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Regulatory Sanctions

Discretion or Indiscretion in Executing Discretionary Transactions

June 5, 2019

by Howard Haykin



With regular frequency, FINRA sanctions brokers for executing discretionary transactions in customers’ accounts without first obtaining written authorization from those customers (or from their member firms). So, while most of these disciplinary cases basically come across as ‘same old, same old’, FINRA does surprise us occasionally with cases laced with unusual or interesting scenarios.
Take, for example, a trio of ‘discretionary’ cases in FINRA’s Report on Disciplinary Cases for May 2019. While the facts and circumstances of these cases come across as nothing unusual, the backgrounds of the 3 sanctioned brokers clearly set them apart from most of their predecessors.
  • The 3 brokers have a combined 108 years' experience - 2 each have over 45 years’ experience; the 3rd has ‘just’ 15 years.
  • Collectively, the 3 brokers have been associated with just 11 firms during their combined 108 years in the business – an astounding 10-year average association with each of their member firms - no 'rolling stones' in this lot.
  • Prior to their current trading violations, all 3 brokers had spotless disciplinary records - except for 5 nominal customer disputes.

►     2 disputes were denied; 3 others arose in 2008 out of the sale of Auction Rate Securities (ARSs) and were settled by member firms (as mandated by the industry’s global repurchase agreement). The brokers were not at fault and they did not participate in any settlement payments.



Given the brokers' impressive backgrounds, I wondered aloud:

  • What prompted them to engage in any form of violative conduct after being fully compliant for so many years?
  • Was the risk to their careers worthwhile – particularly since one broker was discharged for his violative conduct and has yet to join up with another broker-dealer?


Let’s check back after the following case analyses.



BROKER ONE (RBC CAPITAL MARKETS).    In June 2018, Broker One placed 61 trades in 29 customer accounts – only 11 months after joining RBC from Oppenheimer & Co. where he had been for 24 years. Shortly thereafter, RBC discovered the transactions and discharged him for ‘Violation of the Firm’s order execution policy’.

Prior to his one year at RBC Capital Markets, this broker had spent 45 years with 4 other firms, during which time he had no disciplinary disclosures. Broker One agreed to pay a $5K fine and serve a 15-day suspension. [FINRA AWC #2018060156201]



BROKER TWO (UBS FINANCIAL SERVICES).    From June 2010 through November 2017, Broker Two effected approximately 400 discretionary transactions in 13 accounts belonging to 11 customers – based in part on the customers’ express or implied authority to exercise discretion in their accounts.

Prior to joining UBS in 2002 as a General Securities Rep, General Securities Principal, General Securities Sales Supervisor, Municipal Securities Principal, and Registered Options Principal, Broker Two had spent 30 years with 4 other firms. He remains registered with UBS as a General Securities Rep. Broker Two agreed to pay a $5K fine and serve a 15-day suspension.  [FINRA AWC #201805792780]



BROKER THREE (UBS FINANCIAL SERVICES).    From February 2016 through June 2017, Broker Three exercised at least 27 trades on 14 separate dates in 2 accounts belonging to customers. 

Broker Three has spent his entire 15-year financial services career with UBS Financial Services and remains registered with that Firm. Broker Three agreed to pay a $5K fine and serve a 10-day suspension.  [FINRA AWC #2017055847401] 



FINANCIALISH TAKE AWAYS.    Addressing my open questions, one can't surmise what the brokers were thnking when they engaged in violative conduct - other than by interviewing them or requesting FINRA Enforcement to provide for more in-depth commentary in their case write-ups. That said, it's likely, if not probable, that all 3 brokers had executed unauthorized discretionary transactions some time before the relevant period cited by FINRA - the brokers just weren't caught.


What I'd like to see is FINRA 'giving some slack' to brokers who have clean disciplinary records - by issuing, for example, "Letters of Caution" rather than AWC's - so long as the brokers' actions involved 'victimless' conduct, and/or did not create or place undue risk on customers of the firm. 



These cases were reported in FINRA Disciplinary Actions for May 2019.

For further details, click on the respective FINRA AWC #.