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NEWSLETTERS & ALERTS
Broker Shares Customer’s Losses
by Howard Haykin
A Long Island, NY-based broker with Planmember Securities agreed to pay a $5K fine and serve a 45-day suspension to settle FINRA charges that he improperly shared in the losses of a customer.
FINRA FINDINGS. Between 2001 and March 2016, the value of the account of one of the broker’s customers declined to zero as a result of customer withdrawals and trading losses. In April 2016, the broker informed his customer that he would give the customer money on a monthly basis because the customer's account had declined in value to zero. And so, between April 2016 and October 2017, the broker made monthly cash payments to the customer - not into the customer’s brokerage account - paying a total of $15,000. At no time did the broker obtain prior authorization from Planmember or the customer. [NOTE: No other details about the ‘payback’ arrangement are provided.]
Based on the foregoing conduct, FINRA charged the broker with improperly sharing in his customer's losses – in violation of FINRA Rule 2010. And by inaccurately affirming on 2 Annual Compliance Questionnaires (ACQs) that he had not shared in any profits or losses in a customer's account, when in fact he had, the broker further violated Rule 2010.
FINANCIALISH TAKE AWAYS. Coincidentally (or not), in November 2017, the broker (and firm) settled a customer dispute in which it was alleged that the broker “engaged in practices including unauthorized trading, unsuitable investing, misrepresentation and material omissions.” The customer sought $1 million in damages, but settled for $260,000. [The broker contributed $35K to the settlement amount - though there's no explanation as to how or why the contribution allocations were made.]
FINRA makes no mention of this customer dispute in its write-up of this case. Yet, the timing and amount of damages lead me to believe that the customer in the dispute and in this case write-up are one-in-the-same. Taking it one step further, I think it’s probable that the disclosure of a customer dispute settlement would have given rise to FINRA’s investigation of this broker.
This case was reported in FINRA Disciplinary Actions for October 2018.
For details the case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2017056272101.