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Son Calls FINRA Senior Helpline About Trading In Mom's Account
November 27, 2018
Financial exploitation of seniors is a growing concern as the massive Baby Boomer population and their parents age. Lurid and heart-wrenching tales of elder fraud appear daily in the press, and have prompted new laws and regulations. As we enforce the protections, we come across situations where a senior citizen's right to privacy may need to be lessened or sacrificed -- is that okay and who gets to make that decision? Similarly, in our rush to protect the vulnerable elderly, we must be vigilant against providing glimpses of confidential financial information to predators, who may be posing as the elderly account-holder, or to seemingly concerned family members, who, in reality, are in desperate need of cash. A recent FINRA AWC doesn't involve the issues noted above but it does provide us with a moment in time for us to stop, pause, and ask some provocative questions about what's going on and whether we need to reconsider (or better consider) the new policies and protocols.
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, Richard A. Juracka, submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Richard A. Juracka, Respondent (AWC 2017055321601, November 21, 2018).
The AWC asserts under the heading "Background":
Juracka entered the securities industry in 1980. Juracka became registered as a General Securities Representative and a General Securities Sales Supervisor through Morgan Stanley (CRD No. 149777) ("Morgan Stanley" or the "Firm") in June 2009. He is currently registered in those capacities through Morgan Stanley.
FINRA Senior Helpline
The AWC alleges that in August 2017, FINRA's "Senior Helpline" received a call from an individual who alleged that Juracka had placed trades in an account belonging to the caller's mother without first speaking to his mother. FINRA and Morgan Stanley purportedly conducted investigations, which determined that Juracka had effected discretionary transactions in seven customers' accounts from August 2016 through July 2017. As further explained in the AWC:
[A]lthough the seven customers had given Juracka express or implied authority to exercise discretion in their accounts, none of the customers had provided written authorization for Juracka to exercise discretion. Furthermore, Juracka did not obtain written authorization from Morgan Stanley to make trades in the accounts on a discretionary basis.
ACQ
Additionally, in April 2017, while registered through Morgan Stanley, Juracka allegedly provided a false response on a Morgan Stanley annual compliance questionnaire indicating that he had not exercised discretion in any customer account when, in fact, he had done so.
FINRA Sanctions
FINRA deemed Juracka's conduct to constitute violations of NASD Rule 2510(b) and FINRA Rule 2010. In accordance with the terms of the AWC, FINRA imposed upon Juracka a $5,000 fine and a 20-business-days suspension from associating in any and all capacities with any FINRA member firm.
Bill Singer's Comment
After I read through the statement of facts, I pretty much figured that Juracka was toast and headed for a Bar. The absence of that ultimate sanction is likely in recognition of the mitigation inherent in the fact that the seven customers gave Juracka express or implied authority to exercise discretion in their accounts. Similarly, the absence of a Bar may also be attributable to the advocacy by Juracka's attorney, Jeff Kern, Esq. of Sheppard Mullin Richter & Hamptom LLP,, who was formerly a Senior Regional Counsel in FINRA's Department of Enforcement and as Senior Trial Counsel in the New York Stock Exchange Enforcement Division.
Only two disclosures appear on Juracka's online FINRA BrokerCheck record as of November 27, 2018, and both are placed under the heading "Customer Dispute -- Closed-No Action/Withdrawn/ Dismissed/Denied." One disclosed complaint was received by Morgan Stanley & Co. Incorporated in 2008, and alleged that Juracka had failed to follow instructions in 2007; but the firm denied this complaint in 2009. The other disclosed complaint (and likely the mother's complaint at issue in this AWC) was received by Morgan Stanley Smith Barney in August 2017 and asserted unauthorized trading during 2016 and 2017. There is no status for this matter other than that it was never settled.
I have two quibbles with this AWC.
My first critique concerns the AWC's "Background" section, which, as I read it, asserts that Juracka entered the industry in a non-registered capacity in 1980, and, thereafter, in 2009, he became registered for the first time with Morgan Stanley. A review of Juracka's online FINRA BrokerCheck records as of November 27, 2018, discloses under "Registration History" that he was registered with "Morgan Stanley DW Inc." from May 1980 to April 2007; and, thereafter, with "Morgan Stanley & Co. Incorporated from April 2007 to June 2009; and since that date with "Morgan Stanley." Further, BrokerCheck discloses that in 1980, Juracka had passed both a Series 7: General Securities Representative Examination and Series 63: Uniform Securities Agent State Law Examination -- and had passed additional exams in 1987, 1990, 1991, and beyond. As such, the AWC is in error in asserting that Juracka was only first registered in 2009 upon joining Morgan Stanley.
My second issue with the AWC is that the complaints about the mother's account appear to have been solely made by her son. As FINRA states in part on its "Senior Investors" webpage http://www.finra.org/industry/senior-investors:
FINRA rules provide members with ways to respond to situations in which they have a reasonable basis to believe that financial exploitation has occurred, is occurring, has been attempted or will be attempted. Members can better protect their customers from financial exploitation if they have the ability to contact a customer's designated trusted contact person and, when appropriate, place a temporary hold on a disbursement of funds or securities from a customer's account.
- FINRA Rule 4512 (Customer Account Information) requires members to make reasonable efforts to obtain the name of and contact information for a trusted contact person upon the opening of a non-institutional customer's account or when updating account information for a non-institutional account. The trusted contact person is intended to be a resource for the member in administering the customer's account, protecting assets and responding to possible financial exploitation.
- FINRA Rule 2165 (Financial Exploitation of Specified Adults) permits, under FINRA rules, a member that reasonably believes that financial exploitation has occurred, is occurring, has been attempted or will be attempted to place a temporary hold on the disbursement of funds or securities from the account of a "specified adult" customer. Specified adults include a natural person age 65 and older or a natural person age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.
According to FINRA's Securities Helpline for Seniors webpage http://www.finra.org/investors/highlights/finra-securities-helpline-seniors, the regulator offers the toll-free 844-57-HELPS (844-574-3577) telephone number that senior investors can call Monday through Friday from 9 a.m. to 5 p.m. ET in order to get assistance from FINRA or raise concerns about issues with brokerage accounts and investments.
FINRA Rule 2165 only first became effective on February 5, 2018, so it would not have been on the books in 2017 when the son made his complaints, and, accordingly, Juracka was not charged thereunder -- and it does not appear that FINRA found any conduct rising to the level of "financial exploitation" of an elderly customer by Juracka, and we should be VERY clear as to that issue. That inflammatory issue aside, the AWC fails to explain whether the complaining son was authorized by his mother to make the complaints on her behalf and/or whether he had some role in the subject accounts as a joint tenant, tenant in common, or otherwise authorized agent. As set forth in part in FINRA Rule 4513: Records of Written Customer Complaints:
(b) For purposes of this Rule, "customer complaint" means any grievance by a customer or any person authorized to act on behalf of the customer involving the activities of the member or a person associated with the member in connection with the solicitation or execution of any transaction or the disposition of securities or funds of that customer.
In the absence of the son being duly "authorized" to act on behalf of his mother, it would have been improper for the brokerage firm of Juracka to discuss the mother's confidential, financial transactions with such a third party. All of which raises some interesting questions as to what did happen or should happen when a third party (be that a family member of otherwise interested person) contacts FINRA's Senior Helpline to "complain" about potential elder financial abuse. The appropriate protocol would seem to be for the "intake" process by FINRA to be somewhat passive and to not disclose any account information to such third-parties. Notwithstanding, FINRA should follow up on such complaints but, accordingly, needs strict protocols about not informing said third parties as to any specific findings of any investigations. Pointedly, even FINRA's online "Securities Helpline for Seniors" webpage http://www.finra.org/investors/highlights/finra-securities-helpline-seniors clarifies:
Who Should Call?Seniors who have questions or concerns about their investment accounts.
Note that FINRA invites "seniors" to contact its helpline about "their investment accounts." That language is not an invitation to any non-account-holder -- be that son, daughter, husband, wife, grandchild, neighbor, etc. -- to telephone the regulator with complaints. I am NOT saying that such calls should not be made. Obviously elder fraud is a serious and growing problem. What I am noting is that there is a delicate balance at play when justifiably seeking to protect elderly customers but also respecting their privacy rights. It does not take a great deal of imagination to conjure up a scenario whereby a son of an elderly customer cleverly calls FINRA's hotline in order to ascertain the number of his mother's securities account and to find out the specifics of its holdings -- and, thereafter, armed with such information uses forgery, an imposter posing as the mother, or intimidates the elderly parent in order to obtain proceeds. I raise these issues in terms of the Juracka AWC because the AWC fails to inform us whether the mother ever authorized her son's complaints or, in contrast, whether she supported Juracka's version of events.