August 29, 2013
You know what I'm talkin' about -- sometimes you reach the breaking point with your brokerage firm's asinine policies and procedures, and you simply gotta cut through the red tape in order to deliver the best customer service possible. And, okay, sometimes when you take those short-cuts, you might also bend (if not break) some moronic regulatory rules. Hey, a broker's gotta do what a broker's gotta do.
Uh huh. Yeah, right.
Nothing like that misguided mind-set to keep a veteran lawyer like me fully employed.
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, Lucas Swanson submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Lucas Swanson, Respondent (AWC 2011029764001, August 20, 2013).
In 2007, Swanson was a Banker Associate with Citigroup Private Bank (the "Bank") and a General Securities Representative with Citigroup Global Markets, Inc. ("CGMI"), the Bank's affiliated broker-dealer.
July 21 Emails
On the morning of July 21, 2011, Swanson received an email from the account of a Bank customer inquiring as to what she needed to do in order to wire funds from her Bank trust account to a third party. Swanson provided the requested information, which resulted in another more precise email request from the customer for a $40,000 wire transfer to a third party account in Houston, TX. In response, Swanson emailed the customer that the trust account's trustee (the customer's father) needed to submit a Letter of Authorization in order for the wire transfer to be processed.
Later that morning, Swanson received an emailed Letter of Authorization that appeared to conform to the trustee's signature on file at the Bank; and, thereafter, Swanson submitted the paperwork for the transfer.
July 25 Rejection
On July 25, 2011, Swanson received an email from a Bank service officer advising that the July 21 wire transfer had been rejected because the account to which it had been directed was closed. Swanson informed the customer about this situation and subsequently received new wire instructions directing the transfer into another third-party account.
SIDE BAR: Howsabout a brief recap?
- On July 21, Swanson gets an email request from a customer to wire transfer trust assets to a third-party account.
- Swanson gets the prerequisite Letter of Authorization from the trustee.
- On July 25, the wire is kicked back because the third-party account is closed.
According to the AWC, the Bank's procedures required that Swanson go back to square one. He was supposed to get the customer to submit another Letter of Authorization replete with the trustee's signature. For whatever reasons, Swanson called an audible, and he allegedly created a new, fake Letter of Authorization on his computer - and then he cut and pasted the trustee's signature into the fabricated document.
Misguided Customer Service?
Okay, you could, if you want, cross this whole episode off to a very, very misguided sense of customer service and, even more, you might also want to commiserate with Swanson because you too may have similar seemingly silly, redundant protocols at your firm. I mean, yeah, I hear ya, why bother the trustee for yet another signature on the same document when it has all been approved before? The only problem with the entire wire transfer was the third-party account had been closed; otherwise, the paperwork as previously compiled and submitted was fine.
Not apparently content to fob off the fake second authorization and bogus trustee signature, Swanson also submitted a Bank Wire Transfer Form falsely indicating:
- that the customer had requested the wire transfer via telephone; and
- Swanson had duly complied with the Bank's identity verification procedures.
As you might have guessed, voila!, the paperwork went through and the $40,000 wire transfer went to the third party account requested by the customer.
Consequently, many of you might give Swanson a gold star for exemplary customer service. Okay, so, sure, he manufactured the July 25th Letter of Authorization, and he did sign the trustee's signature without prior approval or authorization, and he did falsely represent that the customer's second wire request was undertaken by telephone rather than by email, and, finally, he did misrepresent having verified the identity of the emailing customer. On the other hand, so what? In the end, it all worked out for the best and this was one broker who showed initiative and went the distance. If anything, Wall Street needs more of this dedication.
Oh, yeah, sorry, I left out one minor fact. You know the customer? The one who sent the email. The one who responded to all of Swanson's emails. Turns out it wasn't actually the customer: It was an imposter.
According to online FINRA documents as of August 26, 2013, CGMI discharged Swanson on September 20, 2011, based upon allegations involving:
[M]ISJUDGMENT IN PROCESSING A CLIENT'S WIRE REQUEST AND PRESENTING AFTER-THE-FACT A MODIFIED WRITTEN INSTRUCTION
In accordance with the terms of the AWC, FINRA imposed upon Swanson a $10,000 fine and a 90-day suspension from association with any FINRA member firm in all capacities.
Bill Singer's Comment
Up front, let me be quite clear: I get it. I am quite confident that Swanson did not intend to defraud the Bank or CGMI or engage in any wrongful conduct. My guess is that he slipped and slid down a slippery slope of good intentions. Of course, as the saying goes: The road to Hell is paved with good intentions. Consequently, FINRA is to be commended for apparently recognizing the reality of this respondent's misconduct and imposing relatively light sanctions. Frankly, one could make a strong argument that Swanson be barred or, at best, suspended for multiple months or years. Ultimately, as the CGMI's regulatory disclosure of this event suggests, this episode may have been viewed by FINRA as a case of "misjudgment" rather than anything more sinister.
As I have often noted in BrokeAndBroker, many in-house rules and regulations seem, at first blush, petty and silly. On the other hand, it is only after someone fails to follow those so-called foolish policies that their purposes become clear. Certain customer email requests should be confirmed, particularly when they involve transfers of substantial sums of money or seek the disclosure of confidential information. Perhaps a decade ago, it might have been more understandable if we blindly accepted the bona fides of an email; however, in this day and age, such faith is misplaced, dangerous, and, frankly, absurd. Is there a day that goes by when your email inbox is not the recipient of some bogus message designed to infect your computer? Is there not a television reality show called Catfish?
Think that Swanson is an isolated situation? Think again. READ: