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NEWSLETTERS & ALERTS
A 'Stitch in Time (Usually) Saves Nine', But Not for This Broker
by Howard Haykin
Which is a shame because, for his first 22 years, this broker had an impeccable record – spotless associations with 3 firms (i.e., no disciplinary events), including 17 years with Allstate Financial Services (“AFS”). However, his 23rd year began a nightmare, and quickly became his 'Waterloo'. In short order, this broker …
- Was discharged in June 2017 by Allstate Financial Services based on “allegations of non-genuine signatures on brokerage account documentation.”
- Was sanctioned in September 2017 by the Nebraska Department of Banking and Finance ($1K fine, $1K administrative fee, 20-day suspension, 2-year heightened supervision).
- Ended his association in November 2017 with Chelsea Financial Services, just 4 months after joining that firm from Allstate
- Was sanctioned in March 2019 by FINRA ($5K fine, 3-month suspension).
- Has yet to associate with another FINRA member firm.
WHAT WENT WRONG, ACCORDING TO FINRA. In November 2016, AFS requested that the broker obtain updated new account documents related to mutual funds in approximately 157 of his customer accounts. AFS gave the broker 2 months to complete the task. While complying with the firm's request, the broker, in January and February 2017, forged customer signatures on updated new account documents for 9 of his customers. He then submitted those forged documents to the Firm. The broker caused the firm to maintain inaccurate books and records and, in doing so, violated FINRA Rule 4511 (books and records) and Rule 2010.
BROKER’S EXPLANATION, PROVIDED TO NEBRASKA AUTHORITIES. In early November 2016, my broker dealer, Allstate Financial Services (AFS), asked me for copies of New Account Forms (“NAFs”) on about 150 of my client accounts. Although I had submitted these forms to AFS each time an account was opened, AFS didn't have them on file for these 150 accounts. Most of the 150 accounts were older (15 years plus) accounts.
I had a NAF signed by each client when they originally opened their accounts. Some of these forms were from my prior broker dealer. In addition to New Account Forms, I had sent in updated information forms on some of the accounts as I collected them. The updates were not always signed by clients as that is not a requirement.
When AFS asked for the paperwork (in November 2016) I could have sent in what I had but I let AFS know that I was going to get new forms for each of the 150 accounts so that the information was fresh. This would give me an opportunity to review things with each of these clients. AFS gave me a deadline for submitting the paperwork of January 31, 2017.
In an effort to meet the deadline I signed a few of the client's names to the documents that AFS needed. I deeply regret that decision. I believe it's noteworthy that I have had no prior disciplinary events.
Mitigating Factors. In addition, I believe there is a critical mitigating factor in my actions. We had a serious family health crisis involving one of our kids that started around mid-November 2016 and continued on for months after that. I had to dramatically lessen the hours I spent at the office. My wife and I were deprived of sleep and under an enormous amount of stress at that time due to the health issue and its impact on our family. My work had taken a backseat and my focus wasn't there. Because of the nature of the situation at home, and the fact that it was ongoing at the time that I was questioned by Allstate and later the state of Nebraska Department of Banking and Financial, I didn't feel comfortable sharing information regarding the health problem and any impact it had in this case.
If I had been in a more rational state of mind in early 2017 then:
(1) I could have skipped the idea of getting new forms from everyone as that was my own idea in the first place. As the deadline neared, I forgot that I was even able to turn in the old ones.
(2) I could have sent in unsigned updates rather than worrying about getting signatures.
(3) I would have realized the insignificance of the deadline. The deadline was simply the point at which AFS would then attempt to get the paperwork from clients via direct mail.
I think it is also important to note that the documents in question were not being used to establish new accounts. The purpose was to provide a financial profile on these customers. The documents did not result in any movement of funds in, out or within of any accounts. Confirmations of the information provided were mailed to each account holder involved for verification.
FINANCIALISH TAKE AWAYS. A confluence of wrong decisions doomed this individual, and may even have ended his brokerage career. With his 'for cause' termination and Nebraska's '2-year heightened supervision' order, how many broker-dealers would welcome his association? Perhaps he'd have better career opportunities with an investment advisor or some other financial institution.
That said, this broker's case offers several take aways (and life lessons):
This case was reported in FINRA Disciplinary Actions for May 2019.
For further details, click on... FINRA AWC #2017054741201.