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Stockbroker Fined And Suspended For Using Microsoft Excel Spreadsheet
Written: January 5, 2013

Microsoft Excel spreadsheet

Microsoft Excel spreadsheet (Photo credit: Wikipedia)

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, Robert Louis Iola, Jr., submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Robert Louis Iola, Jr., Respondent (AWC  2010024279801, December 31, 2012).

Securities industry veteran Iola was first registered in 1990 and from the relevant time of December 2003 to the present, he was registered with FINRA member firm Summit Equities, Inc. The AWC asserts that he had no prior FINRA disciplinary history.

Hands On

It appears that after several unsuccessful effort to create a single document listing the value and performance of each of his customers’ accounts, starting around January 2007 through December 2010, Iola and his staff gave up on using Summit Equities’ systems and resorted to a more old-fashioned approach: They manually created the desired summaries for at least six customers. This hands-on approach entailed assembling the appropriate account statements and manually inputting the data from those documents into aMicrosoft Excel spreadsheet.

Embedded into the spreadsheet were what the AWC characterizes as “simple mathematical formulas,” which produced:

  • beginning and ending values,
  • net additions/withdrawals,
  • and rate of return (not time weighted).

The data was broken out for each account held by the six customer along with total values for their entire portfolio.  At an in-person account review meeting or through the mail with follow-up telephone conferences, each client received from Iola the summaries. The six customers received at least four summaries per year, in addition to account statements provided by Summit Equities.

Measure Twice, Cut Once

The AWC alleged that although Iola checked the summaries for internal consistency, he did not cross-reference the figures presented on them with the figures in the account statements. FINRA criticized Iola’s reliance on his staff to accurately input the data; and, further, with the exception of the initial spreadsheets, the AWC alleged that Iola did not review the Excel spreadsheets containing the formulas used to calculate the figures in the summaries.  Acording to the AWC, mistakes were made in the gathering and inputting of information, which rendered the summaries inaccurate and misleading.  Among the cited errors were

  • incorrect beginning and/or ending values,
  • withdrawal figures, and
  • rates of return.

Finally, FINRA admonished that for most of the relevant time period, Iola failed to annotate the documents with footnotes or disclaimers that the regulator suggests was necessary to made the date understandable.

The AWC asserted that the absence on the summaries of an explanation or the basis for the calculation of the return figures deprived the clients of a sound basis on which to evaluate their returns. Further, by producing and then distributing these summaries to his customers, Iola was deemed to have violated NASD Conduct Rules 2110 (for conduct before December 15, 2008), 2210(d)(1)(A) and 2210(d)(1)(B), and FINRA Rule 2010 (for conduct after December 14, 2008).

In accordance with the terms of the AWC, FINRA imposed upon Iola the sanctions of a $5,000 fine and a 10 business-day suspension from association with any FINRA member firm in any capacity.

Bill Singer's Comment

I dunno with this one.  I get FINRA’s point and the regulator’s concern but I’m not sure why it was necessary to suspend and fine Iola — frankly, it seems to me that the stockbroker was sort of exercising a well-intentioned attempt at better customer service by providing his clients with what he thought would be helpful summaries. Seems to me that given the stated facts, this was a case of good intentions gone awry. For that, maybe you just call Iola into a room and tell him not to do it again.  I’m not sure that imposing a fine and suspension is warranted or necessary. Alas, the road to Hell is indeed paved with good intentions.

Lost in FINRA’s finger wagging is some discussion about whether Summit Equities’ systems were flawed or overly cumbersome — or, to be fair, whether Iola and his staff were oafish dolts who should have been able to produce the desired reports on their firm’s platform.  Perhaps the AWC should have added some additional footnotes or disclaimers? In the absence of such clarification, I don’t find the sanctions in this AWC offering a sound basis upon which the industry and investing public can base a decision as to the appropriateness and fairness of the fine and suspension.

Touche!


 
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