December 13, 2013
Power of Attorney. Trustee. Executor. Beneficiary. Those are all terms that should set off alarms for any registered representative asked to accept such a role for a customer. And even if the lights aren't flashing and the bells are ringing in your head, rest assured that something will light up and sound off in your firm's compliance department -- and ultimately at an industry regulator. Yes, you can, under certain circumstances, accept such roles; but you better make sure you're up to snuff with both your firm's compliance rule and industry regulators' regulations.
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, Shelby Lee Bowles submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Shelby Lee Bowles, Respondent (AWC 2012031886901, December 5, 2013).
In 1989, Bowles first became registered and during the times relevant to this matter, he was with FINRA member firm Securities Service Network, Inc. ("SSNI") from January 1, 2010, until March 22, 2012.
Elderly Client's POA
Although Bowles had served since 2007 as power of attorney for an elderly customer, when Bowles registered in January 2010 with SSNI, he did not disclose that relationship to the firm. The AWC asserts that the customer is now deceased.
A Matter Of Preparation
In March 2011, Bowles prepared a Trust Agreement for the elderly client's trust ("Trust Agreement") and a Last Will and Testament ("the Will").
On March 17, 2011, the client executed the Trust Agreement to house all of her assets, which exceeded $1,000,000; and she appointed Bowles as the sole trustee (the designation of a beneficiary was in the "sole discretion of the trustee") -- Bowles made his wife the beneficiary.
On March 23, 2011, the client executed the Will, which named Bowles as the executor and sole beneficiary.
SIDE BAR: FINRA Rule 3270: Outside Business Activities of Registered Persons
No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Passive investments and activities subject to the requirements of NASD Rule 3040 shall be exempted from this requirement.
.01 Obligations of Member Receiving Notice. Upon receipt of a written notice under Rule 3270, a member shall consider whether the proposed activity will: (1) interfere with or otherwise compromise the registered person's responsibilities to the member and/or the member's customers or (2) be viewed by customers or the public as part of the member's business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered. Based on the member's review of such factors, the member must evaluate the advisability of imposing specific conditions or limitations on a registered person's outside business activity, including where circumstances warrant, prohibiting the activity. A member also must evaluate the proposed activity to determine whether the activity properly is characterized as an outside business activity or whether it should be treated as an outside securities activity subject to the requirements of NASD Rule 3040. A member must keep a record of its compliance with these obligations with respect to each written notice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1).
In addition to FINRA's Outside Business Activity Rule, SSNI's in-house procedures required disclosure of all outside business activities ("OBA") by its registered representatives and required representatives to obtain approval before serving as a customer's power of attorney, trustee or executor.
The AWC asserts that Bowles did not provide prior written notice to SSNI about his service as a power of attorney, trustee, executor, and beneficiary; and such conduct was deemed to constituted separate OBA.
On January 1, 2010, Bowles falsely indicated that he had not and would not serve as a trustee,guardian, executor, power of attorney, custodian, etc. without SSNI's prior written approval.
During an October 6, 2011 office audit, Bowles was specifically asked by his supervisor whether he had disclosed all OBA, and whether he served as trustee, joint signatory or power of attorney for any customer. Bowles falsely stated that he had disclosed all OBA and failed to disclose that he served as trustee and power of attorney.
Finally, on October 31, 2011, Bowles completed a 13-page SSNI document titled, Survey Title Rep Questionnaire. Section 8 of the survey addressed OBA and posed the question:
Are you named in any of the following over any assets, client or non-clients, family or non-family?
The question required the entering of a check mark for each applicable role: trustee, successor, trustee, co-trustee, beneficiary, executor, power of attorney, conservator, guardian/custodian, or N/A. Bowles falsely answered "N/A," despite the fact that he was acting as a trustee, the executor and beneficiary of the Will, and exercising a power of attorney at that time.
According to online FINRA documents as of December 12, 2013, SSNI "Discharged" Bowles on March 22, 2013, based upon allegations that:
MR. BOWLES VIOLATED COMPANY POLICY BY SERVING AS TRUSTEE, EXECUTOR AND SOLE BENEFICIARY FOR A CLIENT NOW DECEASED WITHOUT PRODUCING NOTICE OR RECEIVING APPROVAL FROM THE FIRM.
Pursuant to FINRA Rule 8210 request letters dated April 3, 2013, July 9, 2013, and September 11, 2013, were sent by FINRA to Bowles, seeking copies of Bowles's 2010 and 2011 personal federal and state tax returns, and certain bank account statements. To date, the AWC asserts that Bowles has failed to produce these documents, in violation of FINRA Rules 8210 and 2010.
FINRA deemed that Bowles:
- failed to disclose his OBA as more fully set forth above in violation of NASD Rule 3030, and FINRA Rules 3270 and 2010;
- submitted two false compliance questionnaires to SSNI in which he denied that he acted in any fiduciary capacity for customers or served as power of attorney, executor, trustee or beneficiary. He also denied any such relationships to his supervisor during an office examination, in violation of FINRA Rule 2010; and
- failed to provide requested documents and information in violation of FINRA Rules 8210 and 2010.
In consideration of the terms of the AWC, FINRA iposed upon Bowles a $40,000 fine and a 10-month suspension from association with any member of FINRA in any and all capacities.