April 2, 2014
In today's BrokeAndBroker.com Blog, a stockbroker takes the path of good intentions on his way to Hell. As with most good stories, this one combines aspects of the tragic with comic when the registered person attempts to impersonate his customer during a telephone call to another brokerage firm.
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, Brandon L. Bernhard submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Brandon L. Bernhard, Respondent (AWC 2012032889401, March 19, 2014).
Bernhard was first registered in 2002, and by March 2012 he was registered with Legend Equities Corporation. The AWC asserts that he had no prior relevant disciplinary history.
On May 17, 2012, Respondent Bernhard met with an individual seeking to transfer his account from another broker-dealer ("BD") to Legend. While the new customer and Bernhard were filling out new account forms, the customer informed his new stockbroker that he wanted in - in the worst way - on the new Facebook Initial Public Offering ("IPO"). The customer wanted to use the cash in the BD account to buy Facebook shares. Alas, that IPO was set to pop on May 18th and here it was the 17th.
If you've been on the Street for any appreciable amount of time, you know that most brokerage firms are not going to process new account documentation and, on top of that, transfer securities and cash balances from another brokerage firm within one day. To his credit, Respondent Bernhard apparently told the customer that there was no way that he would be able to use the cash in the BD account to purchase Facebook shares at Legend by May 18th.
Legend(ary) Customer Service
Now what? You got a customer wanting to open a new account at Legend and frothing at the mouth to purchase the hot new IPO -- and his investment cash is still sitting over at the former BD.
Oh, yes, there it is, just up ahead -- that fatal fork in the road where one path leads to regulatory Heaven and the other to regulatory Hell.
For whatever reason, the customer asked Bernhard to place the order for the Facebook shares at the former BD. I'm not exactly sure why the customer couldn't have done that himself and the AWC doesn't offer us that nugget of explanation. What I do know is that Bernhard had the right idea when he earlier told the customer that he couldn't purchase the shares at Legend. Regrettably, Bernhard then had the wrong idea when he agreed to personally place the order at the former BD.
When Was I Born?
On May 18, 2012, Bernhard telephoned the other BD and impersonated the customer - not just on one call but on two.
Funny thing about that second call from Bernhard to the BD. When asked his birthdate, Bernhard apparently didn't recall it. Keep in mind that by "his birthdate" we actually mean that of the customer who Bernhard was impersonating. Perhaps in a mild panic, Bernhard hung up when he was in the midst of the birthdate fumble.
Funny thing about not knowing your birthdate and abruptly hanging up the phone, someone on the other end of that conversation could take your forgetfulness as a troubling sign. Although not spelled out in the AWC, something prompted the BD to connect the dots from the caller who didn't know his birthdate back to Legend. Whatever the tip-off, the other BD notified Legend of the attempted impersonation.
Paying The Price
Online FINRA documents as of April 2, 2014, disclose that on June 8, 2012, Legend "Discharged" Bernhard based upon allegations that:
RR HAD CONTACTED HIS PREVIOUS BD IMPERSONATING A CLIENT IN AN ATTEMPT TO PLACE A SECURITIES TRANSACTION IN THAT CLIENT'S ACCOUNT.
Another online FINRA document provides this purported response from Bernhard:
NO TRADE WAS PLACED AND THE CLIENT WAS NOT HARMED IN ANY WAY
FINRA deemed Bernhard's conduct to constitute a violation of FINRA Rule 2010 and in accordance with the terms of the AWC, the self-regulatory organization imposed upon Bernhard a $5,000 fine and a four-week suspension from associating with any FINRA registered fiIm in any capacity.
Bill Singer's Comment
One aspect of this AWC that I find bothersome is the disparity between the recitation of the underlying facts in the AWC and what was filed with FINRA by Legend on June 8, 2012. Taken literally, Legend's assertion is that Bernhard "contacted his previous BD." To me, the word "previous" suggests that the BD was, in fact, Bernhard's former employer. Now, admittedly, "previous" could also refer to the customer's former account at BD. Whatever the inference, the AWC should have done a better job clarifying what the BD's status was, if any, in relation to the customer and Bernhard.
At a minimum, FINRA should instruct Legend to amend its filing so that the "his" of the "his previous BD," is more expansively explained. Either the "his" references Bernhard or it references the customer. Moreover, the AWC should be amended to disclose the prior employment relationship and/or to confirm whether the customer was serviced by Bernhard at the BD before seeking to transfer his account to Legend.
Ultimately, these impersonation cases don't always end this benignly and there are important regulatory/compliance considerations at issue here. Whether the BD was or wasn't Bernhard's former employer and whether the customer was or wasn't Bernhard's former BD customer does not justify the impersonation; however, it does add a bit of color and context that is absent from the AWC.