Tag Archives: disciplinary actions

Tomorrow's Financial Services, Inc.

Be Vigilant of Fund Transfer Request via e-mail

Hacking an e-mail account is a common thing now days. We need to be alert of Fund Transfers request via e-mail. It can inflict financial damage to the firm and the registered representative, this is something that can be avoided.

Reg. Rep. X (CRD #1234567, Registered Representative, Edison, New Jersey) was fined

$7,500 and suspended from association with any FINRA member in any capacity for 10

business days. The fine shall be due and payable on Reg. Rep. X  return to the securities industry.

The sanctions were based on findings that Reg. Rep. X falsely attested that she had confirmed

a request for a fund transfer with a customer and as a result, caused her member firm’s

books and records to be inaccurate. The findings stated that Reg. Rep. X processed the fund

transfer request that she thought a customer had sent, but the transfer request was

actually sent by an imposter who hacked into the customer’s email. In order to finalize

the transfer of funds, and to accommodate what she believed in good faith to be the

customer’s wishes, Reg. Rep. X provided a false attestation in her firm’s electronic wire transfer

system. In reliance upon Reg. Rep. X’s attestation and the information the imposter provided, the

firm wired the funds from the customer’s account to the account the imposter specified.

The imposter requested a second transfer and at that point, Reg. Rep. X and the adviser she

assisted became suspicious. Reg. Rep. X and the adviser brought the incident to a branch manager

after they determined the signature on the letter of authorization (LOA) did not match the

customer’s signature on file. As a result, the firm investigated the incident and terminated

Reg. Rep. X based on her false attestation. Reg. Rep. X initially represented that she mistakenly checked

the box attesting that she had spoken with the customer and later volunteered that she did

so knowingly.

 

One for the service staff….

Mostly, I have been sending items targeted to the registered reps in the field—-  items that I identify as being on FINRA’s hot watch list. Today, I want to remind the staff in each of our offices that they need to be just as diligent as the reps and the principals. Here’s an example right out of the FINRA enforcement pages:

“X (CRD #1234567, Registered Representative, Los Angeles, California)
submitted a Letter of Acceptance, Waiver and Consent in which she was fined $7,500
and suspended from association with any FINRA member in any capacity for one month.
Without admitting or denying the findings, X consented to the described sanctions
and to the entry of findings that she falsely attested on her member firm’s document
verification forms and wire service request forms that she spoke with a customer, as well
as provided a fictitious purpose for the wire request. The findings stated that X was a registered sales assistant at her firm and was granted delegate access to a broker’s firm email account in order to respond to any customer inquiries while the broker was on vacation. A customer’s personal email address was hacked into by an imposter pretending to be the customer, who sent the broker an email requesting the balances in the customer’s accounts, as well as information concerning wiring funds from the account both domestically and internationally. The findings also stated that X provided the imposter the account balances for the customer’s accounts and attached a blank letter of authorization (LOA) form to complete and return to her for wire transfer requests. The imposter sent X another email from the customer’s email address requesting cash transfers totaling $85,000 from one of the customer’s accounts to his clients in Australia and faxed two LOAs to X. The imposter requested the wire transfer to occur the next day. The LOAs were for the transfer of a total of $85,000 from one of the customer’s accounts to third parties’ bank accounts in Australia. The imposter also provided the third parties’ account numbers and routing numbers at the Australian banks. The findings also included that the LOAs were purportedly signed by the customer, but were missing the account numbers, as well as the purpose for the wire transfers. X entered the missing account numbers and the purpose for the wires in the document verification forms for the LOAs. Notwithstanding the requirements of the firm’s written procedures, X falsely represented on the document verification forms that she spoke to the client to confirm the instructions and he advised that the funds should come out of the account and that the funds were being sent to his business partner in Australia. FINRA found that X forwarded the document verification forms for the LOAs to the firm’s operations department for review. Burton also entered into the comments field on Service Request for the LOAs that she confirmed the instructions with the customer that morning, who indicated that he was wiring funds to his partner in Australia to invest in property. X never spoke with the customer and the imposter never provided X with a purpose, i.e. investing in property, for the wire transfer requests or a business partner. FINRA also found that the imposter requested an additional $23,000 and $52,000 be wired from the customer’s account to a bank in Florida and another bank in Australia.

X became suspicious of the wire request activity and called the customer to verify the
requests. The customer informed X that he never made any wire transfer requests.
X’s firm was able to reverse the wire transfer instructions and return the $85,000 to
the customer’s account without any loss to the customer.

The suspension was in effect from July 1, 2013, through July 31, 2013.”

 

Outside Brokerage Accounts

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.”

Why you should ALWAYS contact your client when you receive a third party wire request via email.

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.

You had the right intentions but you still broke the rules…

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.”

Important Information about Outside Business Activities

SEC Approval and Effective Date for New Consolidated FINRA Rules (Including Outside Business Activities)

Effective Date: December 15, 2010

Executive Summary

Following the consolidation of NASD and the member regulation, enforcement and arbitration functions of NYSE Regulation into FINRA, FINRA established a process to develop a new consolidated rulebook (Consolidated FINRA Rulebook), which FINRA has discussed in previous Information Notices. FINRA is proposing new consolidated rules in phases for approval by the Securities and Exchange Commission (SEC) as part of the Consolidated FINRA Rulebook.

In August and September 2010, the SEC approved three rule filings relating to the Consolidated FINRA Rulebook. FINRA Rule 5121 (Public Offerings of Securities With Conflicts of Interest) and the FINRA Rule 11000 Series (Uniform Practice Code) will take effect on December 15, 2010. The effective date of FINRA Rule 3270 (Outside Business Activities of Registered Persons) is also December 15, 2010; however, for registered persons who are actively engaged in an outside business activity prior to December 15, 2010, firms have until June 15, 2011, to review such pre-existing activities under the standards set forth in FINRA Rule 3270, including the requirement that firms keep a record of their compliance with such standards.

Questions regarding this Notice should be directed to:

  • Kosha Dalal, Associate Vice President and Associate General Counsel, Office of General Counsel (OGC), at (202) 728-6903 (regarding the FINRA Rule 11000 Series);
  • Gary Goldsholle, Vice President and Associate General Counsel, OGC, at (202) 728-8104 (regarding FINRA Rule 3270); or
  • Stan Macel, Assistant General Counsel, OGC, at (202) 728-8056 (regarding FINRA Rule 5121).

http://www.finra.org/industry/regulation/notices/2010/p122271

 

 

 

 

 

Tomorrow's Financial Services, Inc.

What’s hot with FINRA…

As a regular business practice (and I encourage each of you to do so as well), I thumb through the FINRA Disciplinary Action pages to get a feel for the current focus areas of the FINRA audits. Being that many of us maintain outside businesses in addition to the securities business, it is noteworthy to review this misstep:

“X (CRD #0123456, Registered Representative, Yourtown, NJ) submitted an Offer of Settlement in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the allegations, X consented to the described sanction and to the entry of findings that he failed to provide written notice to his member firm of his affiliation with an entity. The findings stated that according to the entity’s website, which X maintained, it was a financial services company specializing in portfolio management, investment advice and financial planning. The findings also stated that FINRA sent X a request for information relating to his affiliation with the entity, and X partially responded to FINRA’s request for the information. FINRA further requested X produce additional information, which he failed to do, impeding FINRA’s investigation.”

I am unsure there is anything more a Compliance Officer can do to help a broker avoid this pitfall other than to remind them that all outside business practices must be reported to the Compliance Department. The activities must be pre-approved before you can engage in them. Being barred from association with any FINRA firm in any capacity is a steep price to pay for something that can be easily avoided.

FINRA is not too busy to be concerned about churning

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.”

Their research is NOT your research.

Hi All:

So you found an article that you want to send to your customers. First, you should submit it to your Compliance Department with its intended use for approval. Once approved, you must give credit for the article to its publisher and author along with the publication date. You cannot claim the article as your “own research” as this individual soon found out:

X (CRD #123456, Registered Representative, Yourtown, NJ) submitted
a Letter of Acceptance, Waiver and Consent in which he 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 his 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
he copied previously published articles that addressed economic and financial issues,
and sent the articles to firm customers under his own name while representing that the
articles were his own research and commentary. The findings stated that X had not
obtained firm review or approval for the articles prior to mailing them to the customers.
In fact, X knew that the firm would not have approved the mailing of any of the
articles to customers because the content of the articles was contrary to the firm’s research.
The findings also stated that when the firm confronted him, X denied that he had
plagiarized the articles he had sent to customers until the firm presented X with
copies of the original articles.”