FINRA Says You've Got A Friend, Fine, and Suspension

June 12, 2015

Carole King and James Taylor sang about having a friend. It was a classic song. On the other hand, FINRA isn't necessarily a big fan of friendship. See what happened when one stockbroker did some remodeling work for an old pal. FINRA certainly called out his name and came running with a fine and suspension.

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, Robert J. Versaggi submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Robert J. Versaggi, Respondent (AWC  # 2014042078001, June 8, 2015).

In 1986, Versaggi was first registered and during the times relevant to the AWC he was associated with FINRA member firm Wells Fargo Advisors, LLC . The AWC asserts that Versaggi had no prior disciplinary history.

A Family Affair

The AWC alleges that on February 19, 2013, Versaggi requested and received outside business activity ("OBA") approval from Wells Fargo to be involved with VGR Boca One, LLC. VGR was purportedly formed in 2012 by Versaggi, his brother and sister' and each of the siblings was a 1/3 owner/managing member. In seeking his firm's approval in 2013 for his involvement with VGR, the AWC asserts that Versaggi represented the his involvement was for the purpose of purchasing a vacation property and that he would not be compensated. 

Checking Off The Boxes

On March 23, 2013, Versaggi completed a Wells Fargo Registered Associate Compliance Questionnaire ("Compliance Questionnaire") that addressed his outside business activity and characterized VGR's business as a "family entity."

On January 8, 2014, Versaggi completed an updated Compliance Questionnaire that again addressed his outside business activity and characterized VGR's business as "Family vehicle for vacation property."

You've Got A Friend

The AWC alleges that in  early 2014, a Wells Fargo Advisors's customer and longtime friend requested that Versaggi assist him with remodeling work for his home. Prior to this request, VGR had only performed work for itself in connection with its vacation property.

On February 18, 2014. the customer made an initial payment to VGR  and the demolition work began around that time. On March 26, 2014, the customer and Versaggi, on behalf of VGR, entered into a formal Remodel Contract Agreement, which provided for the scope of remodeling work and a payment schedule. Overall, the customer paid to VGR $70,000 for the remodeling work.

When you're down and troubled and you need a helping hand and nothing, whoa, nothing is going right.

Close your eyes and think of me and soon I will be there to brighten up even your darkest nights.

You just call out my name, and you know where ever I am I'll come running to see you again.

Winter, spring, summer, or fall, all you have to do is call and I'll be there, yeah, yeah, you've got a friend.

By The Rules

The AWC asserts that Wells Fargo Advisors's Written Supervisory Procedures required that associates complete an Outside Activity Approval Form and submit it to the Regional Brokerage Manager for approval. While Versaggi completed and submitted this form for VGR on February 19, 2013, he never provided written notice of the expanded scope of VGR's business activities, specifically, the renovation of acustomer's property and the fact that VGR would receive compensation forthe renovation.

Many registered persons engage in other professions and careers; and such Outside Business Activities ("OBA") typically require prior written notice to your employer and obtaining the firm's approval. Consider the following:

FINRA Conduct 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.

*** Supplementary Material ***

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).

FINRA online BrokerCheck records as of June 12, 2015, indicate that Wells Fargo Advisors "Discharged" Versaggi on July 10, 2014, based upon allegations that he had:


FINRA deemed Versaggi's conduct to have been in violation of FINRA Rules 3270 and 2010. In accordance with the terms of the AWC, FINRA imposed upon Versaggi a $5,000 fine and a 30-day suspension with any FINRA member in all capacities. 

Bill Singer's Comment

(sigh . . . that's inaudible, hence the reason it's inside parentheses).

Sure, I get it and, frankly, if we're going by the book, both Wells Fargo and FINRA are right. Is that a clear enough concession for the regulators and sticklers-for-the-rules types among you?

On the other hand, Versaggi was doing work for a friend, or as the AWC concedes, an old friend. Further, the OBA at issue did NOT involve any securities transaction. Versaggi is getting fired, fined, and suspended because he did not properly disclose to Wells Fargo that he was going to do some home remodeling for an old friend pursuant to a written contract. . . and, technically, it was the entity VGR that did this work.

Assuming the facts are just as FINRA presented them in the AWC, there is NO indication whatsoever that the friend sued Versaggi or VGR. How or why this remodeling work came to Wells Fargo's attention is left unsaid. It would seem to me that the loss of his job was a significant penalty. 

Why was it necessary for FINRA to further hit Versaggi with both a fine and suspension? Yeah, I know, it's in FINRA's Sanction Guidelines and, more to the point, this is a settlement to which Versaggi agreed. If he signed off on this deal, it's not my place to second guess him. Moreover, if this went to a full fledged hearing, he would likely have wound up with a fine and suspension for all his extra trouble.

The lesson from this case is largely one of futility. Fair or not, the rules are the rules. And for all my complaining, not much is going to change. King Canute commanded the tide to stop and not wet his feet. He knew that his efforts were useless. I am not about to once again command FINRA to not wet my feet. There are some things that we may bemoan but just can't change.

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