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Regulatory Sanctions

Unauthorized Trades – A Broker’s Cover-Up is Worse Than Her Infraction

March 15, 2018

by Howard Haykin


A Massachusetts-based broker with Ameriprise Financial Services agreed to pay a $7.5K fine and serve a 6-month suspension to settle FINRA charges that she falsely stated to her member firm that she had contacted customers prior to trades being placed.


FINRA FINDINGS.    On June 20, 2016, the broker’s registered sales assistant placed 10 trades in 9 customers' accounts. Three days later (settlement day) a member of Ameriprise's sales supervision team sent the broker an email containing a list of those 10 trades and asked if she had spoken with each customer on that day. A day later, the broker responded that, yes, she had spoken to each of the customers on the trade date and after each call instructed her sales assistant to place the trades. Then, in early July, the broker reiterated her response during a conference call with members of Ameriprise's Legal and Compliance Department.


Seemingly “out of nowhere,” FINRA concludes its write-up of the case with the following comments:  


[The broker’s] statements to Ameriprise were false. She did not speak with the customers before the trades were placed on June 20. [The broker] later admitted this fact to Ameriprise and to FINRA.


FINANCIALISH TAKE AWAY.   It was disappointing that FINRA chose to provide its concluding comments without an explanation – like how Ameriprise and/or FINRA managed to elicit a confession from the broker.


However, what matters most in this case is recognizing how the broker's lies and cover-up factored into the sanctions. In its opening charges, FINRA makes no mention of "unauthorized trading." Instead, FINRA states that the broker "falsely stated to her member firm that she had contacted customers prior to trades being placed." 


And that, ladies and gentlemen, is the reason this broker received a 6-month sanction - rather than a more lenient suspension (say, 2-months) had she simply admitted to 'trading without discretionary authority'.' 


With that we once again observe where the lie or cover-up is more serious than the 'crime' or 'infraction' itself. Which prompts me to conclude that some people just haven't learned the Wall Street adage of "cutting one's losses."


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

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case # #2016051588201.