by Howard Haykin

Keith McGregory agreed to be barred from the industry to settle FINRA charges that he converted more than $27,000 of his member firm’s funds by utilizing the firm’s corporate card for personal expenses after his resignation from the firm. FINRA also noted that McGregory willfully failed to update his Form U4 on a timely basis for financial disclosures. [The U4 charges are not addressed in this article.]

BACKGROUND.    McGregory, a resident of Chicago, IL, has 23 years’ experience with 6 firms - including stints with MR Beal & Company (from August 2005 to November 2013) and Drexel Hamilton (from November 2013 to May 2017). He held Series 7 and 24 licenses, and served as an Investment Banking Rep during his association at MR Beal. McGregory had no formal disciplinary history at the time of the FINRA examination which gave rise to this case. However, since that time, in December 2016, McGregory entered into a Consent Order with the Illinois Securities Department for failure to pay certain taxes owed to the state and for failure to disclose in his application to the Department certain judgments. The State suspended and fined McGregory.

I believe it's relevant to further note that McGregory had 11 disclosures in his CRD file. Of those disclosures, 8 pertained to Financial or Judgment/Lien disclosures dated between March 2008 and September 2016; another pertains to a pending Financial Disclosure dated January 2017.

FINRA FINDINGS.   On November 5, 2013, McGregory voluntarily resigned from MR Beal & Company, and immediately began working for Drexel Hamilton, another FINRA member firm. At the time he resigned, McGregory retained physical custody and control of an MR Beal corporate credit card. He never relinquished the card to the firm as required by firm policies, and MR Beal was initially unaware that McGregory still possessed his MR Beal corporate credit card. They also were unaware that McGregory had saved his MR Beal credit card information on file with multiple online vendors.  

So, from the date of his resignation through the end of the year, McGregory used his MR Beal credit card or credit card number to purchase goods and services for personal expenses on numerous occasions. In total, these purchases amounted to over $27,000 across multiple vendors – including over $15,000 for airfare and over $7,000 for car rentals. By 12/20/13, MR Beal had learned that McGregory was still using his corporate credit card and they sent McGregory a letter demanding reimbursement for the personal expenses charged on the card.

MR Beal’s policies stated, among other things, that: “If you resign from, or are terminated by, the Company, regardless of the reason, you must immediately return all Company property in your possession, custody or control." 

FINANCIALISH TAKE AWAYS.   There's little doubt that McGregory was guilty of misappropriating MR Beal's corporate assets. But nowhere is it noted that, in some manner, MR Beal enabled McGregory's theft. By that, I'm implying that the firm lacked detailed or effective internal control procedures to ensure that its policies would be carried out.

While MR Beal policies required that Mr. McGregory "immediately return all Company property" upon his resignation, no one at the firm seemed to notice that McGregory was still in possession of his corporate credit card, or that he was otherwise still using his corporate credit card until as late as December 20, 2013 - 40 days after his voluntary termination. That was when a letter was sent to McGregory demanding reimbursement for his personal expenses billed to the MR Beal corporate credit card. 

• Did MR Beal not use a checklist for tracking, among other things, the collection of keys and credit cards from departing personnel?
• Did MR Beal not assign such tracking responsibilities to a specific employee - perhaps someone in HR or an administrative / back office function?
• Did MR Beal not contact credit card issuers to close the accounts of departing personnel? 

Implementation of these and similar talking points can be extremely effective in safeguarding corporate assets at your firms.  

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

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2014039737601.