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FINRA Imposes Fine and Suspension Over Deceased Second Cousin Once Removed
September 11, 2020
We got cousins. Second cousins. Once removed. Frankly, don't ask me because I never quite got that second cousin thing or all the removals. Making matter more complicated, one of the cousins is a stockbroker and the other cousin has some accounts with the second cousin once removed. There are powers of attorney. There are beneficiary designations. There are loans. Then the customer cousin dies and, as such, may still be a second cousin but becomes fully removed. Then the brokerage firm becomes unhappy. Then FINRA investigates.
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, Jodie Lane. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Jodi Lane, Respondent (FINRA AWC 2017056100101)
https://www.finra.org/sites/default/files/fda_documents/2017056100101
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The AWC alleges that Jodi Lane entered the industry in 2005, was first registered in 2006, and by December 2010, she was registered with a subsidiary of LPL financial and, thereafter, with LPL. The AWC asserts that "Lane does not have any disciplinary history with the Securities and Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization."
Long-time customer "NL"
The AWC alleges that an individual referred to only as "NL" was a "long-time customer who followed her to LPL." In another section of the AWC, NL is further characterized as "Lane's second cousin once removed."
The Three POAs
In part, the AWC alleges that the following conduct constituted violations of FINRA Rule 2010:
First, in April 2011, NL granted Lane three powers of attorney (POA) over NL's financial affairs: a Health Care POA, a general financial POA, and a POA over NL's outside checking account, which included the power to withdraw funds from, and write checks on, NL's checking account. But, in May 2011, when LPL hired Lane, she did not inform the Firm of the powers of attorney, or that she had check writing authority over NL's bank accounts as required. Lane requested guidance from LPL as to disclosure and approval of these designations and was directed to submit an outside business activity form. Lane submitted the form, but omitted the true nature of her authority, and stated only she was the "personal representative for the estate of. . . [her] cousin."Second, contrary to the Firm's prohibition on receiving gifts, between May 2015 and May 2017, Lane accepted $154,299 in gifts from NL, by transferring the funds from NL's checking account to Lane's accounts.Third, in 2016, NL designated Lane the transfer on death beneficiary for two of NL's brokerage accounts. At the time, the total value of the accounts was approximately $768,000. Lane was aware of the designation, but did not notify the Firm as required by the Firm's procedures. Lane also did not designate the accounts as employee-related. When NL died in May 2017, Lane inherited more than $715,000.Further, Lane stated in three annual compliance questionnaires that she did not have any customer relationships such as a power of attorney to report, and she had not received gifts valued at over $100 dollars from a customer, which was not true.
Resignation and Amended Form U5
[L]ane voluntarily resigned from LPL in July 2017. LPL filed a Uniform Termination Notice for Securities Industry Registration (Form U5) on August 8, 2017, terminating her registration.On October 24, 2017, LPL amended the Form U5, stating that the Firm opened a review "of activities of a former representative who had Power of Attorney for a customer, with respect to distributions of monies to herself, and purporting to be through a gifting process." The Firm further amended the U5 filing on December 15, 2017 to disclose it concluded its investigation, and determined that between May 2015 and May 2017, Lane's client, "gifted monies to . . . Lane," "[named] Lane as a beneficiary of two Transfer on Death accounts and transferr[ed] monies from [the client's] individual account to Lane for Lane to pay for her own personal expenses. . . . Lane . . . also advised that she had been appointed Health [Care] Power of Attorney for the client [and] had signing authority on the client's bank checking accounts . . . ."
FINRA Sanctions
In accordance with the terms of the AWC, FINRA imposed upon Lane a $10,000 fine and a four-month suspension from associating with any FINRA member in any capacity.
Bill Singer's Comment
Online FINRA BrokerCheck records as of September 11, 2020, disclose that Lane was registered with Uvest Financial Services Group, Inc. from December 2010 through July 2011, and with Edward Jones from 2006 through November 2010. On March 14, 2011, LPL Financial LLC, a wholly owned subsidiary of LPL Investment Holdings Inc., announced that it was consolidating UVEST (its then-wholly owned subsidiary acquired in 2007 by LPL Investment Holdings Inc.) onto its self-clearing platform.
FINRA could have loaded up when it came to socking Lane with a larger fine or longer suspension because the fact pattern isn't all that flattering to the rep. On the other hand, it appears that FINRA recognized that Lane and NL were family, and there appears to have been a close, ongoing relationship between the two. The POAs at issue were granted in 2011, which was about four to six years prior to the cited $154,299 in gifting from NL to Lane; and about five years before the designation of Lane as a beneficiary on two of NL's brokerage accounts. Again, if FINRA perceived that there was some over-reaching by Lane, I would have expected that to be set forth in the AWC, and, in the absence of same, I will infer no such misconduct. Notably, the AWC does not allege that NL's estate sued Lane or that any heirs complained about Lane's conduct.
Ultimately, the Lane AWC is about Lane's failure to follow LPL's written supervisory procedures when she circumvented her disclosure obligations, which the AWC sets out in pertinent part as follows:
At all times relevant, the firm prohibited brokers from: (1) acting as a power of attorney for a customer; (2) being designated as a beneficiary on customer accounts; (3) having check writing authority over customer accounts; and (4) receiving gifts from customers exceeding $100. In limited circumstances, the WSPs permitted brokers to serve as a power of attorney, be designated as a beneficiary, and have check writing authority for an immediate family member provided such arrangements were first approved by the firm. This exception did not extend to gifts.
Lane did file an Outside Business Activity ("OBA") form but seemingly obscured some of the substance of her dealings by merely characterizing her role as a "personal representative for the estate of . . . [her] cousin."As asserted in pertinent part in the AWC:
No matter how many times I read that above two sentences, they don't make sense to me.[B]ut, in May 2011, when LPL hired Lane, she did not inform the Firm of the powers of attorney, or that she had check writing authority over NL's bank accounts as required. Lane requested guidance from LPL as to disclosure and approval of these designations and was directed to submit an outside business activity form. . . .
The AWC alleges that in May 2011, Lane did NOT inform LPL of the POAs or of her check-writing authority; however the AWC also states that Lane had "requested guidance from LPL as to disclosure and approval of these designations and was directed to submit an outside business activity form. . . . "
So -- Lane did inform LPL about the POAs and check-writing ("these designations") and the firm told her to submit an OBA form, which, again, she did.
The AWC then alleges that in submitting the OBA form, Lane had "omitted the true nature of her authority, and stated only she was the 'personal representative for the estate of. . . [her] cousin.' "
Now I'm befuddled.
The AWC should have better explained the parameters of the "guidance" that Lane had requested from LPL about disclosing POAs and check-writing authority. As I read it, Lane told the firm that she needed guidance about disclosing her ongoing role as a POA and as having check-writing authority, and LPL told her to send in an OBA form. On the other hand, perhaps Lane "loosely" asked LPL about what she should do if she ever got involved with POAs or was asked about check-writing authority. There's quite a nuance of difference between asking about a specific set of facts or about a conjectural set. I'm not clear what Lane did or did not present to LPL when she "requested guidance." That being said, when it came to setting things out in the OBA form, Lane apparently minimized her role as a mere estate representative for her cousin. As to Lane's failure to disclose her receipt ot $154,299 in gifts, that's solely on her and requires no further explanation, as is her failure to disclose the POAs and gifts on her annual compliance questionnaires.
As to Lane's 2016 designation as a transfer on death ("TOD") beneficiary for NL's accounts, the AWC asserts that Lane had failed to notify LPL. Yeah, but -- the AWC also states that in 2011, Lane had notified LPL that she was NL's cousin, and, more to the point, NL had LPL brokerage accounts. Given that LPL was on notice that Lane was NL's cousin and that the cousin had LPL accounts, didn't someone in LPL's Compliance Department note that NL had designated Lane as a TOD beneficiary? After all, this all took place in an LPL account. Isn't there an exception report generated for such events? In light of the prior disclosure of the family relationship involving one of its reps, didn't LPL implement some routine oversight of NL's accounts to ensure arms-length conduct? I'm not sure about the answers because the AWC sort of muddies the facts.