An irreverent Wall Street Blog
FINRA Fines and Suspends Rep For Seeking COVID Loan
July 22, 2021
A former Wells Fargo employee engaged in negligent conduct when he sought a Covid-related loan from the Small Business Administration. Although the loan was granted, it was never paid. On basketball courts all around the world, that falls under no-harm-no-foul. But FINRA is not a basketball court.
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, Kenric L. Sexton submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Kenric L. Sexton, Respondent (FINRA AWC 2020068909301)
https://www.finra.org/sites/default/files/fda_documents/2020068909301
%20Kenric%20L.%20Sexton%20CRD%206362195%20AWC%20va.pdf
%20Kenric%20L.%20Sexton%20CRD%206362195%20AWC%20va.pdf
The AWC asserts that Kenric L. Sexton was registered from August 2014 through December 2020 with Wells Fargo Clearing Services, LLC.
The Covid Loans
In part, the AWC alleges that in violation of FINRA Rule 2010, Sexton engaged in the following:
In 2020, as a result of the COVID-19 pandemic, the federal government initiated several programs to assist small businesses, including the Economic Injury Disaster Loan program, which was administered by the SBA. Sexton did not read the Economic Injury Disaster Loan program requirements carefully before applying for a loan and, in June 2020, submitted an application to the SBA seeking such a loan. Sexton, then a registered representative of Wells Fargo with no disclosed outside business activities, did not operate any business eligible for a small business loan from the SBA. Instead, Sexton was seeking an Economic Injury Disaster Loan to fund his self-directed online trading account. In his application to the SBA, Sexton negligently misrepresented that he operated his self-directed online trading account as a sole proprietorship. Based on Sexton's negligent misrepresentations in the loan application, the SBA granted him a $1,000 advance on an Economic Injury Disaster Loan; but, in July 2020, the SBA denied Sexton's loan application.
Discharge
Online FINRA BrokerCheck disclosures as of June 22, 2021, assert that Wells Fargo "discharged" Sexton on November 13, 2020, based upon allegations that:
The employee applied for business support from the Small Business Administration when the employee did not have a pre-existing formal business as required. This activity was not related to the securities business of Wells Fargo Clearing Services, LLC. No related customer harm was identified.
Sanctions
In accordance with the terms of the AWC, FINRA imposed upon Sexton a $2,500 fine and a one-month suspension from associating with any FINRA member in all capacities.
Bill Singer's Comment
Initial impressions are a funny thing. After first reading the Sexton AWC, I had a very harsh view of the Respondent's conduct because it involved gaming the Covid pandemic, which I sure as hell didn't find amusing or ethical. On further reflection, a few things jumped out at me from FINRA's recitation of the underlying facts:
Sexton did not read the Economic Injury Disaster Loan program requirements carefully before applying for a loan and, in June 2020, submitted an application to the SBA seeking such a loan. . . . In his application to the SBA, Sexton negligently misrepresented that he operated his self-directed online trading account as a sole proprietorship. Based on Sexton's negligent misrepresentations in the loan application, the SBA granted him a $1,000 advance on an Economic Injury Disaster Loan; but, in July 2020, the SBA denied Sexton's loan application.
Further, Wells Fargo's BrokerCheck report asserts in part that:
This activity was not related to the securities business of Wells Fargo Clearing Services, LLC. No related customer harm was identified.
A more careful reading of FINRA's charges discloses that Sexton "negligently misrepresented" his qualifications to file for and obtain the EIDL loan. Negligent does not mean intentional. Negligent does not mean reckless. Moreover, although the "SBA granted him a $1,000 advance," ultimately, the "SBA denied Sexton's loan application." As in Sexton's negligence did not result in the payment of any loan funds by SBA to him.
Notably, there is nothing in the AWC that asserts that Sexton knew that he was engaging in or intended to engage in any kind of fraud -- to the contrary, it sort of seems like he may have thought (negligently as his state of mind may have come into being) that he had a legitimate basis to seek the loan. All of which comes off as something along the lines of I thought I could do X, that's why I did X, then I found out that I should not have done X, and, in the end, it was all something akin to a no-harm-no-foul
Wells Fargo fired Sexton. I'm not shedding any tears over that. FINRA fines and suspends him, but the fine and the suspension seem tailored for the transgression and the times, so, the self-regulator imposed relatively balanced sanctions. Again, not shedding any tears over the AWC.
Why I am left uneasy? What discomforts me about this AWC?
As best I can come to grips with my mixed emotions, they seem to be prompted by my knowledge that Wells Fargo has a recent history of engaging in horrific consumer abuse that was so outrageous as to prompt the Federal Reserve Boar to impose historic sanctions on the company in 2018; see, "Historic Federal Reserve Restrictions On Wells Fargo" (BrokeAndBroker.com Blog / February 5, 2018)
http://www.brokeandbroker.com/3808/federal-reserve-wells-fargo/
http://www.brokeandbroker.com/3808/federal-reserve-wells-fargo/
In case you forgot how the Fed lambasted Wells Fargo, here's a bit of the spirit:
Responding to recent and widespread consumer abuses and other compliance breakdowns by Wells Fargo, the Federal Reserve Board on Friday announced that it would restrict the growth of the firm until it sufficiently improves its governance and controls. Concurrently with the Board's action, Wells Fargo will replace three current board members by April and a fourth board member by the end of the year.
FINRA's own experience with Wells Fargo most recently prompted: "FINRA Sanctions Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC More Than $2 Million for Supervisory Violations Related to Variable Annuity Switches / Firms to Pay $1.4 Million in Restitution to Approximately 100 Affected Customers" (FINRA Press Release / September 2, 2020)
https://www.finra.org/media-center/newsreleases/2020/finra-sanctions-wells-fargo-clearing-services-llc-and-wells-fargo
How nice it is that Wells Fargo summoned up its high dudgeon and fired Sexton for his failed attempt to get a $1,000 Economic Injury Disaster Loan when the corporate culture seems to have promoted far worse misconduct and tolerated it (if not actively encouraged it) for far too long. How did the Fed put it? Oh yeah: "widespread consumer abuses and other compliance breakdowns by Wells Fargo. . . " Can't find anything in there about mere negligence, right?
As to FINRA's complicity in fostering Wells Fargo's double-standard, the compromised self-regulator could easily deflect my criticism by showing me the C-Suiters at Wells Fargo who FINRA suspended and fined for their roles in the abuses cited in the Federal Reserve action or in FINRA's 2020 variable annuity AWC. In case you were wonderin', I ain't holdin' my breath.
Like I said, I can't exactly put my finger on why I'm just not comfortable with the Sexton AWC but it may have something to do with both Wells Fargo and FINRA coming off as . . . let's see . . . hypocritical, sanctimonious, pious, self-righteous, holier-than-thou, specious . . . just to name a few of the thoughts floating around in my head. I got a lot of empty space in my head, so there's plenty of room for thoughts to float around there.