For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, James Hugh Caperton, Jr. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of James Hugh Caperton, Jr., Respondent (AWC 2010023836801,July 11,2012).
Caperton entered the securities industry in August 1994, and in January 2004 was employed by FINRA member firm Investment Professionals, Inc. ("IPI") as a general securities representative until December 2008. On July 22, 2010, IPI filed an Amended Uniform Termination Notice for Securities Industry Registration ("Amended Form U5″) on behalf of Caperton disclosing a customer complaint alleging that the husband of the customer had been permitted to make distributions from her account without her knowledge or authorization.
In 2005, a customer opened an individual account in her name and also a custodial account for her daughter through Caperton. At the time these accounts were open, the customer's husband was present.
Through December 2008, Caperton serviced the wife's and daughter's account, during which time there were 28 withdrawals requested by the customer's husband totaling $61,246.90 and $16,100, respectively in the wife's and daughter's accounts. Caperton accepted the husband's instructions to make the withdrawals and submitted those requests to IPI. Thereafter, checks were issued to the wife and sent to her address of record - however, at no time had Caperton obtained from the wife a Letter of Authorization ("LOA") or a Power of Attorney ("POA") permitting her husband to issue instructions for her or her daughter's accounts. Consequently, the wife never authorized the 28 withdrawals.
FINRA deemed Caperton's conduct as described above to constitute violations of NASD Conduct Rule 2110; and, in accordance with the terms of the AWC, FINRA imposed upon Caperton a $5,000 fine and a three-month suspension from association with any FINRA member firm in all capacities.
Time and time again, these marital scenarios arise with often unanticipated results and troubling consequences to the servicing registered person. I have often compared these matters to the "Boiling Frog" theory, which posits that a frog placed immediately into a pot of boiling water will try to jump out. In contrast, if a frog is placed in room-temperature water, which is gradually heated to a boil, the relaxed frog will kick back, stretch out, and calmly allow itself to be boiled to death.
Caperton's situation seems to support that theBoiling Frog Theory has some validity when it comes to the gradual increase in the degrees of compliance problems for stockbrokers. In fairness to the respondent in this case, a lot of brokers likely would not have sensed that their actions were improper. It's human nature to "assume" that if one spouse instructs you - 28 times over an extended period of time - to withdraw something in the neighborhood of $77,000 from the other spouse's and a child's accounts, that if anything were amiss, the victimized spouse would be screaming bloody murder after the first few allegedly unauthorized withdrawals. On the other hand, good compliance policies anticipate that human nature, being what it is, we need to protect ourselves from the possibilities that all is not what it seems and that even married couples and parents may do wrong. Hence, brokerage firms require that an LOA or POA be on file to permit anyone other than the account holder to give instructions to the servicing broker - and that means anyone!
When a registered person should have recognized that he or she crossed the line of compliant behavior is often far easier to discern in hindsight than when one is rambling and ambling into danger. Nor is this a problem only found at indie and regional firms - or a firms such as IPI. To the contrary, it's a challenge faced by brokers at Merrill Lynch, Morgan Stanley, Wells Fargo, JP Morgan, as well as smaller firms. Not realizing that the room-temperature water is beginning to dangerously bubble around you is a common danger for many registered persons.
For additional cases involving marital problems and their impact upon registered persons and their firms, read these "Street Sweeper" columns:
Stockbroker's Friend, Cousin, And Ex-Wife Collide Into One Regulatory Mess (June 6, 2012)
- A broker borrows money from a friend to buy-out his ex-wife's share of their home
Crumbling Marriage Collapses On Citigroup In Dispute Over Wife's Withdrawals (June 5, 2012)
- A customer alleges that his ex-wife gutted his brokerage account and blames the broker and firm
Notary Duped Into Signing Off On Insurance Loans Fined And Suspended By FINRA (June 1, 2012)
- A Merrill, Lynch, Pierce, Fenner & Smith, Inc. registered person gets duped into notarizing a husband's and wife's signatures on a life insurance loan request.
Hubby Dips Into Wife's Retirement Account And She Successfully Sues Brokerage Firm (May 21, 2012)
- Brokerage firm sued for allowing customer's husband to make withdrawals
Mother And Daughter's Convenient Joint Account Leads to Odd Arbitration Win Against Wells Fargo (December 9, 2011)
- A quirky Decision that seems to suggest that a Joint Account between mother and daughter wasn't really a joint account but for the fact that it was - but, you know, not really.
Estate Sues Over Lawyer's Designation of Ex-Wife as IRA Beneficiary (May 17, 2011)
- A truly superb FINRA Arbitration Decision involving the issue of a divorced couple's IRA account at Capital One Investment Services LLC.