September 26, 2014
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, Kenneth W. Schulz submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Kenneth W. Schulz, Respondent (2013037650601, September 12, 2014).
Schulz was first registered in 2002 and in May 2013 he was registered with Commonwealth Financial Network. The AWC asserts that he had no prior disciplinary history.
After registering with Commonwealth, in June 2013, Schulz contacted certain customers that he had serviced at his prior firm and solicited them to transfer their accounts. Six customers cited in the AWC agreed to transfer their securities but Schulz learned that certain of their securities positions were non-transferable proprietary managed funds. Given the status of those funds, the customers would either need to retain their accounts at the former firm in order to house those securities, or the customers would need to liquidate those positions and invest the proceeds at Commonwealth.
Try A Deeper Voice
The AWC alleges that Schulz did not inform the six customers of this transferability issue but, instead, he instructed a registered assistant at Commonwealth to impersonate each of the customers and request the liquidation of their securities during telephone calls to the former firm. The AWC asserts that Schulz provided the assistant with the customers' names, social security numbers, account numbers, addresses and phone numbers.
According to the AWC, in June 2013, the assistant impersonated the customers during telephone calls to the former firm and requested the liquidations of the prop funds -- the former firm acceded to what it thought were its customers' requests. The AWC alleges that none of the six customers was aware of the impersonations or liquidation requests.
It Sounded More Like Elvis Than The Duke
According to online FINRA records as of September 18, 2014, Commonwealth "Discharged" Schulz on July 16, 2013 based upon allegations that:
COMMONWEALTH DETERMINED THAT THE RR AUTHORIZED A REGISTERED ASSISTANT TO IMPERSONATE A CLIENT ON A RECORDED CALL TO HIS FORMER BROKER-DEALER.
Starting in July 2013, FINRA requested Schulz's on-the-record testimony ("OTR"), but he informed the Staff that he would not appear.
The AWC alleges that Schulz's conduct constituted violations of FINRA Rules 2010 and 8210. In accordance with the terms of the AWC, FINRA imposed a Bar from associating with any FINRA member in any capacity.
Bill Singer's Comment
I'm not sure why Schulz declined to appear for an OTR, but that certainly sealed his fate when it came to a Bar; perhaps there were other regulatory/compliance issues that he feared would come to light during an investigation, or he was just fed up with the biz. Regardless of his motivation, the fact is that had he cooperated with FINRA, he may well have been able to negotiate settlement imposing a suspension on the order of several months versus the Bar.