Ya got yer UBS -- which was the Union Bank of Switzerland. Ya got yer USB thumb drive -- which is a Universal Serial Bus. What happens when you combine UBS and USB? For one enterprising stockbroker, it was a convenient way to transfer customer information. For FINRA, it was a violation.
Case In Point
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, David Stephen Kinnear submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of David Stephen Kinnear, Respondent (AWC 2012031496901, April 13, 2015).
1n 1997, Kinnear was registered and by 2005 he was registered with FINRA member firm UBS Financial Service, inc, where he remained until February 2012, at which time he joined Wells Fargo Advisors, LLC. The AWC asserts that Kinnear had no prior disciplinary history in the securities industry.
The AWC alleges that Kinnear resigned from UBS on February 13, 2012, and, on that same day, joined Wells Fargo. At the time of his resignation, the AWC asserts that Kinnear was subject to the Protocol for Broker Recruiting, which had been signed by both UBS and Wells Fargo. Under the provisions of the Protocol, Kinnear was restricted to bringing to Wells Fargo only limited information about his UBS customers.
SIDE BAR: In pertinent part, the Protocol states:
When RRs move from one firm to another and both firms are signatories to this protocol, they may take only the following account information: client name, address, phone number, email, address, and account title of the clients that they serviced while at the firm ("the Client Information") and are prohibited from taking any other documents or information. Resignations will be in writing delivered to local branch management and shall include a copy of the Client Information that the RR is taking with him or her. The RR list delivered to the branch also shall include the account numbers for the clients serviced by the RR. The local branch management will send the information to the firm's back office. In the event that the firm does not agree with the RR's list of clients, the RR will nonetheless be deemed in compliance with this protocol so long as the RR exercised good faith in assembling the list and substantially complied with the requirement that only Client Information related to clients he or she serviced while at the fir be taken with him or her.
UBS Onto USB
The AWC asserts that sometime around February 9, 2012, in anticipation of his resignation and new employment, Kinnear transferred account information for 47 of his UBS customers from UBS' computer system to USB thumb drives; and, then:
sent these thumb drives to his customers with the expectation that he would retrieve the information after he joined Wells Fargo if he reestablished his relationships with these customers.
The AWC alleges that the transfer of data to the thumb drives and the transfer of same to the customers was done without UBS' permission and in contravention of the firm's policies and procedures. Said conduct was deemed to violate FINRA Rule 2010.
In accordance with the terms of the AWC, FINRA imposed upon Kinnear a $5,000 fine and a 5-business-day suspension from associating with any FINRA member in any capacity.
Bill Singer's Comment
Kinnear seems to have plugged 47 or so USBs into the UBS computer system and downloaded each customer's information onto a unique thumb drive; and, thereafter, he sent each USB to the customer. The AWC could have been clearer about the mechanics of the cited misconduct, but I think the issue was that Kinnear used 47 USBs. This downloading and forwarding of the thumb drives appears to have occurred before Kinnear left UBS for Wells Fargo but, notwithstanding, in contemplation of that relocation. Kinnear may have thought that this download-and-send process legitimately circumvented whatever proscriptions there were against him personally downloading an retaining the customer information.
Frankly, I'm not so sure that Kinnear doesn't have some legitimate basis for arguing that he did not violate the Protocol because technically he did not take the customer information but transmitted it to the customers. If Kinnear also retained the transmitted information, that fact is not clearly set forth in the AWC.
Now, c'mon, hold on there . . . no . . . I'm not suggesting that what Kinnear did was appropriate and I am certainly not even remotely suggesting that I fully understand the mechanics of what went down here because the AWC is vague on some key points. All that I am saying is that I can understand why a layperson might think that forwarding a customer's account information to the customer would be compliant if the registered representative is not personally retaining any of the information and, to some extent, will be relying upon the customer's subsequent authorization to return the USB drive after the employment change. I might have made that argument as a stockbroker's legal counsel. Kinnear and/or his lawyers may well have made that point. In the end, however, Kinnear chose to sign off on the AWC and if he was happy settling this matter, that's pretty much the end of any debate when it comes to these facts and this registered rep.
Regardless of what Kinnear did or didn't think about his downloading and forwarding, his conduct still comes off as an effort to circumvent the spirit of the Protocol; moreover, since his alleged misconduct took place in contemplation of leaving UBS and joining Wells Fargo, you sort of have to resolve any doubts in favor of UBS and, ultimately, FINRA. Notably, it seems that even FINRA recognized that this was not a typical taking of confidential customer information by a departing stockbroker because the AWC imposed the relatively light sanctions of a $5,000 fine and a 5-business-day suspension.