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Regulatory Sanctions

Broker Learns Hard Lesson While Trying to Protect Clients

July 6, 2017

by Howard Haykin

 

Once again, a broker is dinged for trading in his clients’ account without discretionary authority. Which, once again, begets the question – was the firm cited for failure to supervise? And the answer is an emphatic NO!

 

Jeffrey Scheibner agreed to a $5K fine and a 3-month suspension to settle FINRA charges that he made unauthorized mutual fund exchanges in numerous customer accounts.

 

BACKGROUND.   Scheibner, a resident of Ladera Ranch, CA, entered the securities industry in 1994, when he became associated with Lincoln Financial Securities as an Investment Company Shares and Variable Contracts Representative. He remained with Lincoln for 17 years, until 2012. Over the next 4 years, he was associated in that same capacity with 2 firms, including Accelerated Capital Group. Scheibner has no prior disciplinary history.

 

FINRA FINDINGS.    Scheibner is charged with having violated FINRA Rule 2010 by making unauthorized mutual fund exchanges in the accounts of numerous customers during August and September 2015. Between 8/24/15 and 9/16/15, Scheibner exchanged 303 mutual fund positions into corresponding money market funds on behalf of 27 customers, across 36 accounts, during a period of market fluctuation. Scheibner did so without the prior authorization of the customers, and he possessed no written discretionary authority over their accounts. Scheibner received no compensation as a result of the transactions, and there were no fees to enact the exchanges.

 

Scheibner Response (on CRD):  I was trying to save my client from a huge market downturn by transferring mutual funds to money market. These trades were done without fees. I thought I was doing the right thing for my clients. I learned a hard lesson about getting everything in writing when it comes to trades.

 

FINANCIALISH TAKE AWAYS.   Giving this broker a 3-month suspension is overkill and, if I were representing Mr. Scheibner, I’d fight “tooth and nail” to have the sanctions mitigated – although his defense would largely rest on the issue of whether his clients were aware of the transactions and had, in fact, approved them – at some point in time. If they were aware of, and at some point approved, the trades, then I would have called upon the clients to provide testimony on Scheibner’s behalf.

 

And, where was Accelerated Capital Group and its supervisory personnel?  Should the firm be cited for not acting on a host of red flags – that would pop up after one broker liquidated 303 mutual fund positions in his client accounts? YES! And if the firm or its supervisors had a problem with the trades – which I presume they didn’t because clients’ accounts remained invested in cash for nearly one month – why didn’t they have them reversed – at the expense of the broker?

 

These are the types of questions that FINRA fails to answer in its disciplinary reports – but ones that would have a greater educational value for all interested parties.

 

This case was reported in FINRA Disciplinary Actions for June 2017.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016051534901.