April 20, 2012
According to a Financial Industry Regulatory Authority ("FINRA") disciplinary Complaint filed on November 3, 2011, Respondent Donald Favata entered the securities industry in 1996, and between the relevant period of August 27, 2008, and April 1, 2011, he was registered with WRP Investments, Inc. (WRP). FINRA Department of Enforcement v. Donald Favata (Complaint, November 30, 2011; Default Decision, April 17, 2012 / Disciplinary Proceeding 2011027116201).
The Complaint alleges that in February 2011, Favata was contacted by the legal guardian of an individual described as "FF," an 83-year-old man and former customer. Apparently, FF and his wife needed an immediate $40,000 lump sum withdrawal and systematic $10,000 monthly withdrawals from a variable annuity policy, which had been issued by Prudential Annuity Company (Prudential)
It is further alleged that on February 16, 2011, Favata called Prudential three times - identifying himself as FF and providing such personal information as FF's birthdate, the last four digits of his social security number, address and personal identification number in an attempt to authenticate himself as FF.
For reasons not fully explained in the Complaint or the Decision, FINRA alleges that Prudential employees became suspicious and delayed the requests for withdrawal. Regardless, on the third call, Favata was transferred to Prudential's Investigation Unit, which allegedly confronted him - and prompted him to hang up.
After apparently giving the first three calls some reflection, on the same day, Favata called Prudential back a fourth time, but now with FF on the call. This time, Favata identified himself as a registered representative with WRP. In response to Prudential's concern that Favata was not the broker of record for FF, Favata indicated that he was participating in the call only as FF's friend. TheComplaint noted that "FF was able to answer Prudential's customer authentication questions and the withdrawals were authorized and effected."
On March 18, 2011, Prudential allegedly informed WRP that it suspected that Favata had impersonated FF. During WRP's ensuing investigation, the Complaint alleges that Favata initially denied impersonating FF; however, the next morning , Favata recanted and admitted impersonating FF.
FINRA's Complaint charged Favata with violating FINRA Rule 2010 because he impersonated the former customer on calls with Prudential in an attempt to initiate withdrawals from the customer's variable annuity, and compounded the situation when he initially denied his actions to his firm during an internal investigation.
Respondent Favata did not answer the Complaint and did not file an appearance. Accordingly, on February 27, 2012, FINRA's Department of Enforcement filed a Motion for Entry of Default Decision ("Default Motion"), which was granted and the Hearing Officer deemed the allegations admitted.
The Decision states that Respondent Favata violated FINRA Conduct Rule 2010, which requires members, "in the conduct of [their] business, [to] observe high standards of commercial honor and just and equitable principles of trade." The Department of Enforcement recommended a 90-day suspension and $5,000 fine, apparently based upon the circumstance that the Respondent "acted upon instructions from FF's legal guardian and that Respondent did not stand to gain financially from the transaction." The Hearing Officer apparently shared that conclusion and imposed the requested sanctions.
Bill Singer's Comment
Frankly, this is exactly the kind of case - both substantively and procedurally - where FINRA could have thrown the book at Favata and hit him with a much longer suspension (if not a Bar) and a larger fine. To the regulator's credit, the sanction is relatively moderate and although I personally believe that the suspension was too extensive given the facts, Favata can hardly be heard to complain having opted to sit this one out.
Solely based upon the facts as presented by FINRA, I would likely have urged this Respondent to have answered the Complaint. At a minimum, I would have aggressively tried to settle this case for less time. If that proved unsuccessful, then I would have tried to introduce testimony during the hearing to show that my client was motivated to assist a former, elderly client.
It's that last aspect of this case that truly puzzles me. According to FINRA, FF was not a client of Favata's at the time the broker helped out the 83-year-old and his wife. I wish we had more explanation about that relationship and why Favata went so far over the line to assist the guardian - and what, if any, relationship existed between the guardian and Favata. Ultimately, this might be another example of no good deed going unpunished.
Separately, don't misunderstand. I appreciate how dangerous a broker's impersonation of third parties can be. It's just that the specific facts in Favata don't suggest that the broker was really up to "no good."