May 16, 2013
Time and time again I have admonished registered persons about the dangers of using the old blank form short-cut. And, time and time again, I report about cases in which regulators nabbed someone for filling in the blanks -- even when the customers were on board with the practice; and even when the customers had given explicit oral consent. Except, you know, rules are rules and oral consent just doesn't trump prior written authorization -- and none of those measures can get you over the hurdle when the use of blank forms itself is prohibited, period.
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, Eric J. McMahon submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Eric J. McMahon, Respondent (AWC 2010023549601, May 14, 2013).
A Little Bit Of History
In 1995, McMahon entered the securities industry, and in 1996 joined Merrill Lynch, Pierce, Fenner & Smith, Inc., where he remained until he joined Raymond James Financial Services in June 2009. The AWC asserts that McMahon's prior relevant disciplinary history includes a March 16, 2011, State of Ohio, Department of Insurance, Consent Order imposing a $10,000 fine and a 180-day suspension of McMahon's Ohio insurance agent's license. In entering into that state settlement, McMahon neither admitted nor denied that he submitted withdrawal forms from June 2002 to July 2009 that contained forged signatures in violation of state law.
Starting as early as March 2004, McMahon recommended the purchase of variable annuities for at least nine of his Merrill Lynch customers. The recommended variable annuities permitted an annual 15% non-cumulative withdrawal without surrender fees. McMahon recommended, and each of his customers agreed to reinvest the proceeds from the free withdrawals into variable annuities and other products in their respective brokerage accounts.
When The Time Comes
According to the AWC, McMahon's practice was to explain that when the time came to withdraw funds he could, for the customer's convenience, contact them to confirm their intention to withdraw and reinvest the proceeds and complete a blank, previously signed withdrawal forms as an accommodation. Upon purchasing the annuity contracts, the customers were given by McMahon a blank annuity withdrawal form to review and sign in blank. Each customer agreed and McMahon submitted such forms on at least 27 occasions over a nearly five year period -- in each case, McMahon had obtained verbal customer approval when the forms were submitted.
The AWC asserts that McMahon's use of the blank, previously signed forms resulted in the creation of false business documents and violated NASD Rule 2110 and FINRA Rule 2010. In accordance with the terms of the AWC, FINRA imposed upon McMahon a $10,000 fine and a two-month suspension from associating with any FINRA member firm in any capacity.