Overtime at Merrill Lynch Prompts Uneven-Handed FINRA Regulation

August 12, 2022

Early on in "Macbeth," the eponymous character famously muses:

But in these cases
We still have judgment here; that we but teach
Bloody instructions, which, being taught, return
To plague the inventor: this even-handed justice
Commends the ingredients of our poison'd chalice
To our own lips. . . .

Those lines are summoned up by a recent FINRA regulatory settlement barring a former Merrill Lynch employee for getting paid unearned overtime. Will FINRA be plagued by this case because the misdeed of the employee is treated far worse than the similar misdeed of the employer? Indeed, FINRA's disparate treatment of employees of FINRA's Large Member Firms and those Large Member Firms themselves is a poison that fills the regulator's chalice. Has the regulator developed an immunity to its uneven regulation?

FINRA AWC

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, Jolam Mendez, Respondent submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Jolam Mendez, Respondent (FINRA AWC 2020068745101 / August 9, 2022)

https://www.finra.org/sites/default/files/fda_documents/2020068745101
%20Jolam%20Mendez%20CRD%207194083%20AWC%20lp.pdf

An NRF

The AWC asserts in part that:

Mendez entered the securities industry in October 2019 as a non-registered fingerprint person (NRF) with FINRA member firm Merrill Lynch, Pierce, Fenner & Smith Inc. (CRD No. 7691) (Merrill Lynch). As an NRF, Mendez referred customers to specialists and identified client needs for both individuals and small business customers. In January 2020, Mendez passed the SIE licensing exam; however, Mendez failed the Series 7 examination in February and March 2020.

In June 2020, while still associated with Merrill Lynch as an NRF, Mendez became associated with another FINRA member film as an NRF.

In a Form U5 dated November 24, 2020, Merrill Lynch reported Mendez's discharge for his "failure to provide accurate information on timesheets and registered [sic] with another firm." In a Form U5 dated December 1, 2020, the other FINRA member firm reported Mendez's voluntary termination.

Fired After Becoming Employed Elsewhere?

Just going by the AWC's reference to the disclosures on the November 2020 Form U5, it appears that, in part, Merrill Lynch discharged Mendez because he "registered [sic] with another firm." Wow, that's an odd one -- an employee is fired after they take a job with another employer? Something's just not adding up here -- and given that FINRA added the "[sic]" reference into the AWC's reference to the Form U5, you'd sort of think that the self-regulator would have clarified this oddity.

In Plague Times

In addition to Merrill terminating Mendez because he wound up employed elsewhere, the AWC asserts that he was discharged for his alleged failure to provide accurate timesheets. As to what was involved with that issue, the AWC asserts in part that:

In February and March 2020, Mendez took and failed the Series 7 examination. Thereafter, Merrill Lynch directed Mendez to process COVID-19 federal relief program loan applications for Merrill Lynch's bank affiliate, Bank of America.

Between May 2020 and October 2020, Mendez submitted timesheets falsely claiming that he worked more than 620 hours of overtime processing loan applications for Merrill Lynch's bank affiliate. As a result, Merrill Lynch paid Mendez approximately $34,600 in overtime compensation. By submitting false timesheets and receiving compensation to which he was not entitled, Mendez converted approximately $34,600.

Therefore, Mendez violated FINRA Rule 2010

FINRA Sanction

The AWC does not indicate that Mendez was represented by legal counsel and he appears to have handled his settlement discussions with FINRA on a pro se basis. In accordance with the terms of the AWC, FINRA imposed upon Mendez a Bar from associating with any FINRA member in all capacities.

Bill Singer's Comment

Solely for purposes of context, let's not forget that during the relevant time, Mendez was working while COVID was still rampant in May to October 2020. Pointedly, after failing his Series 7, Merrill Lynch re-purposed Mendez to Covid-related work:

In February and March 2020, Mendez took and failed the Series 7 examination. Thereafter, Merrill Lynch directed Mendez to process COVID-19 federal relief program loan applications for Merrill Lynch's bank affiliate, Bank of America.

The AWC represents that Merrill Lynch had alleged that Mendez was paid for unworked hours. Does the pandemic justify an employee's submission of bogus timeslips for overtime? No.

Over 6 Hours a Day for Five Months of Unnoticed Overtime?

Let's do some quick math -- May to October, we'll call that five months:

If you divide 620 hours of overtime by five months, you get 124 hours a month.
If we say that there are typically 20 business days in each month, then 124 divided by 20 is about 6.2 hours of over-time each day.

Lemme see if I got this -- no one at Merrill Lynch or Bank of America noticed after a couple of months that Mendez was claiming to be working over 6 hours a day in overtime . . . and no supervisor picked up on that overtime for some five months until it reach a total of $35,000. Wow, y'all got one helluva management team at the brokerage firm and bank!

2016: Bank of America $14 Million Overtime Settlement

I wonder if FINRA remembers that in 2016, Bank of America Corp and its Merrill Lynch unit paid $14 million to settle a class action lawsuit alleging that trainees were forced to work 60 or more hours each week without overtime compensation? See, "BofA settles claims it cheated Merrill trainees out of overtime" (Reuters by Jonathan Stempel / March 23, 2016)

https://www.reuters.com/article/bank-of-america-merrill-overtime-settlem/bofa-settles-claims-it-cheated-merrill-trainees-out-of-overtime-idUSL2N16V16E

2019: Merrill Lynch $550,000 Overtime Settlement

I'm also wondering if FINRA forgot that in 2019, Merrill Lynch got hoisted on its own $550,000 overtime-class-action-suit petard just months before Mendez embarked upon his own creative billing strategy. See, "Merrill Reaches Half-Million-Dollar Settlement in Overtime Class-Action Suit"

(Advisor Hub by Mason Braswell / November 13, 2019)https://www.advisorhub.com/merrill-reaches-half-million-dollar-settlement-in-overtime-class-action-suit/

FINRA Rule 2010: Disparate Applications

Just for the hell of it, why don't we all read FINRA Rule 2010, which was used as the regulator's basis to Bar Mendez from the industry:

FINRA Rule 2010. Standards of Commercial Honor and Principles of Trade

A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.

So, lemme see if I got this:

If you're an industry employee and submit timesheets for overtime that you didn't actually work, FINRA will bar you from the industry for conversion, which FINRA says is misconduct that does not "observe high standards of commercial honor and just and equitable principles of trade" in violation of its Rule 2010.
If you're a FINRA Large Member Firm and you cheat your employees by not paying them overtime that they had earned and were entitled, somehow, that doesn't constitute a failure to "observe high standards of commercial honor and just and equitable principles of trade" in violation of its Rule 2010.

Howsabout you do an online search and see if FINRA fined Merrill Lynch for not paying overtime. While you're surfin' around, also see if FINRA fined, suspended, or barred anyone in Merrill's C-Suites for the firm's nonpayment of overtime.