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, William D. Netznik submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of William D. Netznik, Respondent (AWC 2011026832701, January 3, 2013).
Netznik entered the securities industry in 1976 and during the times relevant to this matter was associated from 1995 through March 3, 2011 with FINRA broker-dealer Financial Network Investment Corporation ("FNIC"). The AWC asserts that he had no prior disciplinary history.
Taking It All Into Account
The AWC alleges that Netznik was the broker of record for the FNIC joint account of a married couple. In July 2009, the husband died but the joint account was not changed to an individual account in the wife's name.
In October 2010, the wife indicated to Netznik that she wished to distribute some of the funds from the joint account to her children. Apparently pursuant to the stockbroker's instructions, the wife filled out part of a wire transfer form; and after entering the various information on the form, she signed the document - but, inexplicably, she also signed her deceased husband's name too. This form was not completed or submitted at this time.
An Exceptional SIDE BAR: A quick recap before we call the next play. We got a joint spousal account. Except the husband is dead. Except no one changed the account into the wife's name. Except the surviving wife now wants to distribute funds from the joint account. Except she just signed an incomplete transfer form. Except she signed her dead husband's name. Except - well, you know, the damn form didn't get submitted.
Fill In The Blanks
In November 2010, the wife died and, at this point, we have a joint account in the name of two deceased customers. Trust me, it ain't gonna get better from here on.
In February 2011, acting out of what the AWC describes as a wish to honor what Netznik believed were the deceased wife's wishes and the instructions that he had received from a daughter, who was a beneficiary of the joint account, Netznik added the date, wiring instructions, and distribution instructions to the wire transfer form that had been only partially completed in October 2010. This time, Netznik submitted the wire form to FNIC for processing.
SIDE BAR: Yeah, me again with another aside. I mean, seriously? - he submitted a wire transfer form on behalf of a joint account in which both spousal account holders were dead, the signature of the husband was affixed after his death by his surviving wife, the surviving wife signed an only partially completed form, the surviving wife was no longer surviving when Netznik spoke with the beneficiary daughter, he completes the form after both purported account holders die, and, on top of everything else, he puts the paperwork into his firm's pipeline for processing without disclosing all these bizarre circumstances? Ya gotta know at this point, this doesn't end well for Netznik.
From Bad To Worse
An online FINRA document as of January 11, 2013, states that Netznik was discharged by FNIC on March 3, 2011, based upon the following allegations:
REGISTERED REPRESENTATIVE WAS TERMINATED FOR VIOLATION OF FIRM POLICIES AND PROCEDURES INCLUDING: 1) MAINTAINING BLANK PRE-SIGNED FORMS AND, 2) PROCESSING AND POST-DATING A FORM OF A CLIENT WHO THE REGISTERED REPRESENTATIVE KNEW WAS DECEASED.
The AWC alleged that Netznik failed to observe the high standards of commercial honor and the just and equitable principles of trade and therefore violated FINRA Rule 2010 when he instructed the wife to sign a wire transfer form on behalf of her deceased husband; and, further, after the wife died, Netznik wrongly added the date, wiring instructions and distribution instructions to the wire transfer form and submitted it for processing.
In accordance with the terms of the AWC, FINRA imposed upon Netznik a $5,000 fine and a suspension of 30 calendar days from association with any FINRA broker-dealer in any capacity.
Time and time again, these spousal 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 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 (or in this case a mess involving surviving and deceased spouses and their heirs), the damage is often done - and upon looking back, the warning signs suddenly look much clearer than when they first manifested themselves.
Marriages don't last forever. Human beings don't last forever. Folks who outwardly seem happy may be preparing for combat a la divorce. Estate assets involving otherwise loving families may prove to be little more than bloody chum on the waters. You just never know - and that's the whole point of following sound compliance policies. Clearly, in the case of joint accounts and all things involving married couples, the rules and regulations are there just as much for the stockbroker's protection as for the employing brokerage firm.
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, 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.
What are the takeaways from Netznik? For starters, it's usually a best practice to alert your firm's compliance department upon notification of the death of an account holder. Sure, in a joint tenants with rights of survivorship situation the surviving spouse will generally retain survivor rights but you just never know. Additionally, in terms of estate or tax planning, it may be important for the surviving spouse to change the title of the account and promptly consult with a CPA and/or lawyer before undertaking any change. On top of all of that, it just doesn't make sense to have anyone sign the name of a deceased individual without notifying your brokerage firm and it borders on the absurd to submit a form for processing on which the signatories were both dead before the form was completed.
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
Husband Ordered 28 Withdrawals From Wife And Daughter's Accounts And Broker Gets In Trouble
Stockbroker's Friend, Cousin, And Ex-Wife Collide Into One Regulatory Mess
Crumbling Marriage Collapses On Citigroup In Dispute Over Wife's Withdrawals
Notary Duped Into Signing Off On Insurance Loans Fined And Suspended By FINRA
Hubby Dips Into Wife's Retirement Account And She Successfully Sues Brokerage Firm
Mother And Daughter's Convenient Joint Account Leads to Odd Arbitration Win Against Wells Fargo
Estate Sues Over Lawyer's Designation of Ex-Wife as IRA Beneficiary