by Howard Haykin

Jon VanSlooten agreed a $7.5K fine and a 3-month suspension to settle FINRA charges that he exercised discretionary trading authority and effected some 586 trades in the accounts of 4 customers without the customers' prior written authorization and without having obtained his member firm’s approval to treat the accounts as discretionary.

BACKGROUND.    VanSlooten, a resident of Toledo, OH, has 8 years of broker-dealer experience with 1 firm – Edward Jones & Co. VanSlooten served as a General Securities Representative with Edward Jones from 2008 until February 2016. The firm noted in the U5 that VanSlooten resigned while under internal review for, among other things, violations of the Firm's policies relating to discretionary trading. In February 2016, VanSlooten joined an registered investment advisory firm. VanSIooten has no prior relevant disciplinary history.

FINRA FINDINGS.    From February 2009 through February 2016 (the "Relevant Period), VanSlooten exercised discretionary trading authority and effected approximately 586 trades in the accounts of 4 firm customers without prior written authorization from the customers and without having obtained approval from the firm to treat the accounts as discretionary. This activity was in violation of NASD Ruel 2510(b) and Edward Jones’ written supervisory procedures

• NASD Rule 2510(b) prohibits registered reps from exercising discretion in a customer's account unless the customer has provided prior written authorization and the account has been accepted in writing as a discretionary account by the registered rep’s member firm employer.
• Edward Jones WSP’s prohibited its registered reps from exercising discretionary authority over client accounts.

FINANCIALISH TAKE AWAY.     This is an odd case, with little detail - other what is related above. And don’t you just wonder how this broker managed to transact, on average, 84 discretionary trades each year for 7 years - without detection? I certainly do, because I can’t recall another case where a registered rep managed to do that for so many years.

For the record, Mr. VanSlooten processed around 21 discretionary trades a year in each of the 4 affected customer accounts. Sizable but not huge numbers.  

My guess is that Edward Jones never caught onto VanSlooten's discretionary trading because his customers never complained. In all probability, VanSlooten had his customers' tacit approval - i.e, their authorization - to trade on their behalf. And FINRA seems to confirm my suspicion by levying a relatively small fine – small when one considers the “enormous” number of trades involved.

That said, it would have been helpful if FINRA had provided answers to 2 questions: (i) how did Mr. VanSlooten avoid detection all those years; and, (ii) how was Mr. VanSlooten finally discovered? If nothing else, such information might aid other firms in detecting similar violations by their own registered reps.

This case was reported in FINRA Disciplinary Actions for August 2017.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016048946201.