepare a document. Claimant has asserted that TD made no effort whatsoever to try and contact Claimant, as directed by the OCC, to advise that there had been certain developments in the underlying stock 5for the Puts, the shares of UDR, and that his Puts would not automatically exercise. TD has provided only a call log that Claimant believes was “manufactured” by TD’s employees, after the fact, and at the direction of Scott Cornett, to show that TD complied with the directive of the OCC.
Claimant is entitled to take discovery to test the veracity and credibility of this call log. In doing so, Claimant is not requesting a document “tailored and/or created for the purpose of discovery.” Claimant is requesting, and is entitled to receive, any and all documents in TD’s possession, custody or control that is responsive to this request. TD has not indicated that it lacks phone records from its telephone provider (or some other third party document of phone calls made by TD during this time period), but has simply refused to produce the documents. There is, clearly, a controversy as to what, if anything TD did to try and contact Claimant. In its Response, TD has alleged it attempted to contact Claimant and received a busy signal. Claimant asserts that this statement is simply not possible – his phone does not give a “busy” signal, it goes directly to voicemail.
The only way to clear up this discrepancy is to request additional documentation that would corroborate TD’s statements. TD has the phone records, showing incoming and outgoing phone calls. It has additional recordings. TD could produce these documents, but it does not want to do so. These documents are relevant to paragraph 23 of the Statement of Claim and Respondents should be compelled to produce them.
REQUEST 9
Claimant has requested any policy or other written directive given by TD to TD’s employees/brokers/agents during the period of October 27, 2007, to January 16, 2010, stating the instructions to brokers regarding an “in-the-money” option transaction, notification of clients about options issues and pending expirations, as well as those specifically regarding the UDR options. Respondent has objected, claiming that TDAmeritrade accounts are self-managed. This response is argumentative and non-responsive.
TD had staff to handle inquiries from its customers and comply with its obligations to its customers as a registered broker/dealer with FINRA. Its clear TD issued instructions and memorandums to its registered, trained and/or licensed employees to advise them how to do their jobs, which jobs required them, among other things, to handle client inquiries and OCC directives. The requested documents would include a policy or procedure manual, or a memorandum on how staff should handle OCC memorandums. The responsive documents would give guidance on how TD’s staff should document its compliance with securities regulatory directives from oversight agencies like the OCC.6 TD is not responding that it does not have these documents. These documents are relevant to paragraphs 5, 8, 9, 11, and 23 of the Statement of Claim and Respondents should be compelled to produce them.
REQUEST 10
In an attempt to resolve this discovery dispute in good faith, Claimant revised Request 10 to the following: any policy or other written directive given by Respondent to Respondent’s employees/brokers that was in force during the period of October 27, 2007 to January 16, 2010, stating (a) how it handles or processes the monthly OCC memo alerting members to options not subject to automatic exercising, and (b) what research should be done and what information should be given a client when he/she calls regarding changes to the symbol for an option. Claimant also requested any policies or directives specifically regarding the UDR options. Respondent has stated that the request is not applicable to TDAmeritrade since accounts are self- managed. This is an argumentative response, which is not appropriate for a discovery response. In the FINRA Discovery Guide, The Document Production List for Firms/Associated Persons is uniform regardless of the type of account in their custody. Claimant insists on the production of all responsive documents. This will demonstrate whether Mr. Cornett followed TDAmeritrade's internal policy when he failed to reveal information about the OCC memo to the TD’s customer service representative. It will also demonstrate whether TD has a written procedure covering what actions to take in response to OCC memos. It will also demonstrate if any directive regarding notifying customers was observed. These documents are relevant to paragraphs 20, 21, and 22 of the Statement of Claim, and the Respondents should be required to produce them.
REQUEST 11
Claimant has requested all written communication and other documents created prior to March 17, 2009, of how Respondent informed Claimant that the UDR short position was only in “book entry form” or of any different status than Claimant’s other shorts, and therefore any less complete, viable, or dependable than any other short position Claimant took in Claimant’s account, including the EIHI short position that appeared identically in the same February 2009 statement from TD Ameritrade, yet was not reversed by TD Ameritrade. TD has stated that the request is not applicable to TDAmeritrade since accounts are self-managed. This response is argumentative and non-responsive. In the FINRA Discovery Guide, the Document Production List for Firms/Associated Persons is uniform regardless of the type of account in their custody. Claimant insists on the production of all responsive documents. The “book entry form” status was one of the reasons given by the Respondent for the reversal of the trade, yet Respondent didn't apply this rule to other book entry shorts in Claimant's account. These documents are relevant to paragraph 23 of Claimant’s Statement of Claim and Respondents should be compelled to produce them.
REQUEST 14
Claimant requests all written communication explaining to customers how TD defines a “book entry” transaction or the difference between that and any other short transaction. Claimant has requested that TD’s response include any communication made specifically to Claimant outlining the risks of book entry transactions, including date and time of such communication. TD has not responded that it does not have these documents, it has simply objected on grounds of relevance to self-directed accounts. In the FINRA Discovery Guide, the Document Production List for Firms/Associated Persons is uniform regardless of the type of account in their custody. Claimant insists on the production of all responsive documents. Respondent is not responding that it does not have these documents, its simply refusing to provide them These documents were one of the reasons given by TD for the reversal of the trade, yet the definition of “book entry” securities are those recorded in electronic records called book entries rather than as paper certificates. As such, all of the securities held in Claimant's account were book entry. Respondent has these documents and should be compelled to produce them.
REQUEST 15
Claimant has requested documentation reflecting Respondent’s written communication explaining to customers what OCC memos are, how to receive them, and who a customer should contact at Respondent to discuss them. Respondent has objected on grounds of relevance to self- directed accounts. In the FINRA Discovery Guide, the Document Production List for Firms/Associated Persons is uniform regardless of the type of account in their custody. Claimant insists on the production of all responsive documents. TD has claimed that this account was a self-directed account. TD is a registrant of FINRA and, therefore, subject to the regulation and directives of the OCC. Claimant has never been a registrant of FINRA and is not familiar with the requirements of the OCC, received none of its directives and thus could not follow the OCC rules. Such documents are relevant as to what efforts TD made to enable the Claimant to self- direct his account, as TD alleged at pages 2-3 of its Answer to Claimant’s Statement of Claims. Respondents should be compelled to produce these documents.
REQUEST 16
Claimant has requested notes made by TD Ameritrade and all other communications to Claimant regarding these transactions, including, but not limited to the telephone recordings, electronically transmitted messages, and posted documents. TD provided some but not all documents, requesting that Claimant stipulate the details of any further conversations of interest. TD has provided no reason for not simply producing these communications. Claimant requests the documents related to the conversations noted in the Respondents' two telephone logs for the dates of 3/27 and 3/31 including a conversation reportedly between someone and an employee named Christopher Blue. TD should be compelled to produce these documents.
REQUEST 17
Claimant requested all internal communications and supervisory reports regarding these transactions, including but not limited to recordings of the conversation between staff members and Scott Cornett. Rather than produce these recordings, TD has requested that Claimant stipulate as to the details of any further conversations of interest. Since Claimant was not a party in these conversations, it is impossible to comply with this request. Claimant insists on the production of all responsive documents. These documents will provide further evidence of what was known and what should have been known by the Respondents regarding the transactions that are the basis of this dispute. Respondents should be compelled to produce these documents.
REQUEST 18
Claimant has revised this request to now request the following: please provide any documentation relating to correspondence with the compliance department, and any reprimand, discipline, or additional training given to persons in response to: (a) such persons giving Claimant information that Claimant’s account was not displaying a value on Claimant’s UDR Puts simply because “there's no volume on it so nobody's traded it;” (b) the failure to notify Claimant of the OCC memo on the option and/or (c) the failure to notify Claimant of the changes to UDR options as was recommended by the January 16, 2009, OCC Memo #25370. This requested information is relevant and Claimant insists that it be produced. TD has refused to produce this documentation. This information will demonstrate the degree to which TD has provided supervision of Mr. Cornett in this matter. Respondents should be compelled to produce this documentation.
REQUEST 19
Claimant has requested those portions of Respondent’s internal reports, analysis or memorandums that (a) concern “associated persons” for Claimant’s accounts or Claimant’s account or the transactions at issue; and (b) were generated during the period of October 27, 2007, to January 16, 2010, and discussed alleged improper behaviour in the branch against other individuals involving unjust enrichment, removing funds without a client's authorization, misrepresenting or failing to disclose material facts concerning an investment, or failure to exercise an option that was in the money. Respondent has refused to respond on the grounds the request is argumentative, seeks information based on facts not in evidence, and irrelevant to self- directed accounts. In the FINRA Discovery Guide, the Document Production List for Firms/Associated Persons is uniform regardless of the type of account in their custody. This information is relevant and Claimant insists on its production. This will indicate the level supervision that TD is exercising over its employees. Respondents should be compelled to produce this documentation.
REQUEST 20
Claimant has requested all documents relating to all investigations, charges, or findings by any regulator (state, federal or self-regulatory organization) and the firm/associated persons' responses to such investigations, charges, or findings for the associated persons' alleged improper behavior involving unjust enrichment, removing funds without a client's authorization, misrepresenting or failing to disclose material facts concerning an investment, or failure to exercise an option that was in the money. Respondent has objected on grounds of relevance to self-directed accounts, being overbroad, and requesting confidential information. In the FINRA Discovery Guide, the Document Production List for Firms/Associated Persons is uniform regardless of the type of account in their custody. Claimant insists that Respondents produce these documents and is willing to sign a non-disclosure agreement. This will indicate to what degree these have been practised by those involved in this incident and the level of supervision provided by TD. Respondents should be compelled to produce this documentation.
REQUEST 21
Claimant has requested those portions of examination reports or similar reports following an examination or an inspection conducted by a state or federal agency or a self-regulatory organization that focused on the Associated Person(s) of Respondent for Claimant’s account or the transaction(s) at issue or that discussed alleged improper behavior in the branch against other individuals involving unjust enrichment, removing funds without a client's authorization, misrepresenting or failing to disclose material facts concerning an investment, or failure to exercise an option that was in the money. Respondent has objected on grounds of relevance, due to the request being argumentative, assuming facts not in evidence, overbroad, and burdensome. Claimant insists that TD produce these documents. They will indicate whether any regulatory organizations have already determined this incident to have been inappropriate or what standard practice has been at this branch. “Unjust enrichment, removing funds without a client's authorization, misrepresenting or failing to disclose material facts concerning an investment, or failure to exercise an option that was in the money” are claims which the Claimant attempts to demonstrate as factual with the documents obtained. The Discovery Guide lists these as discoverable for precisely this reason. These documents are not burdensome, as they are all in Respondent’s possession, custody or control and would normally be quickly located by internal staff. Respondents should be compelled to produce these documents.
WHEREFORE, Claimant, through undersigned counsel, respectfully requests that the Panel order TD and Cornett to produce the documents requested, pay Claimant’s attorney’s fees and arbitration fees as to this Motion to Compel, and for other relief as the Panel may find is just.
Respectfully Submitted:
Andrew Jiranek
1. Hollie Mason is providing simultaneous and joint representation of Cornett and TD.
2. Both parties agree that Claimant’s trade, which TD alleges it reversed, rather than usurped, was very profitable.
3. A “broker” is a person that effects transactions in securities for the benefit of another person; a “dealer” effects transactions in securities for its own account and benefit.
4. The shares Claimant purchased had appreciated in value between the time Claimant purchased them and TD sold them. TD unilaterally took the action of selling Claimant’s shares (that he purchased to cover his short position) without consulting him. This unilateral action is suspect, highly unusual, and not in accord with a “self-directed account.” Claimant is entitled to obtain and examine the documentation surrounding it.
5. The OCC memorandum relied upon by TD as its basis for not automatically exercising Claimant’s puts specifically instructed TD to contact Claimant and advise him of the developments in the stock underlying the Puts, the UDR shares. TD claims it complied with this directive; Claimant says it did not do so and, instead, created a false record, the call log, to hide that it failed in its duty to Claimant.
6 TD has complained that OCC issued many directives that required them to pass on information to its customers. Its likely TD had written procedures in place that would provide guidance to its employees as to how to handle these directives.
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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