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Stockbroker Does Not Get Buy With A Little Help From His Friend
February 13, 2015
If you're a stockbroker, you better make sure you understand the ins and outs of "away accounts." For starters, just because the account is not in your name doesn't mean that it won't be considered subject to FINRA's Away Account rules. Pointedly, FINRA focuses not so much on the name of the accountholder but on whether a registerd representative has any financial interest (direct or indirect) or any discretionary authority. In a recent regulatory settlement, a stockbroker learns that contrary to the Beatles' tune, you can't get a buy (or sell order) with a little help from a friend in an away account -- and FINRA and your employer may well stand up and walk out on you (or ask you to do the same).
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, Eduardo Tobias Travieso submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Eduardo Tobias Travieso, Respondent (AWC #2012034217101, January 21, 2015).
Travieso first became registered in 2006 with JP Morgan Securities Inc. (subsequently, JP Morgan Securities LLC.), where he remained until his April 2013 termination. The AWC asserts that Travieso had no prior relevant disciplinary history.
An Old Friend
The AWC alleges that from August 13, 2009 through March 30,2012, Travieso used his residential address as the mailing address on two customer accounts: for a resident of Venezuela and a long-time friend of Travieso's; and that individual's personal investment company. The use of Travieso's address was made at the friend's request.
Not Safe At Home Base
According to the AWC, JP Morgan's Compliance Manual did not permit account documents to be addressed to a customer at a registered representative's residential address. It is further asserted that Travieso did not disclose to his employer the use of his address for the two accounts and did not obtain his employer's permission to do so.
Away Account
The AWC also asserts that from November 20, 2010 through May 2012, Travieso held a power of attorney ("POA") on a account he assisted the personal investment company to open at another FINRA member firm. The POA purportedly granted Travieso limited trading authority over the away account to the extent that he could direct trades but not withdraw funds. Moreover, Travieso allegedly failed to:
- notify JP Morgan that he had opened an away account;
- disclose to the away member firm that he was registered with another firm; and
- disclose to JP Morgan his exercise of the POA in the away account.
Falling Short of Standards
According to online FINRA BrokerCheck disclosures as of February 13, 2015, Travieso voluntarily resigned from JPM Securities LLC on March 21, 2013, based upon allegations that:
MR. TRAVIESO ACTED IN A MANNER THAT IS INCONSISTENT WITH THE FIRM'S POLICIES AND PROCEDURES AND MAY HAVE VIOLATED APPLICABLE REGULATORY REQUIREMENTS,M INCLUDING USING HIS RESIDENTIAL ADDRESS AS THE MAILING ADDRESS FOR CERTAIN CUSTOMER COMMUNICATIONS. MR. TRAVIESO'S CONDUCT HAS ACCORDINGLY FALLEN SHORT OF THE STANDARDS TO WHICH THE FIRM HOLDS ITS REGISTERED REPRESENTATIVES.
FINRA deemed Travieso's conduct to constitute violations of FINRA Rule 2010 and NASD Rule 3050. In accordance with the terms of the AWC, FINRA imposed upon Travieso a $15,000 fine and a six-month suspension from associating with any FINRA member in any capacity.
Bill Singer's Comment
If you're going to get involved with an "away account," you better make sure that you understand the minefield of regulations and compliance policies that are awaiting you. Before opening an away account, make sure that you have provided written notice to your employer and the away firm of your industry association/registration. Consider this FINRA rule (and, yes, it's still known as "NASD Conduct Rule"):
NASD Conduct Rule 3050. Transactions for or by Associated Persons(a) Determine Adverse InterestA member ("executing member") who knowingly executes a transaction for the purchase or sale of a security for the account of a person associated with another member ("employer member"), or for any account over which such associated person has discretionary authority, shall use reasonable diligence to determine that the execution of such transaction will not adversely affect the interests of the employer member.(b) Obligations of Executing MemberWhere an executing member knows that a person associated with an employer member has or will have a financial interest in, or discretionary authority over, any existing or proposed account carried by the executing member, the executing member shall:
(1) notify the employer member in writing, prior to the execution of a transaction for such account, of the executing member's intention to open or maintain such an account;(2) upon written request by the employer member, transmit duplicate copies of confirmations, statements, or other information with respect to such account; and(3) notify the person associated with the employer member of the executing member's intention to provide the notice and information required by subparagraphs (1) and (2).
(c) Obligations of Associated Persons Concerning an Account with a MemberA person associated with a member, prior to opening an account or placing an initial order for the purchase or sale of securities with another member, shall notify both the employer member and the executing member, in writing, of his or her association with the other member; provided, however, that if the account was established prior to the association of the person with the employer member, the associated person shall notify both members in writing promptly after becoming so associated.(d) Obligations of Associated Persons Concerning an Account with a Notice-Registered Broker/Dealer, Investment Adviser, Bank, or Other Financial InstitutionA person associated with a member who opens a securities account or places an order for the purchase or sale of securities with a broker/dealer that is registered pursuant to Section 15(b)(11) of the Act ("notice-registered broker/dealer"), a domestic or foreign investment adviser, bank, or other financial institution, except a member, shall:
(1) notify his or her employer member in writing, prior to the execution of any initial transactions, of the intention to open the account or place the order; and(2) upon written request by the employer member, request in writing and assure that the notice-registered broker/dealer, investment adviser, bank, or other financial institution provides the employer member with duplicate copies of confirmations, statements, or other information concerning the account or order;
provided, however, that if an account subject to this paragraph (d) was established prior to a person's association with a member, the person shall comply with this paragraph promptly after becoming so associated.(e) Paragraphs (c) and (d) shall apply only to an account or order in which an associated person has a financial interest or with respect to which such person has discretionary authority.(f) Exemption for Transactions in Investment Company Shares and Unit Investment TrustsThe provisions of this Rule shall not be applicable to transactions in unit investment trusts and variable contracts or redeemable securities of companies registered under the Investment Company Act of 1940, as amended, or to accounts which are limited to transactions in such securities.
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