There are no mulligans when it comes to Wall Street regulators. You don't get a courtesy second swing after committing a violation. After allegedly submitting improper reimbursement requests for golf fees and groceries, a manager was hit with a costly number of penalty strokes.
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, Francis R. LaRosa, Jr. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Francis R. LaRosa, Jr., Respondent (AWC 2011027852604, September 17, 2013).
LaRosa entered the securities industry in 1995 and during the times relevant to this matter was registered with Morgan Stanley Smith Barney ("MSSB"). The AWC asserts that he had no prior disciplinary history.
Between approximately April 2009 and April 2011, LaRosa received itemized monthly invoices from his country club, many of which listed non-reimbursable personal expenses such as membership dues, food, and golf/pro shop fees. The AWC alleges that LaRosa or others acting on his behalf submitted 13 fabricated country club invoices for the reimbursement of what was fraudulently presented as business expenses. For example, a January 2010 country club invoice sent to LaRosa identified a $1,554.07 balance due for various meals, membership dues, a capital assessment, and an unspent minimum expense. Following receipt of that January 2010 invoice, LaRosa fabricated another invoice, which eliminated the various charges and presented the $1,554.07 balance due in the form of only one entry for a purported January 25, 2010, lunch meeting with twenty-five attendees.
Cover (Sheet) Up
Starting around August 2010, MSSB required cover sheets to accompany invoices submitted for payment. Between August 2010 and April 2011, LaRosa or others acting on his behalf submitted false cover sheets along with four of the the false invoices. As branch manager and complex manager, LaRosa's duties included approval of payment of the false invoices referred to in the AWC.
By submitting false country club invoices and cover sheets, the AWC alleges that LaRosa willfully caused MSSB to pay $23,337.24 to the country club for his personal expenses, and, furthermore, that such misconduct amounted to a conversion of those funds in violation of FINA Rule 2010.
MSSB maintained an account at a grocery store chain subject to written policies stating that employees could use such accounts only for appropriate business purposes. The AWC alleges that between November 2008 and March 2011, LaRosa and his wife wrongfully used this account and caused the firm to pay the grocery store for at least $63,000 in improper expenses.
More specifically, the AWC alleges that between November 2008 and August 2010, LaRosa and/or his wife used the grocery store business account without authorization to purchase items for their personal use, including meals, groceries, and household items, at a total cost of at least $7,100.
Further, the AWC alleges that between March 2009 and March 2011, LaRosa or his wife at his request, purchased 553 gift cards at a total cost of $56,559.85, in direct contravention of MSSB's prohibition against employees using the grocery account to purchase gift cards. LaRosa gave approximately half of the gift cards to MSSB employees, and gave the remaining gift cards to his wife (who used them for personal expenses).
The AWC asserts that LaRosa, or others acting on his behalf, fraudulently submitted 23 invoices from the grocery store to MSSB for at least $63,000 in personal or other unauthorized, non-reimbursable expenditures. As part of this scheme, the AWC alleges that between August 2010 and April 2011, LaRosa or others acting on his behalf submitted fraudulent cover sheets with seven of the invoices for grocery store purchases.
An August 2010 invoice totaling $5,020.34 described the expenses as "floral arrangements;" however, during that month, LaRosa's complex spent less than $200 on floral arrangements. Further examples of how the combined fraudulent invoices and cover sheets were used to defraud MSSB included expenditures involving:
LaRosa personally approved eight of the 23 invoices used to pay the grocery store for improper purchases of gift cards and groceries, including the August 2010 invoice described above.
INVESTIGATION RAISED CONCERNS ABOUT THE PURCHASE OF OVER $60,000 IN GIFT CARDS FROM A RETAIL VENDOR, AS WELL AS THE PURCHASE OF PERSONAL ITEMS FROM THAT VENDOR, WHICH WERE CHARGED TO THE FIRM'S ACCOUNT. INVESTIGATION ALSO RAISED CONCERNS ABOUT THE CIRCUMSTANCES SURROUNDING THE EMPLOYMENT AND COMPENSATION OF MR. LAROSA'S SPOUSE IN HIS BRANCH
The Final Expense
LaRosa served as a branch manager and then as a complex manager for the Firm. In those positions he had authority to approve branch or complex expenses up to specified dollar limits. In fact, LaRosa approved many of the personal and unauthorized expenses described above.By converting his employer's funds through causing MSSB to pay for personal and other unauthorized expenses, LaRosa violated NASD Rule 2110 and FINRA Rule 2010. By submitting false invoices and documents to MSSB, LaRosa caused MSSB to violate Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-3 promulgated thereunder, which require a firm to maintain accurate books and records, thereby violating NASD Rules 3110 and 2110, and FINRA Rule 2010.
In accordance with the terms of the AWC, FINRA imposed upon LaRosa a Bar from association with any FINRA member firm in any capacity.
Bill Singer's Comment
An interesting case that is supported by what appears to be considerable evidence. Unfortunately, I found myself unable to reconcile FINRA's calculation of damages for certain subsets of violations with the overall totals. Similarly, there were many references to fabricated invoices and cover-sheets, but it was challenging to figure which sheet went with what invoice and whether a given example was part of one cited event or something else. Consequently, if some aspects of my analysis are murky, it is likely the result of the manner in which the facts were presented in the AWC.
Ultimately, however, notwithstanding the jumbled nature of the attribution of damages, this was a compelling AWC and one that should surely put the industry on warning of the need to stay on top of purported business expenses.