An irreverent Wall Street Blog
Secret Customer Settlement Gets Stockbroker Fined and Suspended
July 13, 2016
It's one of those moments. You got a problem. You
got two choices: Do the right thing or do the wrong thing. Except, you know,
that wrong thing ain't so wrong and who the hell is gonna know if you do it . .
. or so you think, at a time when you're mind is racing a million miles a
second because you're figuring that your job is on the line. Looking back, you
realize that you probably shouldn't have made such a decision without stepping
back and taking a breather. Unfortunately, what's done is done and, wow, how
the hell this all blew up on you is still a mystery. It all seemed so simple.
The customer complained about losses. You didn't want to go through the whole compliance disclosure thing. You paid
off the customer to keep quiet. Who was gonna find out? How would anyone get
wise?
Case In
Point
[A]lcure settled MG's complaint without notifying Petersen Investments by sending MG approximately 21 checks, from in or around May 2013 to in or around July 2015, in the total amount of approximately $12,500, to compensate MG for the losses she incurred.
From the FINRA
Rulebook perspective, consider [Ed: yellow highlighting added]:
FINRA Rule 4530. Reporting Requirements(a) Each member shall promptly report to FINRA, but in any event not later than 30 calendar days, after the member knows or should have known of the existence of any of the following:(1) the member or an associated person of the member:
. . .(B) is the subject of any written customer complaint involving allegations of theft or misappropriation of funds or securities or of forgery;. . .(G) is a defendant or respondent in any securities- or commodities-related civil litigation or arbitration, is a defendant or respondent in any financial-related insurance civil litigation or arbitration, or is the subject of any claim for damages by a customer, broker or dealer that relates to the provision of financial services or relates to a financial transaction, and such civil litigation, arbitration or claim for damages has been disposed of by judgment, award or settlement for an amount exceeding $15,000. However, when the member is the defendant or respondent or is the subject of any claim for damages by a customer, broker or dealer, then the reporting to FINRA shall be required only when such judgment, award or settlement is for an amount exceeding $25,000; or . . .. . .
(e) Nothing contained in this Rule shall eliminate, reduce or otherwise abrogate the responsibilities of a member or person associated with a member to promptly disclose required information on the Forms BD, U4 or U5, as applicable, to make any other required filings or to respond to FINRA with respect to any customer complaint, examination or inquiry. In addition, members are required to comply with the reporting obligations under paragraphs (a), (b) and (d) of this Rule, regardless of whether the information is reported or disclosed pursuant to any other rule or requirement, including the requirements of the Form BD. However, a member need not report: (1) an event otherwise required to be reported under paragraph (a)(1) of this Rule if the member discloses the event on the Form U4, consistent with the requirements of that form, and indicates, in such manner and format that FINRA may require, that such disclosure satisfies the requirements of paragraph (a)(1) of this Rule, as applicable; or (2) an event otherwise required to be reported under paragraphs (a) or (b) of this Rule if the member discloses the event on the Form U5, consistent with the requirements of that form.
Communications Versus Complaints
According to
FINRA Rule 4530, not every communication from a customer is a
"complaint." Among the more common errors that I see many member firm
compliance departments commit is to uniformly treat far too many
"communications" from customers as involving a "complaint,"
when, in fact, the communication is merely an inquiry or comment. Further, not
every customer complaint necessarily rises to the level of an event requiring
disclosure; for example, a complaint that a stockbroker was rude on the
telephone or that the firm's online platform is not user friendly would not
(absent more) require a regulatory disclosure.
Is There A "Customer"?
Additionally, even if a communication involves what may be
deemed a reportable complaint, another important determination is whether the
communication emanated from a customer or was transmitted subject to the
customer's authorization (through a lawyer or agent as two common examples). At
times a customer's family member or friend may send to an employer firm a
complaint against a stockbroker. If the
sender of that complaint is not a customer, then that communication may not
require regulatory disclosure -- which is not to suggest that a firm's
compliance department should not inquire as to the issues
raised.
"Oral" Complaints
Many industry participants do not necessarily consider
whether a customer communication voicing a complaint is in "oral" or
"written" form. A peculiar quirk of FINRA's rules is that the
self-regulator's reporting requirements require the prompt reporting of
"any written complaint" and do not similarly address the mere "oral
complaint. Additionally, FINRA's reporting requirement limits the reporting of
"any written customer complaint" to those "involving allegations
of theft or misappropriation of funds or securities or
forgery."
Know Your U4
Always be mindful, however, of the difference between the
obligations imposed upon a FINRA member firm to report events to the
self-regulatory organization and the separate disclosure obligations of the Uniform Application for
Securities Industry Registration or Transfer ("Form
U4").
Notably, under the Form U4 heading: Customer Complaint/Arbitration/Civil
Litigation Disclosure, we find the following Item 14I
questions:
(2) Have you ever been the subject of an investment-related, consumer-initiated (written or oral) complaint, which alleged that you were involved in one or more sales practice violations, and which:(a) was settled, prior to 05/18/2009, for an amount of $10,000 or more, or;(b) was settled, on or after 05/18/2009, for an amount of $15,000 or more?(3) Within the past twenty four (24) months, have you been the subject of an investment-related, consumer-initiated, written complaint, not otherwise reported under question 14I(2) above, which:(a) alleged that you were involved in one or more sales practice violations and contained a claim for compensatory damages of $5,000 or more (if no damage amount is alleged, the complaint must be reported unless the firm has made a good faith determination that the damages from the alleged conduct would be less than $5,000), or;(b) alleged that you were involved in forgery, theft, misappropriation or conversion of funds or securities?
Nuisance Value
I'm not sure whether Alcure
fully understood all the nuances of an "oral" complaint and a
complaint that did not proceed to an arbitration and a complaint that could
have been settled for under $15,000. Regardless of what Alcure may have known,
you should always consider the requirements of both FINRA Rule 4530 and Form
U4.
How does $12,500 become nuisance
value? Consider what it would cost to hire a high-priced fellow like me. Also,
factor in the likelihood that after you disclose the customer complaint, your
broker-dealer is going to make you cough up a chunk of change to compensate the
customer. Then there are the in-house reports you need to file about customer
complaints and settled customer complaints, and those reports may wind up on
the desk of some industry regulators, and those Wall Street cops may demand
written explanations and testimony, and that's gonna cost even more in terms of
Mr. Singer's expensive lawyering, and even with Singer's battling away for you,
you are probably going to have to pay a few thousand dollars in regulatory
fines. After that, your CRD file gets marked up and they put
all the allegations on your online FINRA BrokerCheck file,
which isn't gonna go down all that well with folks you're trying to convert
into new customers. Geez . . . writing out a few lousy checks for $12,500 sure
seems cheaper and what's that fancy word? Oh, yeah, quietly paying off the
customer is more "expeditious." As to whether any
of those possible motivations applied to Alcure is unknown to me and he may
have had a whole different explanation for his
conduct.
2011 FINRA
Arbitration Settlement
Not mentioned in the AWC but
noted on Alcure's online FINRA BrokerCheck file as of July
13, 2016, is a filing under the heading of "Customer Dispute - Settled" a former employer
of Alcure's: FINRA member firm Woodbury Financial Services, where Alcure was
registered from March 2006 to October 2009 (just before joining Petersen
Investments on October 13, 2009(. Woodbury Financial Services reported that a
FINRA Arbitration Statement of Claim had been filed by a customer on October 9,
2009 alleging:
FINRA ARBITRATION ALLEGES MISREPRESENTATION, OMISSION OF FACTS, FAILURE TO DIVERSIFY, UNSUITABLE INVESTMENTS, EXCESSIVE TRADING AND FAILURE TO SUPERVISE REGARDING TRANSACTIONS IN A BROKERAGE ACCOUNT BETWEEN MARCH 2006 AND JULY 2009.The alleged damages were reported as $1,278,964.00. Woodbury Financial indicated that the matter settled on June 2, 2011, in the amount of $535,000, of which Alcure purportedly contributed $267,500.20o9 Customer Complaint "Denied"
Additionally, under the
BrokerCheck heading of "Customer Dispute - Closed No
Action/Withdrawn/Dismissed/Denied," Woodbury Financial disclosed that on March
19, 2009, it had received a customer complaint
alleging:
CUSTOMER ALLEGES REPRESENTATIVE DID NOT FOLLOW INSTRUCTIONSThe complaining customer purportedly sought $27,000 in damages and the firm denied the claim.
2014
Stipulation &
Consent
Finally, Alcure's BrokerCheck records disclose that he had entered into a "Stipulation and Consent" with the New York State Department of Financial Services on January 28, 2014, while employed at Alcure & Company Insurance Agency. The allegations were reported as:Undisclosed Customer Settlement
by 3 Brokers Comes to Lightnt> Third Party Check In The
Broker's Desk
Drawer Broker Hits Trifecta With Conversion, Borrowing,
and Undisclosed Settlement A Stockbroker Uses Personal
Emails And Unparalleled
Yardstick Settled Stop Loss Order Is Loss
For
Stockbroker Stockbroker
Undone By Email Trail Of Undisclosed Customer
Settlement
Finally, Alcure's BrokerCheck records disclose that he had entered into a "Stipulation and Consent" with the New York State Department of Financial Services on January 28, 2014, while employed at Alcure & Company Insurance Agency. The allegations were reported as:
THE NYS DEPARTMENT OF FINANCIAL SERVICES INDICATED RESPONDENT PROVIDED MATERIALLY INCORRECT AND UNTRUE INFORMATION IN HIS INSURANCE LICENSE RENEWAL APPLICATION SUBMITTED SEPTEMBER 2010 AND MAY 2011 IN THAT HE FAILED TO DISCLOSE HE WAS PARTY TO A FINRA ARBITRATION PROCEEDING.Pursuant to the Stipulation & Consent, Alcure incurred a $3,000 penalty. Also READ: