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Broker Caught Submitting False Expense Reports
FINRA charged Mark Cohen with submitting falsified expense reports to the tune of at least $14,600. [This FINRA case has not yet been settled with the complainant.]
BACKGROUND. Cohen, a resident of New York, NY, has 14 years’ experience with 3 firms. After 7 years with AXA Advisors, he was associated with MetLife Securities from February 2011 to May 2014. When discharged by MetLife, Cohen admitted that he had not followed firm policy with respect to business expense reimbursements. Cohen, who holds a Series 7 license, is currently associated with BCG Securities.
FINRA FINDINGS. Between March 2012 and November 2013 ("Relevant Period"), Mark Cohen prepared several false expense reports and submitted them to the Firm seeking reimbursement pursuant to the Firm's marketing reimbursement program.
- The expense reports were false because the corresponding preapproved client marketing events did not occur and, therefore, Cohen did not incur any costs for the events.
- Nonetheless, Cohen created false transaction records to evidence the preapproved expenses, submitted at least 5 of these false records to the Firm, and requested reimbursement of approximately 50% of these phantom expenses.
- Cohen received at least $14,606.94 in "reimbursements" from the Firm as a result of his false expense
MetLife's Policies for Reimbursement of Marketing Expenses. MetLife maintained a "Co-Op Marketing Program" that subsidized certain marketing expenses that representatives incurred in entertaining clients and potential clients. According to the Co-Op Marketing Program for Cohen's Park Avenue (NYC) branch, brokers could seek reimbursement for up to 50% of certain pre-approved marketing expenses. To do so, the reps used MetLife's Sales Material and Compliance Review System to submit certain details – e.g., description of the event, date, cost, and number of attendees. After the pre-approved event took place, the organizing broker submitted an expense report with supporting documentation.
During the Relevant Period, Cohen falsified transaction records that he then submitted to MetLife in support of at least 5 expense reports:
► first, he identified individual transactions that did occur on his online American Express account and then downloaded Portable Document Formats (PDFs) of those individual transaction records;
► next, he used computer software to change the transaction date, dollar amount, and/or merchant on the PDFs to create a false record of a transaction that did not occur as described;
► lastly, he provided the altered transaction records to an assistant who the expense reports that Cohen then submitted through the Firm's system for reimbursement.
- New York Knicks Basketball Game – 3/28/12: This “Seminar-Knick game” for 12 attendees ‘cost’ $2,700.
- Porter House Restaurant – 6/5/12: This marketing event for 40 people ‘cost’ $5,200.
- Palm Restaurant – 7/24/12: This client dinner ‘cost’ $2,400.
- Avenue Restaurant – 10/25/13: This marketing event for 30 people ‘cost’ $6,000.
- Kanye West Concert- 1/23/13: This marketing event for 24 people ‘cost’ $8,000.
FINANCIALISH TAKE AWAYS. By attending most, but not all of these fictionalized group events, Cohen managed to “have his cake and eat it too!” Unfortunately, FINRA provides no details as to how the ruse was uncovered. Such information could serve as a learning tool. [But FINRA seems not to appreciate that aspect.]
That said, firms can take some initiatives to root out the type of ruses discussed in this case - ones that would require relatively little effort. Take, for example, the following steps:
- Require organizers to submit a list of attendee names and contact information.
- Independently contact random attendees after an event to “thank them for attending” and to “ask how the firm may be of further assistance.” Presumably those who didn’t attend would reply quizzically.
- Have the organizer send out thank you notes to all attendees on the firm email server, with “cc's” or “bcc's” to a compliance person.
- Conduct departmental meetings to discuss how randomly-selected marketing events translated into new clients or reinforced existing relationships.
This case was reported in FINRA Disciplinary Actions for September 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2014040761001.