The brokerage industry works hard to keep customer complaints out of public view, with aggressive firms fighting to remove grievances that sully their brokers' records. The interminable campaign to sanitize the dossier of former Royal Alliance Associates broker Kathleen J. Tarr is a disheartening case in point.
At a court hearing Friday, a lawyer for New York-based Royal Alliance made a case to a panel of three California appellate judges that a customer dispute -- one of 44 -- on Tarr's Finra records should be expunged.
It was but the latest in what's become an epic drama that could only take place in the wacky world of Wall Street's private justice system. More importantly, it's a screaming reminder that anyone who does business with a securities firm would be insane to assume that the stuff they read on Finra's online BrokerCheck tells the whole story.
Tarr wooed dozens of AT&T employees to open accounts when they were getting early retirement offers during a series of downsizings starting in 2007. By 2010, the complaints began to roll in, accusing Tarr of steering clients into portfolios of high-commission variable annuities and non-traded real estate investment trusts, or REITs. (Fifteen of the 44 complaints were either dropped by the investor or denied by her employer and never reached the point where an arbitration claim was filed.)
Now, she, her lawyer, and Royal Alliance are on a quest to scrub at least some of that information from her unsightly record. Should they succeed, the case will be deleted from the Finra BrokerCheck website, which is meant to give investors some insight into the brokers they may choose to work with.
In Fall of 2014, I wrote in The New York Times that Tarr had appealed to a panel of Finra arbitrators that the record of a Royal Alliance settlement with her former client Sandra Liebhaber of Scappoose, Oreg. should be deleted. Liebhaber's lawyer shared an audio recording of the outrageous 40-minute private expungement proceeding with me at the time. The arbitrators allowed Tarr to carry on about her pedigree -- the daughter and granddaughter of ministers -- and to detail how the portfolio she designed for Liebhaber "completely fulfilled her objective." But the arbitrators wouldn't allow Liebhaber to speak at all, and cut off her lawyer, Robert Banks, when he asked to cross-examine Tarr.
In the end, the panel recommended expungement. Incredibly, they also wrote that Liebhaber had given a "full argument" that day.
Finra claims on its website that expungement "is an extraordinary remedy that should be recommended only under appropriate circumstances," yet, according to the Public Investors Arbitration Bar Association, a trade group for lawyers who represent investors, "arbitrators granted expungement in roughly nine out of 10 cases that were resolved by stipulated award or settlement." Finra has tried to address PIABA's criticisms.
With an expungement recommendation in hand, a brokerage firm still has to file in court for confirmation of the award. So Liebhaber had the opportunity to file an opposition to the expungement recommendation and persuaded a California superior court to overturn the decision. At Friday's hearing, Royal Alliance argued that the superior court was in error.
Among its arguments, the brokerage firm said in a March 17 brief that just because Finra rules say arbitrators "should" allow an investor to testify in an expungement hearing doesn't mean it is required.
To get an idea of how Tarr became the target of so many angry customers, consider the backdrop described in an ongoing case filed with Finra on June 30, 2014. Four investors who had worked in AT&T's Sam Ramon, Calif. facility said in a Statement of Claim that Tarr and a partner "would roam the halls, especially when an upcoming layoff or employee buyout was announced, seeking to market their services to employees being laid off, or wondering whether to take a buy-out package." Like most of the other investors who filed complaints against Tarr, the San Ramon group said they were put into illiquid investments that were not suitable for retiree accounts.
A spokeswoman for New York-based Lightyear Capital, which owns a group of brokerage firms that includes Royal Alliance, declined to comment.