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Regulatory Sanctions

Four Brokers Caught Trying to Privately Settle Customer Complaints

November 21, 2017

by Howard Haykin


In October 2017, FINRA reported disciplinary sanctions against four experienced registered reps who were caught trying to privately settle customer complaints - without bringing the matters to the attention of their member firms. Surprising? Not necessarily. See FINANCIAL TAKE AWAYS, below.


FINRA AWC #2015046728802.  Jay Dee Jordan … agreed to be barred from the industry to settle numerous FINRA charges, including the following: (i) he recommended and executed hundreds of unsuitable purchases of non-traditional ETFs in his customers’ accounts; and, (ii) he failed to report 2 customer complaints to his firm, and then attempted to settle one of the claims away from the firm through the improper use of his personal email account.


BACKGROUND.    Jordan, a resident of Oklahoma City, OK, had 28 years’ experience with 8 firms. He held the Series 7 license and was associated with WFG Investments at the time that FINRA investigated his case. WFG Investments U5’d Jordan on 3/31/16 in part because of his private handling of the customer complaint. For the record, Jordan’s CRD files contains 16 disclosures – 9 are pending Customer Disputes filed between April 2016 and March 2017.


FINRA FINDINGS.    From January 2012 through March 2016, Jordan violated WFG's WSPs in connection with 2 customer complaints.


►   In January 2012, when a customer complained about transactions in his account that resulted in losses exceeding $140,000, Jordan placed the blame on his partner at the time, while promising to recoup those losses with his own investment recommendations. He added that, to the extent any losses remained, he would make $1,000 payments to the customer starting in 2014. Jordan did not report this complaint or his efforts to independently settle the complaint to WFG.


►   Between September and November 2013, Jordan used his personal email account to communicate with a customer about the status of his complaint and their informal settlement. Jordan advised that he would compensate the customer for the $127,000 in losses, and that he'd begin making monthly payments at the end of January 2014. Jordan failed to make any of the promised payments, and he again failed to report the complaint, or his settlement attempts, or his use of personal email to WFG. In May 2015, the customer submitted a complaint directly to WFG.


FINRA AWC #2016050601901.  James Picha … agreed to a 10-month suspension to settle multiple FINRA charges, that he: (i) altered a customer’s life insurance policy application without the customer’s knowledge or consent; and, (ii) tried to privately resolve the customer’s complaint about unauthorized alteration without telling his member firm. FINRA did not impose a fine in view of Pichas’s financial status.


BACKGROUND.    Picha, a resident of St. Louis, MO, has 19 years’ experience with 4 firms. He held the Series 7 and 55 (Limited Rep-Equity Trader) licenses. From September 2007 to January 2015, Picha was associated with New England Securities; from January 2015 to July 2016 he was with MetLife Securities. MetLife U5’d Picha for having “changed information on a life insurance policy without client consent.”


FINRA FINDINGS.    In December 2012, Picha altered a customer life insurance policy application by increasing the requested coverage amount from $600,000 to $2,000,000, without the customer's knowledge or consent. Picha did so to earn a larger commission on the transaction. When the customer learned of the falsification and objected, Picha negotiated a settlement whereby he agreed to repay $22,000 in premium payments. Picha never informed MetLife about the underlying misconduct or the customer's complaint. For the first 2 years, Picha complied with his obligations under the settled agreement and repaid $4,000. However, when he could no longer afford to make the agreed-upon payments, the customer went to the firm in June 2016. The firm paid full restitution to the customer.


FINRA AWC #2013035584501.  Keith Michelfelder … agreed to pay a $10K fine and to serve a 60-day suspension to settle multiple FINRA charges, including that he: (i) effected transactions in the accounts of a member firm customer without having discretionary authority; and, (ii) used personal email to deal privately with a customer complaint.


BACKGROUND.    Michelfelder, a resident of Atlanta, GA, had 19 years’ experience with 3 firms. From 1998 through 2012, he was associated with Joseph Gunnar & Co. Thereafter, he was associated with Aegis Capital (2012-2016) and National Securities Corp. (2016-10/24/17). Michelfelder holds Series 7 and 24 licenses.


FINRA FINDINGS.    From at least June 2011 to May 2012, Michelfelder effected at least 16 transactions utilizing discretion without written authorization in the accounts of a Joseph Gunnar customer. In July 2012, Michelfelder used his personal email address to communicate with that customer who complained about Michelfelder’s handling of the accounts. Joseph Gunnar was not immediately informed about the sales practice complaint.


FINRA AWC #2015047287101.  Lewis Robinson … agreed to pay a $10K fine and to serve a 15-day suspension to settle FINRA charges that he settled a customer’s complaints by issuing checks to the customer’s wife, without informing his member firm.


BACKGROUND.    Robinson, a resident of North Miami, FL, has 30 years’ experience with 5 firms. From 2009 to October 2015, he served as a registered rep (Series 7) with Morgan Stanley. The firm U5’d Robinson due to “unapproved fees reimbursements made to a client.” Since February 2016, he’s been associated with another FINRA member firm.


FINRA FINDINGS.    Between September 2014 and August 2015, a customer complained on 3 separate occasions to Robinson regarding the amount of commissions that Robinson charged. Rather than report the customer's complaints to the firm, Robinson settled the complaints by issuing 3 checks in the total amount of $12,203.23 to the customer's wife.


FINANCIALISH TAKE AWAYS.   What stands out most in these cases is the long-term experience of these brokers - 24 years, on average. Even with significant experience, they went ahead and tried to privately settle customer complaints. Or, would I be more accurate in saying that ... "because of their significant experience, these brokers reached out to privately settle the complaints." 


If that last thought is accurate, and if private settlements are rather commonplace, what might the industry try and do to combat such 'willful rule violations'?


In order to devise an action plan, FINRA or its member firms would need to identify the reasons that brokers persist in trying to privately settle customer complaints. Here are some reasons brokers might not want their firms to know about customer complaints:


  • A complaint might indicate unsuitable recommendations, so why self-incriminate? 
  • A complaint might jeopardize a broker's standing at the firm, regardless of the outcome.
  • A complaint might lead to a time-consuming investigation, leaving less time to generate commission revenues.
  • A complaint might require disclosure on the broker's CRD records, damaging the broker's reputation.
  • A customer gripe about an administrative matter might somehow be misconstrued as a sales practice complaint.
  • A misunderstanding between a broker and a customer might morph into a complaint.


Net-net, broker-dealers need to convince their registered reps that open communications and strong working relationships benefit everyone. And joint-resolution of customer complaints is part of the solution, and not a detraction.


The issues need airing. Let the conversations begin.


These cases were reported in FINRA Disciplinary Actions for October 2017.

For details on any case, go to ...  FINRA Disciplinary Actions Online, and refer to the Respective AWC Number.