The 100 Year Old Beneficiary, The Stockbroker Trustee, And The Current Former Customer
April 1, 2015
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,without an adjudication
of any issue, Loreta Salinas Nelson submitted a Letter of Acceptance,
Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of
Loreta Salinas Nelson, Respondent (AWC #2014040364901, March 20,
2015).
In
1985, Nelson was first registered with FINRA member firm MetLife Securities
Inc. The AWC asserts that she had no prior disciplinary history in the
securities industry.
The Century Mark
The AWC alleges that in December 2012, Nelson became co-trustee of a trust established for the benefit of a 100-year-old former firm customer; and she also was given a power of attorney ("POA") for the former customer's affairs. Pointedly, this customer was not a member of Nelson's family.
The AWC asserts that Nelson served as co-trustee until around January 2014. By the conclusion of said service, Nelson had purportedly paid to herself from the trust's assets about $47,00 in purported fees and expenses.
FINRA Conduct Rule 3270. Outside Business Activities of Registered PersonsNo registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Passive investments and activities subject to the requirements of NASD Rule 3040 shall be exempted from this requirement.*** Supplementary Material ***01 Obligations of Member Receiving Notice. Upon receipt of a written notice under Rule 3270, a member shall consider whether the proposed activity will: (1) interfere with or otherwise compromise the registered person's responsibilities to the member and/or the member's customers or (2) be viewed by customers or the public as part of the member's business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered. Based on the member's review of such factors, the member must evaluate the advisability of imposing specific conditions or limitations on a registered person's outside business activity, including where circumstances warrant, prohibiting the activity. A member also must evaluate the proposed activity to determine whether the activity properly is characterized as an outside business activity or whether it should be treated as an outside securities activity subject to the requirements of NASD Rule 3040. A member must keep a record of its compliance with these obligations with respect to each written notice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1).
The AWC asserts that in violation of FINRA Rule 3270 and MetLife's internal policies, Nelson did not provide prior written notice to the firm that she was acting as co-trustee. Pointedly, the AWC asserts that MetLife's written supervisory procedures ("WSPs") [Ed: yellow highlighting provided]:
prohibited registered representatives from serving in a fiduciary capacity, such as acting as a trustee or having power of attorney, unless the individual for whom the registered representative is acting as a fiduciary is a family member.
Costs Of Non-Compliance
According to online FINRA BrokerCheck records as of April 1, 2015, on February 14, 2014, Nelson voluntarily resigned from MetLife based upon allegations that [Ed: yellow highlighting provided]:
Page 11 of the BrokerCheck RecordTHE REGISTERED REPRESENTATIVE RESIGNED WHILE UNDER INTERNAL REVIEW WITH RESPECT TO BORROWING MONEY FROM A FORMER CLIENT AND OUTSIDE BUSINESS ACTIVITIES
FINRA deemed that Nelson's service as co-trustee constituted an OBA in violation of FINRA Rules 3270 and 2010. In accordance with the terms of the AWC, FINRA imposed upon Nelson a $15,000 fine and a 6-month suspension from associating with any FINRA member in any capacity.
Bill Singer's Comment
Nelson entered into a settlement with FINRA for a $15,000 fine and 6-month settlement as a result of her alleged failure to properly notify her employer of her OBA. I'm not convinced of the appropriateness of the relatively stiff fine and suspension; however, I allow that there may be undisclosed facts and circumstances that justify the terms of this settlement. Similarly, without the benefit of a lawyer, Nelson may have taken the deal that FINRA put on the table.
Let me offer you some explanations as to the things about this settlement that trouble me and why, in part, they raise questions in my mind about the overall fairness of the imposed fine and suspension.
As most lawyers learn in law school Trusts 101, individuals tend to perform one of three Trust roles
- Settlor: The person who creates the trust;
- Trustee: A person who holds or administers trust property being held for another; and
- Beneficiary: a person who is entitled to some trust benefit.
The only assertion made in the AWC about the elderly non-customer is that the individual is a Beneficiary. There is no assertion that the elderly individual was the Settlor. No . . . not necessarily a critical point here but it could be because we have absolutely no assertion in the AWC that the Trust and/or the Settlor brought any civil or criminal charges against Trustee Nelson. Thrown out by FINRA in the AWC as so much red meat for a carnivorous public's consumption are the following:
- the beneficiary was a former customer;
- the beneficiary was 100 years old;
- the beneficiary was not a member of Nelson's family;
- Nelson became a co-trustee;
- Nelson was given a POA;. and
- Nelson was reimbursed by the Trust for $47,000 in costs/expenses
All of what leaves me to my last complaint about this AWC.
Consider these AWC allegations [Ed: yellow highlighting provided]:
Page 1 of the Nelson AWCNelson entered the securities industry in 1985 when she became associated with MetLife Securities Inc. (the "Firm", a FINRA regulated broker-dealer. She continued to be associated with the Firm until she resigned in February 2014. The Firm filed a Form U5 in February 2014 stating that Nelson resigned while under internal review with respect to borrowing money from a former client and outside business activities.
From December 2012 to January 2014, Nelson engaged in an outside businessactivity by serving as a co-trustee for former Firm customer EM and receivingapproximately $47,000 in compensation for that activity without providing priorwritten notice to her employer member firm, in violation ofFINRA Rules 3270and 2010.
The AWC characterizes the relationship in the two paragraphs quoted above as one involving a "former client" or a "former Firm Customer." Ummmm . . . which is it? A "former client" of Nelson's means that the elderly beneificary was not a "current" client during the relevant times of the misconduct. The "former Firm customer" is a tad different and could mean that during the relevant times, the elderly beneficiary was a customer of another MetLive broker but not Nelson)?
Why does this issue of "current" versus "former' status matter? Imagine that you are considering becoming a customer of Nelson's and in doing some due diligence about the registered rep, you visit FINRA's online BrokerCheck database. As of April 1, 2015, we find a disclosure on Nelson's BrokerCheck record from MetLife indicating that Nelson was a "Voluntary Resignation" on February 14, 2014, based upon allegations:
Page 11 of Nelson's BrokerCheck ReportTHE REGISTERED REPRESENTATIVE RESIGNED WHILE UNDER INTERNAL REVIEW WITH RESPECT TO BORROWING MONEY FROM A FORMER CLIENT AND OUTSIDE BUSINESS ACTIVITIES
We can all agree that the MetLife disclosure is consistent in characterizing the 100-year-old beneficiary as, in fact, a "FORMER CLIENT." That would imply that the alleged misconduct by Nelson did not involve a current client during the relevant times.
And now the FINRA consistency train pulls out of the station.
Inexplicably, FINRA's online BrokerCheck also offers this rendition of the AWC at issue here:
WITHOUT ADMITTING OR DENYING THE FINDINGS, NELSON CONSENTED TO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT SHE ENGAGED IN AN OUTSIDE BUSINESS ACTIVITY BY SERVINGS AS A CO-TRUSTEE FOR HER FORMER MEMBER FIRM'S CUSTOMER AND RECEIVING APPROXIMATELY $47,000 IN FEES AND EXPENSES FROM THE TRUST ASSETS AS COMPENSATION FOR THAT ACTIVITY WITHOUT PROVIDING PRIOR WRITTEN NOTICE TO HER FIRM. NELSON WAS ALSO APPOINTED WITH A POWER OF ATTORNEY FOR THE CUSTOMER'S AFFAIRS. AT THE TIME, THE CUSTOMER WAS APPROXIMATELY 100 YEARS OLD, AND WAS NOT A FAMILY MEMBER OF NELSON. SPECIFICALLY, NELSON DID NOT INFORM THE FIRM THAT SHE WAS ACTING AS CO-TRUSTEE FOR THE CUSTOMER'S TRUST PRIOR TO ENGAGING IN THAT ACTIVITY OR AT ANY TIME THAT SHE ACTED AS CO-TRUSTEE.
Far from the characterization as a "former" customer, BrokerCheck records now offers to us these descriptions:
- HER FORMER MEMBER FIRM'S CUSTOMER
- THE CUSTOMER'S AFFAIRS
- THE CUSTOMER
- THE CUSTOMER'S TRUST
A "former customer" is NOT the same as a "former member firm's customer." The latter characterization can be read as asserting that there was, in fact, a customer relationship during the relevant times but that following Norton's resignation from MetLife, the customer continued to maintain his brokerage account. The term "former" is magically moved from modifying the customer to modifying Nelson's prior employer.
Even if you think I'm being overly picky with the "former" firm distinction, there's simply no way to dismiss the more blanket assertion in the BrokerCheck squib that Nelson assumed the POA "for the customer's affairs," or that the "customer was approximately 100 years old," or that Nelson was "acting as co-trustee for the customer's trust." Those three references all present the elderly beneficiary as an active "customer" of Nelson's during the times of the cited misconduct.
FINRA simply needs to pick an assertion and make sure that the characterization is uniform among its publicly available records. While you're pondering whether any of this is important, imagine that you're in a fender bender and a cop asks to see your proof of insurance. How do you think things will go for you when you start to explain that the coverage was formerly in place but, you know, that was with a prior insurance company and they cancelled my policy, so, no, technically, I don't have any current insurance, but. . .
Read the AWC: http://disciplinaryactions.finra.org/Search/ViewDocument/41873
READ the BrokerCheck file: http://brokercheck.finra.org/Individual/Summary/1381052
Also READ:
- Elderly Sugar Daddy, His Young Thing, And His Banker / Broker
- A Matter Of Trust Falls Apart Over Oral Authorization
- Broker Removed As Executor By Customer
- Elderly Customer's Signature Submitted Three Days After His Death
- Former ING Broker Runs Afoul of Beneficiary, Borrowing, And Away Account Rules
- Not About Trust As A Trustee For Former Wells Fargo Advisor
- Stockbroker Barred For Living Trust Trustee Conduct