An irreverent Wall Street Blog
A Purloined Letter Challenges Wall Street To Adapt
February 18, 2015
It would be nice if, in fact, our best-laid plans were
fool-proof; alas, there is an abundance of fools that simply overwhelm us. When someone finds a way around our attempts to protect
investors, Wall Street is forced to re-think (or, so we would hope) its policies and procedures. The industry needs to be ever-vigilant in adapting and implementing better detection and deterrence. Optimally,
the Street has two lines of defense: first, in-house compliance; and, second,
the regulatory community. A recent case involving an altered letter should
prompt Compliance Departments to review their own policies and to implement
better procedures.
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, Pablo
Fernandez-Pena submitted a Letter of Acceptance, Waiver and Consent ("AWC"),
which FINRA accepted. In the Matter of Pablo Fernandez-Pena, Respondent
(AWC #2013038244901,
February 3, 2015).
In April 2012, Fernandez-Pena
first became registered with FINRA member firm Robeco Securities, LLC. The AWC
asserts that he had no prior relevant disciplinary history with the SEC, FINRA,
any other self-regulatory organization or any state securities
regulator.
The Certificate
Letter
The AWC asserts that among
Fernandez-Pena's duties at Robeco, he introduced securities products to
institution customers with the ultimate goal of sales to offshore retail
investors.
On March 27, 2013, Fernandez-Pena requested a
"certificate letter" from Robeco's Legal Department that would describe an
offshore mutual fund for a pension fund located in Colombia. On May 14, 2013,
the Legal Department sent the certificate letter to Fernandez-Pena for
transmittal to the Colombia pension
fund.
10%
Solution
Instead of forwarding the
letter, however, the AWC alleges that Fernandez-Pena added false information to
the communication. Pointedly, the AWC asserts that he added the disclaimer that
no investor held over 10% of the fund's offshore mutual fund's assets, when, in
fact, he purportedly knew this representation to be false. As noted in the AWC,
Fernandez-Pena purportedly believed that the Colombia pension fund was only in
interested in investing in funds where no investor owned over 10% of the assets. The AWC alleges that Robeco had previously denied Fernandez-Pena's
request to include that statement because one shareholder held over 10% of the
assets.
A New, Improved
Version?
In addition, of the alleged
disclosure fraud, the AWC asserts that Fernandez-Pena affixed without
authorization onto the certificate letter the signature of a Robeco employee. In May 2013,
Fernandez-Pena sent the falsified letter with the forged signature to the
Colombia pension fund via his personal email account, which seems to have been
an intentional circumvention of his Robeco email address. No copies were sent to any Robeco email address.
All That For
Nothing
The Colombia fund did not purchase
the offshore mutual fund and sometime around August 2013, Fernandez-Pena
purportedly deleted the email from his personal
account.
Damage Control
According to online FINRA BrokerCheck
records as of February 18, 2015, Robeco Institutional Asset Management
"Discharged" Fernandez-Pena on September 10, 2013, based upon
allegations:
AFFILIATED ENTITY TERMINATED EMPLOYMENT BASED ON FINDINGS THAT MR. FERNANDEZ-PENA MADE UNAUTHORIZED MATERIAL CHANGES TO A DOCUMENT.
FINRA deemed the conduct above
to constitute violations of FINRA Rule 2010 and 4511. In accordance with the
terms of the AWC, FINRA imposed upon Fernandez-Pena a Bar
from association, in any and all capacities, with any FINRA member
firm.
Bill Singer's Comment
Compliments to FINRA on a succinct
AWC that explores a fascinating chink in the compliance armor of many
firms.
An interesting exercise is to consider what policies/procedures could be implemented to try to avoid a recurrence of the cited misconduct. For starters, it might be a better practice not to issue a certificate letter from Legal to anyone other than the party relying upon the representation. Another possible option would be to ensure that someone in Legal timely communicates directly with the intended recipient of the certificate letter to verify that what was transmitted was what was received.