In March we saw FAs being fired over and an enforcement emphasis on personal cell phones and PDAs used for calls and texts involving business matters. And, as always, FAs were disciplined for violating Reg BI.
Noteworthy FINRA Enforcement Actions and FA Firings
Deloitte Corporate Finance LLC was fined $200,000 for failing to retain business-related iMessages (i.e., iPhone-to-iPhone text messages) on Firm-owned phones. The Firm allowed employees to use text messages for work-related purposes on Firm-owned iPhones, yet it did not implement sufficient policies to ensure that iMessages would be archived. This enforcement action is emblematic of why most firms prohibit FAs from using their personal cell phones and PDAs to conduct any business.
FINRA requires firms to archive and monitor all communications with clients. It’s more difficult and expensive for firms’ compliance departments to monitor and archive messages advisors send using their personal devices. That’s why most firms provide business cell phones (e.g., Merrill Lynch’s “red phones”) and prohibit use of personal cell phones for business. It’s an important reminder that FAs should not use their personal electronic devices to conduct business or communicate with their clients regarding transactions or their portfolios. This issue is high on FINRA’s enforcement list.
Just one recent example is a Raymond James broker in Miami who FINRA suspended over his WhatsApp use. This is another lesson of what happens when FAs use non-firm approved devices and communication channels. This time it was the WhatsApp app. The FA received a 30-day suspension and $10,000 fine for using WhatsApp to communicate with clients. The FA exchanged hundreds of text messages with firm customers about business-related topics, including investment recommendations, client orders, and market conditions. RayJay did not approve WhatsApp for client communications and, as such, records of these client interactions were not archived as FINRA requires.
In March 2023, FINRA suspended an FA who was previously fired from UBS for 45 days and fined him $7,500 for using his personal cell phone to communicate with clients. FINRA also issued a 30 day suspension and $5,000 fine against another fired UBS FA because he used WhatsApp to communicate with a client without informing UBS.
Raymond James fired FA Roman Meyeshans, an MD who was a Financial Times top 400 broker with 21 years of experience because he violated Firm policies regarding texting clients. Note that the fired FA also deleted some messages prior to an unannounced branch audit. Never forget that usually the cover-up is worse than the crime.
If you don’t think FAs unauthorized use of communication methods not approved by your firm is top of the mind with your firm, consider that the SEC and the Commodities Future Trading Commission have already issued over $1 billion in fines against financial institutions for failing to capture their employees electronic messaging. See Advisor Hub article March 28, 2023.
FINRA Regulatory Notices
FINRA Regulatory Notice 23-06 (3/28/23) concerns practices and policies addressing the risks of fraudulent transfers of accounts through ACATs. Recently, ACAT fraud has increased, including bad actors fraudulently transferring customer accounts through ACAT. This Notice gives an overview of some indicators of ACAT fraud and various practices Firms should implement to address this problem.
FINRA Regulatory Notice 23-04 (3/14/23) provides guidance regarding the Silicon Valley Bank and Signature Bank failures. This Notice addresses bank deposits, balances in customer and PAB reserve bank accounts, and withdrawal of funds from accounts held at SVP and Signature.
FAs Suspended for Reg BI Violations
Two significant suspensions in March involved Reg BI violations concerning senior/elderly clients. As I’ve warned repeatedly, Reg BI is alive and well and it’s at the top of FINRA’s list to monitor and investigate. In March, FINRA’s Director of National Cause and Financial Crimes Program said FINRA’s goal by the end of 2023 is to investigate 1,000 broker-dealers to ensure they are complying with Reg BI. See Advisor Hub Article March 16, 2023.
When you’re dealing with senior clients your Reg BI and fiduciary duties are heightened. Further, many states with significant senior populations, like Florida, have enacted laws designed to protect seniors. Those state laws put additional obligations and risks on advisors.
Edward Short was fined $5,000, suspended for seven months, and ordered to pay $116,859 in restitution. That FA violated Reg BI by making recommendations in a senior client’s account that were excessive, unsuitable, and not in the customer’s best interest. Todd Cirella was fined $5,000, suspended for three months, and ordered to pay $27,566 in restitution. That FA violated Reg BI by recommending trading in a senior client’s account that was excessive, unsuitable, and not in the customer’s best interest.
FINRA’s Proposed New Home Office Supervision Rules Not Adopted
FINRA has sought to reclassify FAs’ home offices as “remote supervisory locations.” Currently firms must examine those home offices once a year. FINRA sought to reduce firm’s examinations from once a year to once every three years. That proposal would save firms substantial time and money as more and more FAs work remotely. Many commentators believed that if the one year FINRA examination rule is not changed to three years, more firms will prohibit FAs from working remotely and require them to work exclusively in the firm’s brick and mortar facilities.
Rogge Dunn assists financial advisors and firms with the transitioning teams, non-competes, non-solicit issues. He helps FAs recover forfeited deferred compensation and defend against promissory notes. Dunn assists FAs with U-5 expungement and compliance issues with their firms and with FINRA.
Dunn has obtained numerous multi-million dollar arbitration awards on behalf of FAs and executives involving wrongful forfeiture of deferred comp and wrongful discharge. Dunn handles these issues nationwide.