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FINRA Books Outside Business Activity Fine and Suspension
April 13, 2018
Today's BrokeAndBroker.com Blog examines the curious case of a stockbroker acting as an agent for the collector of rare books. Sort of sounds like a movie plot. Be that as it may, we have a ten-year-long pattern of conduct that FINRA doesn't quite like. As the self-regulator is apt to do, it suspends and fines the guy. When it comes to a fine, howsabout we impose something like, say, ummm, okay, $1,000 to, what's a nice high-end number?, yeah, $5,000. What am I talking about? Well, what are you talking about? You never heard of a fine between $1,000 and $5,000? You never made a dinner reservation for 6 p.m. to 10 p.m.?
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, Philip M. Winstead submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Philip M. Winstead, Respondent (AWC 2017053310201, April 9, 2018).
The AWC asserts that Winstead entered the securities industry in 1993, and that by November 2007, he was registered with FINRA member firm Cambridge Investment Research, Inc. The AWC asserts that Winstead has "no relevant disciplinary history."
The Rulebook
Rare Book CollectorFINRA 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 Rule 3280 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 Rule 3280. 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 during the relevant period from about November 2007 to January 2017, Winstead acted as an agent under a written power of attorney ("POA") for a Cambridge customer who is identified in the AWC as "SW,", who is further described as "a rare book collector who resided outside of the United States." In furtherance of the POA, Winstead purportedly opened bank accounts for SW, assisted with SW's tax filings, handled financial and other aspects of SW's book collecting, and paid bills on SW's behalf. The AWC asserts that during the relevant period, Winstead
"received monthly compensation from SW averaging between $4000 and $8000 for acting as SW's agent."
Book 'Em Dano
The AWC alleged that Winstead failed to provide written notice to Cambridge of his role as SW's agent or his receipt of compensation from SW. Further, the AWC alleges that Winstead provided inaccurate responses on his firm's annual compliance questionnaires. FINRA deemed Winstead's conduct to constitute violations of FINRA Rules 3270 and 2010 and former NASD Rules 3030 and 2110.
On February 17, 2017, Cambridge filed a Form U5 disclosing that Winstead had voluntarily terminated his association with Cambridge on January 20, 2017.
Online FINRA BrokerCheck records as of April 13, 2018, disclose that Commonwealth Financial Network (Winstead's subsequent employer after Cambridge) permitted Winstead to resign on March 3, 2017, based upon allegations that:
Advisor failed to notify firm of investigation by former firm in accordance with firm policy and industry standards of conduct.
FINRA Sanctions
In accordance with the terms of the AWC, FINRA imposed upon Winstead a $5,000 fine and a two-month suspension from association with any FINRA member in any capacity
Bill Singer's Comment
I'm sorry but given FINRA's expertise with numbers, I don't understand the reference in the AWC to Winstead's monthly compensation "averaging between $4,000 and $8,000." What the hell to kind of range is that to set forth in a regulatory settlement? The numbers crunchers at FINRA can't offer a calculation more precise that with a $4,000 -a-month variance? Why not simply state the gross dollar amount collected by Winstead over the roughly ten-year (about 110 months) relevant period, or, in the alternative, provide a single dollar amount representing the average monthly compensation? I mean, c'mon, we're not talking rocket science here. You take the gross compensation, divided by 110 or so months. and you get a single dollar amount representing the average dollar compensation. If we're going to get silly here, why not impose a fine upon Winstead of $1,000 to $5,000 and let him pick what he feels is fair?