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Regulatory Sanctions

Broker to Broker: Uncertain Alliance Leads to a Complaint

October 30, 2018

by Howard Haykin


A registered rep with Transamerica Financial Advisors is the broker-of-record for a customer who is a former registered rep with Transamerica (“customer”). At the broker’s recommendation, the customer established a self-directed outside brokerage account (presumably with E*Trade) and provided the broker with his log-in credentials, which he used to execute discretionary trades in the outside brokerage account. However, after 4 months of sustained losses (December 2016 to April 2017), the customer filed a complaint with Transamerica.


For the record, the stock market recorded net gains during that timeframe, and the broker did not receive any compensation for the trading in the outside brokerage account.


During an in-house investigation, the broker admitted to executing discretionary trades in the outside brokerage account and to his failure to disclose the arrangement to either Transamerica or the outside executing brokerage firm.


After Transamerica terminated the broker and U5d him in June 2017, FINRA requested information relating to the circumstances of his termination. The broker failed to timely respond, which prompted a FINRA suspension. Eventually, the broker agreed to cooperate with FINRA, which concluded that the broker had violated NASD Conduct Rule 3050(c) [Transactions for or by Associated Persons – superseded by FINRA Rule 3210] and FINRA Rule 2010. The broker agreed to a $15K fine and an 8-month suspension.


FINANCIALISH TAKE AWAYS.    This case offers 3 take away points.


1.  Conducting discretionary trades for a customer in an outside brokerage account can be hazardous to not only the customer, but also the broker.

2.  Brokers should be wary of involving a customer in an illegal or violative scheme – particularly when the customer knows the rules and regs. The customer can and will turn against the broker in order to protect his or her investments.

3.  Failure to cooperate with a FINRA inquiry or investigation is the “Kiss of Death.” In this case, after all was said and done, the broker will have served a suspension of nearly one year - and he'll be fortunate if he can resurrect his career come April 2019.  



This case was reported in FINRA Disciplinary Actions for October 2018.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2017054506902.