by Howard Haykin

A broker with Charles Schwab agreed to pay a $5K fine and serve a 90-day suspension to settle FINRA charges that “he made false statements to his member firm and caused it to maintain inaccurate books and records.” [In my opinion, ... the sanctions don’t match the ‘crime’ - FINRA should have used this case to send a message. However, no one asked for my opinion.]

WHAT WENT WRONG.    On 6 occasions during a 21-day span in August 2017, a broker received requests from a customer's email account to effect 8 wire transfers from the customer's Schwab account. Unbeknownst to the broker, the requests were made by an imposter who had gained access to the customer's email account.

On each occasion, the broker failed to follow Schwab's required Policies and Procedures, and/or failed to adequately respond to red flags:

• He failed to obtain verbal verification from the customer of a wire transfer request before processing the request.
• He did not verify the requests verbally even though the requests presented multiple red flags.
  • Customer had not requested wire transfers of this type before, and there were multiple requests for wire transfers during a short period.
  • Once, when a telephone call was scheduled, the imposter cancelled the call without explanation.
• While the customer had 8 accounts at Schwab, the emails did not specify which of the accounts should be used to obtain the wired funds.
• The recipient bank for one wire transfer raised questions about the purpose of the transaction before accepting the funds.
• For another wire transfer, the imposter provided incorrect routing information.
• The imposter requested that the broker refer to several wires as "personal loans" even though documents the imposter supplied to the broker purported to reflect that the wires were 'commission payments'.

And the broker proceed to lie numerous times to firm personnel and on firm documents so as to process the wire transfer requests:

• On 5 occasions, the broker falsely attested on a Schwab document that he had verbally verified the wire requests with the customer and had authenticated the customer's identity – and then submitted the form to a registered General Securities Sales Supervisor for approval.
• On the 6^th occasion, when the broker couldn't locate a General Securities Sales Supervisor, he instructed another employee (who had recently joined Schwab) to falsely attest on the Schwab document that she had verbally verified the wire requests with the customer and authenticated the customer's identity - and then approved the document in his capacity as a General Securities Sales Supervisor.
• The broker provided false information to a Schwab Move Money Specialist who expressed concern about the frequency of the wire requests and who requested confirmation from Payne that he was not receiving the requests via email – the broker responded that the customer sent the requests via fax.

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

For further details, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2017055718001.