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Regulatory Sanctions

Non-ACAT Transfer Went AWRY - But Cover-Up Was Worse

March 11, 2019

by Howard Haykin


On Wall Street, as in life, we learn repeatedly that it’s best to cut one’s losses – to live for another day – to admit one’s mistake – then to move on. Easier said than done.
Take this administrator in the Operations Group of Vanguard Marketing Corporation whose job it was, among other things, to assist brokers in effecting transfers of customer funds not processed through the Automated Customer Account Transfer Service ("ACAT").
After learning she had forgotten to complete a $500,000 transfer into a customer’s Vanguard account, the administrator tried to cover up her error with some innovative ‘behind-the-back’ / 'between-the-legs' journal entries that, in the end, got her barred from the industry.



WHAT WENT WRONG.    In December 2016, a customer initiated a non-ACAT transfer of $500,000 from an outside account to the customer's account at Vanguard. The broker on the account, who relied on the administrator to complete the transfer, followed up in February 2017 because the transfer had not yet hit the customer’s account. Rather than admit her mistake (forgetfulness), the administrator told the RR that the transfer would be processed that day.


Instead of transferring funds between the customer's outside and Vanguard accounts, the administrator transferred $500,000 from Vanguard’s clearance account into the customer's account. From that point through April 2017, the administrator engaged in a series of 9 additional transactions moving funds from the accounts of 5 customers and the firm in a failed attempt to conceal the $500,000 she took from Vanguard’s clearance account.


Needless to say, in order to process the 10 improper transfers, the administrator input false information into the firm's system, and the transfers were all made without the customers’ knowledge or authorization.


When approached about the transfers, the administrator opted to lie to the Firm, claiming the mistake was an error by another firm.



By improperly using customer funds, the administrator violated FINRA Rule 2150(a), Improper Use of Customers' Securities or Funds; Prohibition Against Guarantees and Sharing in Accounts.
For improperly using customer funds and then lying about her misconduct, the administrator violated FINRA Rule 2010.



This case was reported in FINRA Disciplinary Actions for January 2019.

For further details, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2017055910201.