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Regulatory Sanctions

Matters of Discretion

November 8, 2017

by Howard Haykin


Exercising discretionary authority without a customer's written authorization (or a firm's approval) is a tricky proposition for any broker, including one who had a spotless record for 45 years and the verbal authorization of his customers. When caught, it will generally mean your job, if not your career.


AWC #2015047444601.    Frank Tegge agreed to pay a $10K fine and serve a 2-month suspension to settle FINRA charges that he placed discretionary transactions in customer accounts without having obtained the customers’ prior written authorization and his member firm’s prior written acceptance of the accounts as discretionary.


BACKGROUND.    Tegge, a resident of DeWitt, MI, has 45 years’ experience with 5 firms. From September 2008 and October 2015, he served as a General Securities Rep with Wells Fargo Advisors. He's no longer associated with a FINRA member firm. Prior to these charges, TEGGE HAD A SPOTLESS DISCIPLINARY RECORD FOR HIS ENTIRE 45-YEAR CAREER.


CIRCUMSTANCES.    Tegge had verbal authorization from customers to use discretion to purchase and sell securities in 2 accounts – although the firm’s WSPs prohibited its registered reps from exercising such discretion in brokerage accounts. Between 2/19/15 and 7/31/15, Tegge placed 64 discretionary transactions in the customer accounts without having written authorization from the customer and written approval from his broker-dealer. In addition, he placed a trade in one account after talking with the customer’s spouse, who did not have any authority to authorize any trading in the account.


AWC #2015045714801.    Joel Davidman agreed to pay a $5K fine and serve a 45-day suspension to settle FINRA charges that he exercised discretionary trading authority in customers’ accounts without obtaining prior written authorization from each of the customers or his member firm’s approval to treat the customers’ accounts as discretionary.


BACKGROUND.    Davidman, a resident of Encino, CA, had 36 years’ experience with essentially 2 firms. He joined Dean Witter Reynolds in 1981 and remained with that firm and its successor firm, Morgan Stanley, until May 2015. Morgan Stanley U5’d Davidman on 5/26/15 for “allegations relating to the registered representative's discretionary trades in client accounts without written authorization.”


CIRCUMSTANCES.    From January 2013 through May 2015, Davidman exercised discretionary trading authority and effected approximately 2,200 trades in the accounts of 27 firm customers without prior written authorization from the customers and without having obtained approval from the Firm to treat the accounts as discretionary. Some of those trades were effected using time and price discretion; the remaining occurred without him discussing and receiving approval for the trades from the customers on the dates of the transactions. Davidman compounded these alleged violations by falsely attested on a firm annual compliance attestation that he did not have any customer accounts in which he conducted transactions on a discretionary basis.


AWC #2016051447001.    Donald Bergeron agreed to pay a $5K fine and serve a 15-day suspension to settle FINRA charges that he improperly used discretion to place trades in a customer’s account, without receiving the customer’s written authorization to use discretion and without his member firm’s acceptance of the customer’s account as discretionary.


BACKGROUND.    Bergeron, a resident of Charlotte, NC, had 20 years’ experience with 6 firms. He was associated with Merrill Lynch from 2002 until March 2009, when he was U5’d “for exercising discretion in a client’s account.” He joined Capital Guardian in October 2009 and remained with that firm until September 2016, when he was again U5’d “for exercising discretion in a client’s account.” FINRA notes that Bergeron has no relevant disciplinary history, but he previous discharge by Merrill Lunch would indicate that such a statement is not entirely accurate.


CIRCUMSTANCES.    From June 2016 through September 2016, Bergeron improperly used discretion to place 24 trades in the account of a customer at Capital Guardian. The customer had given Bergeron verbal permission to use discretion in the account, but did not provide written authorization. Capital Guardian never accepted this customer’s accounts as discretionary.


AWC #2016051495801.    Mathew Serth agreed to pay a $5K fine and serve a 3-month suspension to settle FINRA charges that he placed purchase orders in customer accounts without the customers’ authorization, knowledge or consent.


BACKGROUND.    Serth, a resident of Stone Ridge, VA, had 6 years’ experience with 2 firms. After spending 3 years with Merrill Lynch, Serth joined Morgan Stanley in October 2013 and remained there until September 2016, when he was U5’d “relating to registered representative’s compliance with pre-authorization requirement for execution of two trades.”


CIRCUMSTANCES.     In June 2016, Serth placed 5 orders to purchase securities in 4 customer accounts, without the authorization, knowledge or consent of the customers. After discovering the unauthorized trades, Morgan Stanley Wealth Management cancelled the trades and reimbursed one customer for margin interest incurred as a result of the unauthorized purchases for his account.


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

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