Seems like an easy problem to avoid, but there are still people out there that do not report outside accounts to their Compliance Department. Frankly, with the automation that FINRA has at there fingertips, I don’t know why anyone would even try this:

“X (CRD #1234567, Registered Principal, Yourtown, NJ) was fined $25,000
and suspended from association with any FINRA member in any capacity for two years. The
NAC imposed the sanctions following appeal of an OHO decision. The sanctions were based
on findings that X failed to notify his employer firm in writing that he had undisclosed
outside brokerage accounts at two other member firms. He also failed to notify those other
firms that he was associated with a FINRA member firm; rather, he made false statements
on the executing broker-dealer applications concerning his occupation. The findings stated
that X held one of the undisclosed brokerage accounts at a member firm that was not
on the list of his employer’s approved outside brokerage firms, and X never sought an
exception to this policy. X also engaged in securities transactions in a limited partnership in these undisclosed accounts that were on his employer firm’s restricted list. He did not disclose that had engaged in the trading of this restricted stock and moreover the trades violated his employer firm’s buy and hold periods. The findings also included that although X apologized for misleading his firm’s vice president about the outside brokerage accounts at the one member firm, he continued to hide the existence of his accounts at the other member firm.”

I have seen a few of these through the years. But in every case, a 30 second phone call to the client could have prevented each from happening.

“X (CRD #123456, Associated Person, Yourtown, NJ)
submitted a Letter of Acceptance, Waiver and Consent in which she was fined $5,000
and suspended from association with any FINRA member in any capacity for 30 days. The
fine must be paid either immediately upon X’s reassociation with a FINRA member
firm following her suspension, or prior to the filing of any application or request for relief
from any statutory disqualification, whichever is earlier. Without admitting or denying
the findings, X consented to the described sanctions and to the entry of findings
that she effected wire transfers totaling $13,400 from a firm customer’s account to an
unrelated third-party account after receiving fraudulent emails from someone purporting
to be the customer. X received emails from a hacker purporting to be the customer
who requested the customer’s account balance and then sent fully executed letters of
authorization (LOAs) that fraudulently authorized wire transfers to an account at a third party bank. The findings stated that X did not authenticate the customer’s signature
contrary to firm policies and procedures, which required registered representatives and
associated persons to speak to the customer prior to effecting a transfer of funds to
an outside account. X processed the transfers and falsely indicated on the firm’s
internal system that she spoke with the customer and verified the customer’s identity.
The findings also stated that after the customer discovered the improper wire transfers on
her account, she contacted X. While X and the customer were discussing the
fraudulent wire transfers, X received another request from the hacker, requesting a
third transfer of $7,350. The hacker attached an executed fraudulent LOA to the request.
X did not respond to the request and contacted her firm’s office management team
and advised them of the previous transfers. The firm credited the customer’s account for
the full amount of the transfers. The findings also included that X caused her firm to
maintain false books and records related to the wire transfers.”

With the current trend of email hacking on the rise, it is more and more likely that you will encounter a similar case like this if you haven’t already. Take the time to call your client — protect the client, yourself and the firm.

On the heels of our Success Forum, many of us heard mention of this snag: bending a rule to make the client’s life easy. Personally, I have heard the defense over and over again. “I did it to save the customer the trouble of getting a signed LOA into our office every time. The customer was OK with it.” That may all be true, but FINRA is NOT OK with it:

“X (CRD #1234567, Registered Representative, Yourtown, NJ)
submitted a Letter of Acceptance, Waiver and Consent in which she was fined $5,000 and
suspended from association with any FINRA member in any capacity for four months. The
fine must be paid either immediately upon X’s reassociation with a FINRA member
firm following her suspension, or prior to the filing of any application or request for relief
from any statutory disqualification, whichever is earlier. Without admitting or denying
the findings, X consented to the described sanctions and to the entry of findings
that while serving as a registered sales assistant with her member firm, she altered
information on LOAs submitted by firm customers pursuant to the customers’ verbal
instructions. X also altered the amount of funds to be wired on one LOA. By altering
the customers’ LOAs, X caused the firm to maintain inaccurate business records.
The findings stated that X received trade orders directly from firm customers and
attempted to enter the trades in the firm electronic order system, and properly coded each
trade order as received directly from the customer. The trade order system rejected each
trade because X was not permitted to enter trades directly from customers. Upon
notice of each rejected trade, X changed the coding for each trade to “received order
from financial adviser,” which permitted her to enter and effect the execution of the orders.
X’s representations on the order tickets were false. The findings also stated that by
entering inaccurate information on customer trade orders, X caused her firm’s books
and records to be false.”

It’s an old FINRA favorite. And a similar tale will probably appear in the FINRA pages each and every month.

“X (CRD #123456, Registered Representative, Yourtown, NJ) was fined $11,741.78, plus interest, which represents disgorgement, and barred from association with any FINRA member in any capacity. The National Adjudicatory Council (NAC) imposed the sanctions following appeal of an Office of Hearing Officers (OHO) decision. The sanctions were based on findings that X effected unauthorized trades in a customer’s traditional Individual Retirement Account (IRA) at his member firm, had de facto control over the account, and excessively traded in the account, which was inconsistent with the customer’s financial circumstances and investment objectives.

The findings stated that X excessively traded the accounts with scienter, and consequently, churned the customer’s account. The findings also stated that the firm had warned X to get his numbers up, and he undertook the excessive trading in the customer’s account to solidify his tenuous employment position at the firm and generate additional commissions for himself.”