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A Broker Trapped in the Web of a Misleading Recommendation Letter
by Howard Haykin
David Tod II agreed to pay a $15K fine and serve a 4-month suspension to settle FINRA charges that he created and issued 3 recommendation letters for a prospective customer of his member firm that were written on firm letterhead and contained misleading statements regarding the prospective customer’s investment experience and his source of funding.
BACKGROUND. Tod, a resident of Hudson, OH, has been a registered rep for in the business 35 years as a registered rep with 8 firms. He was with Stifel, Nicolaus & Company from March 2009 until May 2015, when he was U5’d by the firm for violating firm policies including, among other things “unauthorized sending of correspondence and treatment of received correspondence ...." Tod currently is associated with another broker-dealer. He has no prior disciplinary history.
FINRA FINDINGS. In December 2011, September 2012, and again in May 2014, Tod prepared recommendation letters in support of “TS,” an individual who was acquiring parcels of real estate for development. All 3 recommendation letters were printed on Stifel, Nicolaus letterhead and represented, among other things, that “TS” was an astute and responsible investor, that he or she understood the risks associated with the prospective real estate transactions, and that he or she would finance the acquisitions with a combination of cash, securities and a credit arrangement or loan. Tod never submitted the recommendation letters for review and approval, as required by the firm’s written supervisory policies and procedures (WSPs).
In March 2015, 2 subpoenas were sent to Tod's Stifel, Nicolaus branch office and addressed to Tod and the Firm. The subpoenas related to a pending civil suit against “TS” and sought information about, among other things Tod's recommendation letters as well as any financial services that Tod and/or Stifel, Nicolaus may have rendered to “TS.” However, Tod took possession of letters before anyone else at the firm could see them – and the subpoenas were never provided to the branch manager nor submitted to Stifel, Nicolaus’ legal department as required by the firm's WSPs.
by failing to submit recommendation letters and subpoenas to appropriate firm personnel, Tod prevented the firm from fulfilling its supervisory obligations and from preserving Tod’s correspondence.
FINANCIALISH TAKE AWAYS. It doesn’t take a Monday morning quarterback to recognized that David Tod acted foolishly in several respects.
- By agreeing to write a recommendation letter about a person’s qualifications - and about certain details of the transaction - when he lacked a full understanding about both.
- By agreeing to cite (apparently false and) misleading credentials in a recommendation letter.
- By agreeing to provide a personal letter of recommendation on business stationery – particularly if it wasn’t his company.
FINRA notes that the recommendation letter was written for a ”prospective customer.” Though, I don’t think I’m going out on a limb by suggesting that “TS” never opened a Stifel, Nicolaus brokerage account with David Tod. If that was the case, so much for going “to the mat” for a 'friend' – not once, but 3 times.
In any event, I tried to come up with a “proper” way for Tod to have written the recommendation letter. However, the more I thought about it, the more I realized that TS had asked Tod to write recommendation letters as a “business reference” and not as a “personal or character reference.” While Tod could have refused, he didn't and given the way the scenario played out, Tod's actions were understandable - though regrettable.
It’s fortunate for Tod that he sported such a long history in the industry, because International Assets Advisory, took him on, warts (bad U5) and al. That firm apparently was willing to look past Tod's singular indiscretion. We should all be so lucky – although, we’ll see if he remains with IAA after his 6-month suspension concludes.
This case was reported in FINRA Disciplinary Actions for July 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2015045370601.