An irreverent Wall Street Blog
by Bill Singer
by Bill Singer
Written: June 19, 2013
These days, you just never quite know who you are dealing with online. Email, instant messaging, social media -- sure, their "handle" or address says one thing but are you really sure about who is behind the message? Consider the ramifications to one Wall Street employee's career when the sender may not have been the customer.
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority (“FINRA”), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Jennifer Marie Burton submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Jennifer Marie Burton, Respondent (AWC 20120328433, June 12, 2013).
Burton entered the securities industry in June 2004 as a sales assistant and first became registered in 2005. Between June 2007 and May 2012, Burton was employed as a registered sales assistant with Wachovia Securities, LLC (k/n/a Wells Fargo Advisors, LLC) in its Westwood branch office in Los Angeles, CA, where she was responsible for assisting approximately four registered representatives. The AWC asserts that Burton had no prior disciplinary history.
Gone Phishing?
In April 2012, while a broker was on vacation, Burton was granted delegate access to the broker's Wells Fargo email account in order to respond to any customer inquiries. On April 9, 2012, the broker received an email purporting to be from a customer requesting the balances in his accounts, as well as information concerning wiring funds from the account both domestically and internationally.
In and of itself, a fairly mundane communication. Branch offices get similar ones multiple times each day. Unfortunately, the customer’s personal email address had been hacked into and that hacker was pretending to be the customer -- hiding behind the email address on the subject email to the vacationing broker. In the initiating email, the imposter stated that he would be "very busy today."
Down The Slippery Slope
Burton replied to the imposter from her Wells Fargo email address indicating that the broker was out of the office, but that she could assist. Burton provided the imposter the account balances for the customer's three accounts (which included a family account opened in January 2009 by the customer and his wife with the now vacationing broker) and attached a blank LOA form to complete and return to her for wire transfer requests.
Later on April 9th, the imposter sent Burton another email requesting two cash transfers totaling $85,000 from the Family Account to "his clients" in Australia and faxed two LOAs to Burton. The imposter requested the wire transfer occur on April 10,2012. The two LOAs were purportedly signed by the customer, but were missing the account’s number and a recitation of the purpose for the wire transfers.
Two April 9th LOAs
The first April 9, 2012 LOA was for the transfer of $43,000 from the Family Account to a third-party's bank account in Australia. The imposter also provided the third-party's account number and routing number at the Australian bank.
The second April 9, 2012, was for the transfer of $42,000 from the Family Account to another third-party's bank account in Australia ("Second LOA"). The imposter also provided this third-party's account number and routing number at the Australian bank.
Filling In The Blanks
On April 10, 2012, Burton entered the missing account numbers and the purpose for the wires in the document verification forms for the two LOAs. In contravention of her firm’s written procedures, Burton falsely represented on the document verification forms that she:
spoke to the client this morning to confirm the instructions and he advised that the funds should come out of [LM Family] and that the funds are being sent to his business partner in Australia.
Burton forwarded the document verification forms for the LOAs to the operations department for review. In the comments field on the Service Request for each of the LOAs, Burton apparently noted that she had confirmed the instructions with the customer that morning, who indicated to her that he was wiring funds to his partner in Australia to invest in property.
The AWC alleges that, in fact, Burton, never spoke with the customer and the imposter never provided Burton with a purpose, i.e. investing in property, for the wire transfer requests or a business partner.
April 11th Requests
On April 11, 2012, the imposter requested that an additional $23,000 and $52,000 be wired from the Family Account to a bank in Florida and another bank in Australia.
SIDE BAR: During the relevant times of the transactions noted above, Burton’s firm had in place the following policies and procedures, which required employees to process wire transfer requests in a firm web-based system called Service Request.For wire transfer requests over $10,000, firm personnel were required to verbally confirm the wire instructions with the customer, as well as verify the client's identity during that discussion.Employees were required to enter notes of the verbal confirmation into a comment box on Service Request.Moreover, customers were required to sign a Letter of Authorization ("LOA") when requesting a disbursement of funds to a third-party or an account with a different name or account registration.
Tripping The Alarm
Although unexplained why in the AWC, at this point, Burton apparently became suspicious of the wire request activity and finally telephoned the customer to verify the requests. The customer informed Burton that he never made any wire transfer requests.
Thankfully, the firm was able to reverse the wire transfer instructions and return the $43,000 and $42,000 subject to the two April 9th LOAs to Family Account without any loss to the customer.
SIDE BAR: During the relevant times of the transactions noted above, Burton’s firm had the following Policies and Procedures required employees to process wire transfer requests in a firm web-based system called Service Request. For wire transfer requests over $10,000, firm personnel were required to verbally confirm the wire instructions with the customer, as well as verify the client's identity during that discussion. Employees were required to enter notes of the verbal confirmation into a comment box on Service Request. Moreover, customers were required to sign a Letter of Authorization ("LOA") when requesting a disbursement of funds to a third-party or an account with a different name or account registration.
Paying The Price
On June 4, 2012, the Wells Fargo notified FINRA that Burton was terminated for falsely stating that she spoke with a customer to confirm wire instructions notwithstanding that she did not speak with the customer.
Pursuant to its investigation, FINRA asserted that by falsely attesting on the firm's document verification forms and wire service request forms that she spoke with the customer, as well as providing a fictitious purpose for the wire request, Burton violated FINRA Rule 2010. Burton also violated FINRA Rules 4511 and 2010 by causing her FINRA regulated broker dealer to maintain false books and records concerning these wire transfer requests. In accordance with the terms of the AWC, FINRA imposed upon Burton a $7,500 fine and a one-month suspension from associating with any FINRA regulated broker-dealer in any capacity.
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Written: June 19, 2013
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority (“FINRA”), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Keith Dow Powell submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Keith Dow Powell, Respondent (AWC 2011028200201, June 10, 2013).
Powell entered the securities industry in 1991 and between February 2008 and December 3, 2012, he was registered at Waddell & Reed, Inc., from which he voluntarily resigned.
Short Sale
On or about October 5, 2009, Powell entered into a compromise with a creditor in connection with the short sale of real estate he owned that was subject to a $400,000 mortgage. The short sale resulted in a $100,000 deficiency, which was satisfied by a mortgage insurance carrier paying $70,000 and Powell executing an unsecured note for $30,000.
FINRA asserted that Powell was required to update his Uniform Application For Securities Industry Registration Or Transfer (Form U4) within thirty days, or by November 4, 2009, to disclose the compromise.
Four months after the required disclosure date, Wadell & Reed learned of the short sale after a routine review of Powell's credit report; and, thereafter, the firm instructed Powell to amend his U4. On March 18, 2010, Powell filed an amended Form U4 disclosing his October 2009 credit compromise.
Second Mortgage And Credit Cards
Between approximately August and October 2010, Powell compromised a second mortgage on his principal address and three credit card balances in amounts ranging from $6,000 to $150,000. These compromises were required to be reported within thirty days, between September and November 2010; however, Powell failed to file an amended U4 until January 18, 2011.
FINRA's Bill
The AWC alleged that Powell violated Article V, Section 2(c) of the FINRA By-Laws and FINRA Rules 1122 and 2010. In accordance with the terms of the AWC, FINRA imposed upon Powell a $2,500 fine and a 15-business-day suspension from associating with any FINRA registered broker-dealer in any capacity.
Bill Singer's Comment
Although FINRA is on relatively solid ground concerning the untimely U4 updates for the credit card compromises, I'm less comfortable with the short sale -- yes, it is technically a "compromise" but it's one of those things that many folks likely don't think of in that fashion. Keep in mind that by October 2009 when Powell entered into the short sale, the economy was crashing amid the onset of the Great Recession. In those days of near daily panic on Wall Street, it might be understandable if the gears didn't perfectly click in Powell's head and he never had the epiphany that his Form U4 needed to be updated.
To FINRA's credit, there is no charge here of "willful" nondisclosure with its statutory disqualification impact; and, similarly, the $2,500 fine and 15-business-day sanctions are at the relatively low-end of the scale.
For future reference, here is the applicable Form U4 section:
Financial Disclosure14K. Within the past 10 years:(1) have you made a compromise with creditors, filed a bankruptcy petition or been the subject of an involuntary bankruptcy petition?(2) based upon events that occurred while you exercised control over it, has an organization made a compromise with creditors, filed a bankruptcy petition or been the subject of an involuntary bankruptcy petition?(3) based upon events that occurred while you exercised control over it, has a broker or dealer been the subject of an involuntary bankruptcy petition, or had a trustee appointed, or had a direct payment procedure initiated under the Securities Investor Protection Act?14L. Has a bonding company ever denied, paid out on, or revoked a bond for you?14M. Do you have any unsatisfied judgments or liens against you?
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Written: June 18, 2013
Maybe they gotta rethink the whole idea about having one person working at both a brokerage firm and its banking affiliate. If you go by some recent cases, it seems like having all that cash around is just too much a temptation for some folks.
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority (“FINRA”), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Steven Bruce Grunwerg submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Steven Bruce Grunwerg, Respondent (AWC 2012032630801, June 5, 2013).
Grunwerg entered the securities industry in 1995; and in 2000 he became associated with FINRA member firm Wells Fargo Advisors, LLC, where he was also employed by the firm’s banking affiliate Wells Fargo Bank as a Financial Specialist. The AWC asserts that Grunwerg had no previous disciplinary history.
A Balancing Act
The AWC alleges that around March 10, 2010, Grunwerg executed a $30,000 promissory note with a Wells Fargo Advisors’ customer. The Note acknowledged that $50,000 of a pre-existing $80,000 had been paid. Upon learning of the Note, on April 23, 2012, Wells Fargo Advisors’ permitted Grunwerg to resign.
BTW
On the same day of his permitted resignation, Grunweg told a Wells Fargo Bank customer that he had removed $65,000 from her safe deposit box.
Adding It All Up
The AWC charged Grunweg with violating:
- FINRA Rule 2010 for taking funds from the bank customer; and
- NASD Rule 2370 and FINRA Rule 2010 for borrowing money from a brokerage customer.
In accordance with the terms of the AWC, FINRA imposed upon Grunwerg a Bar from association with any member of FINRA in any capacity.
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