June 23, 2014
In today's BrokeAndBroker Blog, I applaud FINRA for taking action against an individual who seems to have preyed on the elderly. That is certainly the proper role for Wall Street's self regulatory organization and it deserves credit. What I don't understand is why the case resolves with a troubling footnote . . . literally. Once again, when it comes to certain powerful interests in the financial community, self regulation takes on a curious complexion. With smaller industry participants, FINRA is an impatient battering ram; with larger market participants, FINRA sometimes takes on the role of a traveling salesman, who rings the doorbell, apologizes for the intrusion, and asks permission to come in and show you his wares.
According to FINRA Department Of Enforcement, Complainant, v. Anthony Clive Lazarus, Respondent (FINRA OHO, Default Decision, 2012031150702, June 13, 2014), in September 2009, Anthony Clive Lazarus became registered with the Financial Industry Regulatory Authority ("FINRA") member firm Chase Investment Services Corp. ("CISC") when he associated with its affiliate, Chase Bank, as a personal banker.
The Octogenerian Victim
FINRA alleges that between March and December 2011, Lazarus:
- gained unauthorized online access to an 86-year-old customer's Chase Bank Account and transferred over $3,000 to his own credit card account;
- obtained a debit card for this elderly customer's account and used it to make over $9,000 in unauthorized ATM withdrawals; and
- made over-the-counter withdrawals in excess of $1,000 from the account.
The Nonagenerian Victim
Between April and December 2011, FINRA alleges that without permission, Lazarus transferred over $14,000 from a 90-year-old Chase Bank customer's savings account to her checking account; and, thereafter, Lazarus used the transferred funds in the customer's checking account to make online bill payments to his credit card account.
To The Curb
According to online FINRA records as of June 20, 2014, Lazarus was discharged on January 9, 2012, based upon these allegations:
TERMINATED BY AFFILIATE BANK - NON SECURITIES RELATED. REGISTERED REP ADMITTED TO ISSUING A BANK CARD FROM A BANK CUSTOMERS ACCOUNT FOR PERSONAL USE. IN ADDITION, REGISTERED REP TRANSFERRED FUNDS FROM A BRANCH CUSTOMERS ACCOUNT TO THE REGISTERED REPS CREDIT CARD.
In response to the reason for his discharge, FINRA conducted an investigation of Lazarus, which culminated in the filing of a Complaint against him on January 21, 2014, charging him with conversion of customer funds in violation of FINRA Rule 2010. Lazarus did not file an Answer or other respond to the Complaint, and he did not appear at the hearing.
FINRA imposed upon Lazarus a Bar from associating with any FINRA member firm in any capacity.
Bill Singer's Comment
One odd aspect of this matter is the following footnote 15 in the Decision:
15 Enforcement represents that it does not seek restitution because CISC has informed Enforcement that privacy restrictions prevent it from revealing the identity of the two customers. Thurgood Decl. 1119.
Ummm . . . what?
So this concern about restitution to the victims simply trails off in a wisp of smoke, a vapor that rises and twists into the Wall Street air and vanishes. FINRA, a so-called self-regulatory organization, defers to Chase Investment Services Group's advisory that the company's concerns for "privacy" prevent it from disclosing to its regulator the identity of elderly customers who have apparently been victimized by an employee's fraud.
Assuming that the "privacy" right being claimed here is on behalf of FINRA non-member Chase Bank and the line of reasoning is that FINRA member firm CISC can't provide the bank's records to FINRA, does FINRA simply smile, shrug its shoulders, and hit the road?
- Did FINRA directly contact both the Chase affiliated entities and request, at the least, a statement as to whether restitution had been made to the elderly customers?
- Did CISC or its affiliate Chase Bank confirm to FINRA that either entity had made restitution to the customers?
- Did FINRA request that CISC ask Chase Bank to contact the victims and ask that they contact FINRA? Did FINRA send such a request directly to Chase Bank?
As explained in the Supplementary Material portion of FINRA Rule 8210: Provision of Information and Testimony and Inspection and Copying of Books:
***Supplementary Material ***
.01 Books and Records Relating to Investigations. This rule requires FINRA members, associated persons and persons subject to FINRA's jurisdiction to provide FINRA staff and adjudicators with requested books, records and accounts. In specifying the books, records and accounts "of such member or person," paragraph (a) of the rule refers to books, records and accounts that the broker-dealer or its associated persons make or keep relating to its operation as a broker-dealer or relating to the person's association with the member. This includes but is not limited to records relating to a FINRA investigation of outside business activities, private securities transactions or possible violations of just and equitable principles of trade, as well as other FINRA rules, MSRB rules, and the federal securities laws. It does not ordinarily include books and records that are in the possession, custody or control of a member or associated person, but whose bona fide ownership is held by an independent third party and the records are unrelated to the business of the member. The rule requires, however, that a FINRA member, associated person, or person subject to FINRA's jurisdiction must make available its books, records or accounts when these books, records or accounts are in the possession of another person or entity, such as a professional service provider, but the FINRA member, associated person or person subject to FINRA's jurisdiction controls or has a right to demand them.
FINRA does not seem shy about serving demands for records held by third parties when it comes to smaller brokerage firms or individual registered representatives. In "SEC Sustains FINRA 8210 Document Demand For Third Party Records" (BrokeAndBroker Blog, February 14, 2013), you can read about a Rule 8210 case involving FINRA's demands for third-party records.
Ultimately, when I read Lazarus, I'm confused about FINRA's position. It just seems to perpertuate a double standard. When a small fry is the subject of the expanded scope of Rule 8210, FINRA often takes the position that the third party isn't an "unrelated" business or individual and that the sought records must be made available. Seems to me that when you have bank and brokerage firm "affiliates," that FINRA would aggressively argue that such presupposes a relationship. Of course, as I have often lamented, at times, FINRA seems to have one rulebook for its big fish member firms and another rulebook for the small fry.
If all the misconduct occurred at Chase Bank; if the records involved are all the bank's property and immune from regulatory demand by FINRA; if FINRA is reduced to a mere supplicant before the bank, then how the hell did FINRA wind up filing charges against Lazarus and barring him? Shouldn't some other regulator, perhaps a bank regulator, have investigated, charged, and adjudicated?
The absurdity of this case -- and perhaps self-regulation as a whole -- is that we have a charade in which a so-called Wall Street self-regulatory organization has enough power to investigate, charge, and Bar an individual who ripped off two elderly individuals, but that same regulator can't demand confirmation as to the names of those victims and whether they have received restitution.