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, Herschel Lee McFarlen submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Herschel Lee McFarlen, Respondent (AWC 2010023836802, October 9, 2012).
McFarlen entered the securities industry in 2001, and during the relevant time of 2006 through September 2012 was employed as a general securities representative with Investment Professionals, Inc.
The AWC alleges that around August 2009, McFarlen inherited from another IPI registered representative the accounts of a mother and her daughter. From September 2009 to January 2010, the father requested (and McFarlen processed) seven withdrawals totaling $20,560 from the mother's account. The checks were issued to the wife and sent to her address of record.
Notwithstanding the above, the AWC alleges that McFarlen never obtained a Letter of Authorization or a Power of Attorney from the wife that would have authorized her husband to issue account instructions. The AWC alleges that at no time did the wife authorize her husband to make the cited withdrawals.
Deeming McFarlen's conduct to constitute violations of FINRA Rule 2010, in accordance with the terms of the AWC, FINRA imposed upon McFarlen a $5,000 fine and a one-month suspension from association with any FINRA member firm in all capacities.
Rule Number 1: Get the damn LOA or POA. That happy marriage on the outside may be headed for Splitsville behind closed doors.
Rule Number 2: The fact that the check is sent to the client, in her name, and at her address may not protect you! For starters, who knows who will open the letter and forge an endorsement?
Time and time again, these marital issues 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. By the time a stockbroker realizes that he or she is embroiled in a nasty dispute between a married couple, the damage is often done - and upon looking back, the warning signs suddenly look much clearer than when they first manifested themselves.
On the one hand, sure - without any doubt - registered persons should not accept account instructions from a spouse absent prior written authorization. Marriages don't last forever. Folks who outwardly seem happy may be preparing for combat a la divorce. You just never know - and that's the whole point of following sound compliance policies. As most Wall Street compliance and legal professionals tell registered persons, many of the seemingly idiotic rules are there for your protection.
On the other hand, in this case, seven - count ‘em, 7 - checks were sent to the wife and to her address of record over some four months. At some point, perhaps the wife should be charged with looking over her mail and looking out for these payments from her brokerage account; however, many times the victimized spouse can't engage in such oversight because the other spouse has stolen the mail.
While McFarlen may feel unfairly charged because of the number of checks and the dates over which they were issued and the lack of a warning from the wife and the husband's fraud, the fact is that all of this could have been prevented by getting a bona fide LOA or POA. And while we're on that topic, let's not forget the importance of having the LOA and POA signed in front of you! Can't tell you how many of these cases also include the offending spouse bringing in purportedly signed documents that were, in fact, forged. Worse, in some cases the offending spouse has the gall to ask the stockbroker to notarize the forgery!
As I often note, the problems associated with dealing with spouses are often nuanced and not readily apparent to even the most skilled stockbroker. Nor is this a problem only found at indie and regional firms. To the contrary, it's a challenge faced by brokers at Merrill Lynch, Morgan Stanley, Schwab, 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, as shown here.
For additional cases involving marital problems and their impact upon registered persons and their firms, read these "Street Sweeper" columns:
Husband Sues Advest, Credit Suisse, And Two Stockbrokers Over Wife's Unauthorized Withdrawals (August 23, 2012)
Husband Ordered 28 Withdrawals From Wife And Daughter's Accounts And Broker Gets In Trouble (July 19, 2012)
Stockbroker's Friend, Cousin, And Ex-Wife Collide Into One Regulatory Mess (June 6, 2012)
Crumbling Marriage Collapses On Citigroup In Dispute Over Wife's Withdrawals (June 5, 2012)
Notary Duped Into Signing Off On Insurance Loans Fined And Suspended By FINRA (June 1, 2012)
Hubby Dips Into Wife's Retirement Account And She Successfully Sues Brokerage Firm (May 21, 2012)
Mother And Daughter's Convenient Joint Account Leads to Odd Arbitration Win Against Wells Fargo (December 9, 2011)
Estate Sues Over Lawyer's Designation of Ex-Wife as IRA Beneficiary (May 17, 2011)