We start with a wife and her children. We add a husband. We toss into that scene a stockbroker. Then come the redemptions. All of which sets the stage for a Wall Street reggae tune about pain, sadness, and a stinging regulatory rebuke. In the lyrics of Bob Marley's song:
Cause all I ever have:
Case In Point
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, Barbara Ann Corner submitted a Letter of
Acceptance, Waiver and Consent (“AWC”), which FINRA accepted.
In the Matter of Barbara Ann Comer, Respondent (AWC #2012034656401, December 10,
In 1989 Corner first became
registered with FINRA member firm Investacorp, Inc.. The AWC asserts that she
had no prior relevant disciplinary history with the Securities and Exchange
Commission, any self-regulatory organization, or any state securities
The AWC alleges that an Investacorp individual
account-holder (the “Wife”) also acted as trustee and/or custodian for two
lnvestacorp accounts held for her children. Apparently, the three accounts held
From October 2004 to January 2011, a total of
$197,927.73 involving redemptions from 22 mutual funds were allegedly made from
the accounts by the Wife’s husband, who had requested the redemptions from
Respondent Comer. In response to Comer’s requests to process the redemptions,
the mutual fund custodian issued checks payable to the Wife and those checks
were sent to her address of record.
At the time of the husband’s requests for
redemptions, the AWC asserts that there was no Power of Attorney or Letter of
Authorization on file that authorized him to seek the redemptions or to
authorize Corner to accept same. In
fact, the AWC asserts that Investacorp’s written supervisory procedures
prohibited its registered representatives from accepting third-party orders
without the accountholder’s prior written authorization.
In an Online FINRA BrokerCheck record as of December 17, 2014, Investacorp alleges that October 1, 2012, the firm received a customer complaint in the form of a FINRA Arbitration (12-03295) seeking damages in the amount of $239,832 arising in connection with mutual funds. The firm explained that:
CLAIMANT ALLEGES THAT MS. COMER ACTED WITHOUT HER AUTHORITY.
The online record further notes that the matter settled on August 6, 2013, in the gross amount of $47,500, of which Comer purportedly contribute $423.
As a consequence, FINRA deemed Comer’s
conduct to constitute violations of NASD Interpretive Material 2310-2; NASD
Conduct Rule 2510(b); and NASD Conduct Rule 2110; and FINRA Rule
In accordance with the terms of the AWC, FINRA
imposed upon Comer a Censure and $7,500
Oh my, there is soooooo much missing from this AWC that I'm not sure where to start with my critique. On the one hand, we are told that there were nearly $200,000 in redemptions, but, on the other hand, we are told that the payments were made to the Wife and sent to her address of record. Yeah, I get it, the husband was not authorized to request the redemptions and Comer should not have acted on his instruction. If you think that I'm clueless about this case, please re-read the prior sentence.
Like I said, I get it. Comer was wrong. Period. End of discussion.
What happened to those redemption checks? Did the Wife get them? Did the husband forge his wife's signatures on the redemption payments and convert the funds? Were criminal charges filed? Was there a divorce?
I mean, c'mon, the regulation of Wall Street should not be a game of 20 Questions.
For today's musical interlude, what else but the fabulous "Redemption Song" performed live in 1980 by the incomparable Bob Marley:
And for those of you who prefer the more traditional studio album cut:
In a recent FINRA regulatory settlement, 18 registered folks sort of fell off their firm's compliance radar. It's not a case involving earth-shattering misconduct. Sometimes stuff just falls through the cracks. Every wrong on Wall Street isn't intentional. Ya got yer accidents. Ya got yer negligence. Nonetheless, after you've read today's column, walk about your branch office and make sure everything is plugged in and turned on.
Case In Point
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, Commerce Brokerage Services, Inc. submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Commerce Brokerage Services, Inc., Respondent (AWC #2014039170501, December 11, 2014).
Commerce Brokerage Services, Inc. has been a FINRA member since 1986 and employs about 93 registered individuals at 44 branch offices. The AWC asserts that the firm had no prior relevant disciplinary history.
Off The Radar
As required pursuant to former NASD Rule 3010(a) and (d), in order to comply with its obligations to reasonably supervise, Commerce was required to review the business-related electronic correspondence of its registered representatives. The AWC alleged that from October 2012 through April 2014, Commerce failed to include the email addresses of 18 reps in its electronic communication surveillance system; and, consequently, failed to review said communications of the unmonitored individuals.
FINRA deemed Commerce’s conduct to constitute violations of both NASD Rule 3010 and FINRA Rule 2010. In accordance with the terms of the AWC, FINRA imposed upon Commerce a Censure and $10,000 fine.
Bill Singer's Comment
Alas, FINRA does have this annoying tendency to stay tight lipped.
How come the Respondent member firm didn't monitor those 18 folks? Dunno 'cause the AWC doesn't say.
Was it a glitch? Dunno.
Did some third-party contractor screw up? Dunno.
How did FINRA find out that there was a failure to monitor? Hey, who the hell knows -- so stop asking me all these questions without apparent answers.
The expression goes: Out of sight, out of mind. Clearly, FINRA doesn't think that the aforementioned should be a compliance department's motto, and it's hard to argue with that perspective. At first blush, 18 unmonitored reps doesn't come off as a particularly huge number; however, when you consider that it was about 20% of Commerce's staffing, that does present a legitimate regulatory concern.
Ultimately, it would have been helpful for this AWC to explain how these 18 folks fell through the cracks so that other FINRA member firms could learn from that lesson. Regardless, one beneficial aspect of reporting about these types of miscues is that it often prompts others to check their own compliance policies and see if they too have similar problems. So . . . you've been warned!
As now set forth in relevant part of current FINRA Rule 3110. Supervision
(b) Written Procedures
(1) General Requirements
Each member shall establish, maintain, and enforce written procedures to supervise the types of business in which it engages and the activities of its associated persons that are reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.
. . .
(4) Review of Correspondence and Internal Communications
The supervisory procedures required by this paragraph (b) shall include procedures for the review of incoming and outgoing written (including electronic) correspondence and internal communications relating to the member's investment banking or securities business. The supervisory procedures must be appropriate for the member's business, size, structure, and customers. The supervisory procedures must require the member's review of:
(A) incoming and outgoing written (including electronic) correspondence to properly identify and handle in accordance with firm procedures, customer complaints, instructions, funds and securities, and communications that are of a subject matter that require review under FINRA rules and federal securities laws.
(B) internal communications to properly identify those communications that are of a subject matter that require review under FINRA rules and federal securities laws.
Reviews of correspondence and internal communications must be conducted by a registered principal and must be evidenced in writing, either electronically or on paper.