An irreverent Wall Street Blog
1 Registered Rep, 5 Days, and 9 NSF Checks
July 10, 2015If you ever visit Manhattan and travel to the New York State Supreme Court building, you will see the following words emblazoned atop the building: "The True Administration of Justice Is the Firmest Pillar of Justice." That motto is often quoted by law professors, civil rights advocates, and others, and comes from a Sept. 28, 1789, letter from George Washington, who was seeking to convince Edmund Randolph to serve as the first Attorney General. The problem with the motto -- which is now literally carved in stone -- is that it's wrong. Washington didn't write "true;" he wrote "due."
Frankly, there is
a great deal about the Law that sort of gets lost in translation and then,
oddly, becomes carved in stone. When so-called blue
collar folks engage in some forms of devious conduct, they often get charged
with "willful fraud." When so-called white collar folks engage in
similar forms of devious conduct, those acts often are characterized as
"inadvertent error." Similarly, society demands that working stiffs
repay their debts, but, at the same time, we engage in corporate bail-outs;
and, on a far larger scale, debt-forgiveness or restructuring is granted to nations such as
Greece.
Consider today's BrokeAndBroker.com
Blog about a registered person who deposited $3,200 of NSF checks over
five days and was fined and suspended by FINRA for engaging in check kiting.
Okay, sure, it sounds like she is guilty as charged and I do not excuse her
conduct, but is this truly a Wall Street regulatory matter? And if your answer
is "yes," how is that firm pillar of government holding up under the
stress of similar misconduct by major financial
institutions?
Case In Point
The AWC alleges that from October 6
through October 10, 2014, Belbeck wrote nine checks totaling $3,200 from two
personal banks accounts knowing that she had insufficient funds to cover those
checks. After writing each of those nine checks, the AWC asserts that Belbeck
deposited the checks into another personal bank account, and, immediately
thereafter, she withdrew a portion of the deposited amount in cash. All nine checks were purportedly returned for insufficient funds
("NSF"). Less than a week after writing the NSF checks, Belbeck
deposited sufficient funds into her bank accounts to clear the
deficits.So Much For "Principals"
According to online FINRA BrokerCheck records
as of July 10, 2015, Merrill Lynch "Discharged" Belbeck on October 20, 2014, based upon:
ALLEGATIONS RELATED TO CONDUCT INCONSISTENT WITH FIRM POLICY REGARDING PERSONAL BANK ACCOUNTS. THIS CONDUCT DID NOT INVOLVED MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED CUSTOMERS OR CUSTOMER ACCOUNTSThe AWC explains that [Ed.: the word "principals" is in the AWC and should be "principles"]:
Check kiting is a practice of writing checks against a bank account knowing that there will be insufficient funds to cover the checks. This practice violates FINRA Rule 2010 which requires members to observe high standards of commercial honor and just and equitable principals [sic] of trade.In accordance with the terms of the AWC, FINRA imposed upon Belbeck a $5,000 fine and a three-month suspension from association with any FINRA member in any capacity,Bill Singer's CommentThe AWC makes it clear that Belbeck covered the $3,200 short-fall within one week. As such, no bank wound up eating a penny in losses. There is no allegation that any criminal charges were filed, there is no allegation that any civil litigation ensued, and there is no allegation that Belbeck pled guilty to any criminal charges or settled any civil litigation. Further, there is no allegation of any securites, customer, or customer account being involved during the week of purported check kiting. Do any of those factors excuse Belbeck's NSF check writing? Of course not.
Did Belbeck's conduct
constitute violations that should have come under FINRA's ambit? Do a handful of NSF checks that were covered within a week rise to the level of commercial dishonor and evidence a lack of just and equitable principles of trade? If she wrongfully parked in a handicap zone, isn't that also dishonorable and an example of unjust and inequitable behavior? What if she drove with a suspended license or in an uninsured vehicle? I mean, you know, who gets to decide where FINRA's regulatory jurisdiction begins?
I will leave it to each of you to draw your
own conclusions. I only ask that when you engage in the debate, that you at
least acknowledge the lack of the due administration of justice when Wall Street's small fry are subjected to enforcement that seems inconsistent
with that to which the big fish are exposed.
Permit me one parting shot:
Does FINRA fine and suspend its own regulatory employees when they
engage in check kiting?
I would seriously ask that all
associated and registered persons, and all fair-minded member firms petition
FINRA for the implementation of the following:
A FINRA rule requiring the self-regulatory organization to conduct an annual review of all its staff personal banking transactions to determine whether any regulatory employee has engaged in check kiting. If such misconduct is found to exist, FINRA should impose comparable fines and suspensions upon its staff as imposed upon associated persons. Also, the names of those staff who had engaged in check kiting should be posted on FINRA's website and readily accessible to the public and industry pursuant to the same parameters as BrokerCheck.
Rather than continue this jeremiad about the rank hypocrisy and inconsistency involved in FINRA's handling of these NSF cases, I would ask that you consider
my prior commentary in: