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Aiguier v. Financial Industry Regulatory Authority, Inc.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

March 10, 2017

Dustin Aiguier
v.
Financial Industry Regulatory Authority, Inc. et al No. 136377

          Filed March 11, 2017

          MEMORANDUM OF DECISION AND ORDER ON THE DEFENDANTS' MOTIONS TO DISMISS

          Mitchell H. Kaplan, Justice of the Superior Court.

         INTRODUCTION

         This case, once again, raises the issue of whether, or pursuant to what standard, the Superior Court may adjudicate a claim made by a registered representative of a securities broker-dealer that he is entitled to have records of customer complaints expunged from the data bases maintained by defendant Financial Industry Regulatory Authority, Inc. (FINRA). Plaintiff Dustin Aiguier was formerly a registered representative of New York Life Securities, LLC (NYLife). While with NYLife, four complaints were lodged against him by six of his customers (including two sets of spouses) (collectively, the Customers). The plaintiff has filed a complaint which he styles: " Amended Petition for an Order of Expungement of Customer Dispute Information from the Central Registration (CRD System)" (the Complaint). In addition to FINRA, the Complaint also names the Customers as defendants (although the plaintiff seeks no relief with respect to them). The Securities Division of the Office of the Secretary of the Commonwealth has intervened in this action as a defendant on the ground that it is a primary regulator of the securities industry in Massachusetts and is responsible for protecting the public's interest in access to information concerning customer complaints. The case is now before the court on all of the defendants' motions to dismiss the Complaint. They move for dismissal asserting that: (a) the Superior Court lacks subject matter jurisdiction (Mass.R.Civ.P. 12(b)(1)) and (b) the Complaint fails to state a claim on which relief may be granted (Mass.R.Civ.P. 12(b)(6)). For the reasons that follow, their motions are allowed.

         FACTUAL BACKGROUND

         The court will begin by summarizing the relevant factual allegations in the Complaint, assumed to be true for purposes of this motion, as well as relevant information contained in attachments to the Complaint, to the extent necessary to address the issues raised by the defendants' motions. It will then describe the regulatory framework relevant to this dispute.

         The Plaintiff's relationship to NYLife and the Customer Complaints

         The plaintiff was a registered representative of NYLife until June 3, 2015, when he was discharged. Four written complaints against him were submitted to NYLife by his customers, each involved the sale of annuities. NYLife settled each of the claims without an arbitration proceeding being commenced. As required by FINRA rules, it reported the claims and settlements to FINRA, and a description of each claim and the settlement, as well as the plaintiff's response to each claim, are available to the public on FINRA's BrokerCheck website. The complaints are reported in BrokerCheck in the following order: the first was received on September 10, 2015 and settled for $40, 229.37; the second was received on August, 13, 2015 and settled for $95, 961.16; the third was received on July 28, 2015 and settled for $12, 286.78; and the fourth was received on January 1, 2013 and settled for $8, 500.

         After the plaintiff left NYLife, its representatives solicited customer complaints against him. Three of these complaints were the result of this solicitation, which was in some way related to a pyramid scheme engaged in by a NYLife management employee.

         The disclosures regarding the first three claims and settlements are false and misleading.[1] As to the fourth, the plaintiff followed all rules and procedures in the sales process, NYLife found that he had not engaged in any wrong doing, and the settlement was made in the interest of good customer relations.

         FINRA

          FINRA is a private, not-for-profit corporation organized under the laws of Delaware. It is a self-regulatory organization (SRO) registered with the Securities and Exchange Commission (the SEC). Under federal securities law, as an SRO, it plays a central role in the regulation of the securities industry. As applicable to this case, FINRA is required to " establish and maintain a system for collecting and retaining registration information" for representatives of broker-dealers. See 15 U.S.C. § § 78o-3(i)(1)(A) and (i)(5). In forms approved by the SEC, FINRA collects, among other items, " information about registered personnel, including customer complaints . . ." See SEC Release No. 34-71959, 79 Fed.Reg. 22734 (Apr. 17, 2014); see also Desiderio v. Nat'l Ass'n Sec. Dealers, 191 F.3d 198, 201 (2nd Cir. 1999) (" the SEC . . . must approve all [FINRA's] rules and regulations"). The complaints are recorded in an electronic database called the Central Registration Depository (CRD) which FINRA maintains in compliance with federal securities law and an agreement with the state securities regulators in all 50 states. The federal securities law requires that this complaint information, as well as other data, be available to the public. See 15 U.S.C. § 78o-3(i)(1)(B) (" A registered securities association shall . . . establish and maintain . . . a readily accessible electronic or other process, to receive and promptly respond to inquiries regarding . . . registration information on its members and their associated persons"). FINRA fulfills this obligation with an on line internet resource which it calls BrokerCheck. The four customer complaints lodged against the plaintiff, as well as information concerning the reason that NYLife discharged him, are available to the public on BrokerCheck together with the plaintiff's response to each complaint.

          FINRA has promulgated Rule 2080, which addresses the means by which information concerning a broker that exists in the CRD may be expunged. It states, in relevant part:

(a) Members or associated persons seeking to expunge information from the CRD system arising from disputes with customers must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.
(b) Members or associated persons petitioning a court for expungement relief or seeking judicial confirmation of an arbitration award containing expungement relief must name FINRA as an addition party and serve FINRA with all appropriate documents unless this requirement is waived pursuant to subparagraph (1) or (2) below.
(1) Upon request, FINRA may waive the obligation to name FINRA as a party if FINRA determines that the expungement relief is based on affirmative ...

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