Learn from others' mistakes.
Another month has come and that means another round of Financial Industry Regulatory Authority (FINRA) disciplinary cases. Since it is less painful to learn from the mistakes of others than from your own, I urge you to read the following cases.
Putting Your Career Into Reverse
Contrary to his member firm's prohibition against engaging in any mortgage business (including reverse mortgages), Daniel Allen Abbott presented seminars to promote the sale of reverse mortgages and solicit various types of investments from senior citizens. In connection with the seminars, Abbott sent invitations that used exaggerated and unwarranted claims. He also used slides and handouts that projected unfounded claims of future performance. In public communications, Abbott made misleading claims about his expertise and industry status, and provided incomplete and unbalanced discussions of investment products. Pursuant to an AWC, Abbott was fined $20,000 and suspended 60 days.
Sometimes you run afoul of industry rules because you fail to realize the full reach of a rule. Registered reps may understand, for instance, that they can't dabble in mortgages but then fail to realize that a reverse mortgage is subject to the same rules. (ok, yes, this is shocking.) Alternatively, you may know that there are limits on what you can say at a seminar, but maybe you don't realize that those constraints extend to your seminar invitations or to the slides in your PowerPoint presentation. In fact, FINRA may consider your seminar materials to be advertising materials requiring filing and/or review.
Take My Wife?
Preston Douglas Runyan affixed the signature of a public customer's spouse to a spousal consent provision on an individual retirement account (IRA) application without the spouse's permission and authorization. Also, Runyan signed his name on the application as having acted as witness to the signing, which he, of course, had not. Pursuant to an Offer of Settlement, Runyan was fined $5,000 and suspended 4 months.
Yeah, I know, the other spouse is at work, or out of town, or in the hospital, or just can't find the time to come down to the office and sign in front of you. What's the big deal? These are good people and it's just a harmless favor for a good client. Except that lots of marriages are melting under the stress of the recession. So how well do you know what goes on in the bedrooms of your customers? Are you willing to bet on it?
Although Sheila Dawnell Dowling had a Power of Attorney from a customer, her member firm had not accepted the customer's account as a discretionary one, and denied Dowling trading authority over the account. Nonetheless, Dowling exercised discretion in the account, and effected transactions and electronic fund transfers. Dowling failed to appear for an on-the-record sworn statement that FINRA requested. Pursuant to an AWC, Dowling was barred
Even if you have a written Power of Attorney in your hands (and that is worth repeating: EVEN IF you have the POA), that is merely a preliminary step in the process. You need your firm's authorization to use the POA for the purposes proposed.
Return to Sender
Without his customer's knowledge, authorization or consent, Jacob Karamian changed his customer's address of record to his branch office's address. Then, Karamian faxed a letter of authorization to his cashiering department requesting a $281,768 transfer from the customer's brokerage account to a third party escrow account at a bank. Karamian had the customer sign the letter of authorization for the withdrawal of these funds, knowing that the customer had not read the letter and did not knowingly authorize or consent to transfer. Thereafter, Karamian caused $261,000 of the funds to be deposited into a bank account he controlled. Pursuant to an AWC, Jacob Karamian was barred.
If I were giving out prizes for chutzpah, this would get the Gold Medal. On the other hand, I'm sort of hoping that someone at the brokerage firm noticed that the customer's address of record was changed to the address of the branch office. I mean, jeez, that's sort of the classic example of bells, whistles, red flags, and roman candles.
Please note that Offers of Settlement (OS) and Letters of Acceptance, Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions and to the entry of findings. For more details on the reported cases, please visit rrbdlaw.com/RegulatoryLinks/CASESOFNOTE/NASD/2009.htm