by Howard Haykin

In October, FINRA reported disciplinary actions against 3 brokers who effected discretionary transactions in accounts of their firm’s customers … (i) without obtaining prior written authorization from the customer, and (ii) without his member firm having accepted the accounts as discretionary. Each broker was discharged by (or permitted to resign from) his firm following discovery of his actions. In addition, each broker was fined an identical amount - $5,000. However, the length of their suspensions varied – from one month to 10 days to 30 days. What might account for the differences?

I surmise that two factors had a play in the length of the brokers’ suspensions. First, those brokers who were cited for multiple violations received longer suspensions. Besides the unauthorized discretionary transactions, Broker #1 mismarked order tickets, while Broker #3 lied to his firm on the Annual Compliance Questionnaire - a mortal sin in the eyes of FINRA.

Second, brokers who had received verbal or implied authority from their customers to exercise discretion got “time off for good behavior.” Thus Broker #2 saw his suspension reduced to 10 days, whereas Broker #3 saw a possible 2 or 3 month suspension (for having lied on the ACQ) reduced to just 30 days.

LET'S LOOK AT THE FACT PATTERNS ...

BROKER #1 (MERRILL LYNCH)

• 15 years’ experience with 3 firms.

• Broker agreed to a $5K fine and a 1-month suspension.

• Effected more than 100 discretionary transactions in 2 accounts of a customer over a 14-month period (January 2016 through February 2017).

• Broker mismarked 3 order tickets as unsolicited.

• (FINRA Case #2017053586401)

BROKER #2 (WELLS FARGO)

• 18 years’ experience with 3 firms.

• Broker agreed to a $5K fine and a 10-day suspension.

• Effected an unstated number of discretionary transactions in 2 customer accounts over a 2-year period (early 2015 to December 2016).
• Broker had verbal authority from customers to exercise discretion.
• Discovery made when broker learned that his customer has passed away.
• Wells Fargo managers had discussed on several occasions "the need [for broker] to have proper authorization to place orders," and the prohibition on exercising time and price discretion in customer accounts.
• (FINRA Case #2017054395501)

BROKER #3 (GARDEN STATE SECURITIES)

• 7 years’ experience with 7 firms.

• Broker agreed to a $5K fine and a 30-day suspension.

• Effected an unstated number of discretionary transactions in 3 customer accounts over a 9-month period (October 2016 through June 2017).
• Broker had verbal authority from customers to exercise discretion.
• Broker provided a false response on an annual compliance questionnaire, indicating he had not exercised discretion in any customer account when, in fact, he had done so.
• (FINRA Case #2017055128101)

These cases were reported in FINRA Disciplinary Actions for October 2018.

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