An irreverent Wall Street Blog
Computer Glitch Overpays Stockbroker's Commissions
June 3, 2015
You feed your credit/debit card into a machine and it gets chewed up -- and you're left without a card or the money that you need. Or you are over-billed or double-billed for something and when you call to complain, they tell you that you have to first pay the disputed amount and then file a claim. Frankly, there are so many variations on the theme of how banks, brokerage firms, financial institutions of all shades, and other companies screw with us when it comes to charging for goods and services that I can't even begin to touch the depth and breadth of the many examples of such practices. Which leads us to that moment when the tables are turned . . . when the computer makes an error in your favor . . . when the dollars that were picked from your pockets over the years suddenly flow back. Consider the case of the registered representative whose commissions dramatically increased as a result of a computer glitch.
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, Rodney Cochran submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Rodney Cochran, Respondent (AWC #2013039135501, May 27, 2015).
In 2001, Cochran became associated with Mutual of Omaha Investment Services and was first registered in 2002.
Happy Trails to You
The AWC asserts that starting in 2006, Cochran was the agent and registered representative for a customer's United of Omaha Life Insurance Company 401(k). For the first year that the 401(k) was in effect, a 1% commission on the amount invested was paid to the selling registered representative; and, thereafter, a .25% trail commission on the plan assets would be in effect.
Systems Error Windfall
From the 2006 inception of the 401(k) account through sometime in early 2013, Cochran was receiving under $100 in monthly commissions; however, the AWC asserts that because of a computer system error in early 2013, Cochran was paid about $11,000 in monthly commissions for nearly nine months before the overpayment was detected by Mutual of Omaha Investment Services. At the time of the detection, Cochran had purportedly been overpaid some $100,000 from his firm's funds (note, the overpayments did not come from any customer funds).
As set forth in the AWC:
FINRA Rule 2010 requires that "A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade." Cochran contravened high standards of commercial honor and just and equitable principles of trade by failing to ensure that the commission payments were legitimate payments in the face of obvious red flags that he was being paid in error. ln addition, having spent the money, Cochran was unable to return the overpayments after demand was made by the Firm. As a result, Cochran violated FINRA Rule 2010.
In accordance with the terms of the AWC, FINRA imposed upon Cochran a $5,000 fine and an 18-month suspension in all capacities.
Bill Singer's Comment
C'mon . . . be honest! Some of you were likely rooting for Cochran. Maybe you saw it as a bit of payback or the evening of the uneven scales of injustice. Still -- right is right and wrong is wrong and, well, you know what I'm saying. Mos of you get up every morning, from your alarm clock's warning, take the 8:15 into the city in order to get to work by nine and start your slaving job to get your pay. It's the old grind. Which likely explains why you may have had a momentary thought about how it would be nice if your employer's computer had a glitch that overpaid you too. In tribute, however, to the bulk of honest, hardworking men and women who slave away each day, I offer this brief musical interlude: