July 9, 2015
Within the world of Wall Street regulation, we encounter a registered spouse who is servicing the financial needs of the other spouse. As the BrokeAndBroker.com Blog has reported over the years, within the so-called sanctity of marriage, a lot of nasty crap goes on. Ah, now there's a newsflash! In some regulatory matters involving spouses, it is quite clear that the underlying issue is one of miscommunication and misunderstanding; in other matters, however, it's simply about lying and thieving. A recent FINRA regulatory settlement demonstrates how the act of signing a loan application by a registered spouse explodes into a potential career-ending disaster.
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, Jacob Joel Johnson submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Jacob Joel Johnson, Respondent (AWC 2014043442401, June 30, 2015).
In February 2014, Johnson first became registered and was associated with FINRA member firm MWA Financial Services Inc.. The AWC asserts that Johnson had no prior disciplinary history.
A Matter of Form
In pertinent part, the AWC alleges this violation against Johnson:
That's about as brief and succinct a charge as you are apt to see from a Wall Street regulator. Johnson's wife had an insurance policy. Johnson filled out a loan application for his wife's account and he signed her name on the applicable form. The AWC asserts that the signature was unauthorized; however, the AWC also concedes that the wife ratified the signature within six days of Johnson's act. The AWC notes that the loan proceeds were not sent directly to Johnson but, in fact, to his wife. What's missing from the AWC is an explanation as to how anyone found out about this and why the wife first denied authorizing the signature but then ratified the act.
On October 28, 2014, while Johnson was associated with MWA, he completed a form requesting a loan from a non-securities related insurance policy held by his wife away from Johnson's broker-dealer. In completing the loan request, Johnson signed his wife's name without her authorization. Johnson's wife, RH, subsequently ratified the loan request on November 3, 2014 and the loan proceeds were sent to RH.
Permitted to Resign
In an effort to get some sense of what happened here, the BrokeAndBroker.com Blog reviewed online FINRA BrokerCheck records, which disclose that MWA Financial Services Inc. permitted Johnson to resign on November 12, 2014, subject to allegations that:
REPRESENTATIVE RECENTLY SIGNED MEMBER'S NAME, HIS WIFE'S NAME, ON A REQUEST FOR LOAN FORM IN ORDER TO TAKE A MAXIMUM LOAN FROM HER CUSTOMER LIFE II CERTIFICATE. OUR PARENT COMPANY MODERN WOODMEN OF AMERICA, CALLED HIS WIFE TO VERIFY THE LOAN REQUEST ON HER INSURANCE POLICY DUE TO SIGNATURE DISCREPANCIES
Two further facts are provided in the online records. The wife had an insurance policy at Modern Woodmen of America, which is characterized as MWA's parent (hence the derivation of "MWA"). Also, the insurance parent telephoned the wife seeking her verification of the subject signature, and it was during this call when the wife denied having signed.
FINRA deemed Johnson's conduct to constitute a violation of FINRA Rule 2010 and in accordance with the terms of the AWC, the regulator imposed a $5,000 fine and a three-month suspension from associating with any member firm in any and all capacities.
Bill Singer's Comment
At first blush, many of you will likely reach one of two inferences.
One, that Johnson may have attempted to wrongly obtain a loan against his wife's insurance and without her authorization, and when caught in the act, he engaged in damage control by persuading his wife to ratify his conduct.
Two, that Johnson and his wife may have previously discussed and agreed to borrowing against her insurance and that the telephone call from Modern Woodmen of America (as noted in the BrokerCheck report but not the AWC) may have caught the wife unaware that her husband had subsequently signed the loan application on her behalf.
Undoubtedly, there are many other possible inferences but I am guessing that those two are most likely the most common. In considering what may really have happened in this matter, we must take into account that when first contacted by the insurance company, Johnson's wife apparently denied that she had authorized her husband to sign the loan application on her behalf. That's just not a good fact for Johnson. On the other hand, the AWC clearly acknowledges that the wife quickly ratified her husband's signing on her behalf and that all the proceeds went directly to her.
Maybe this couple needed money and had discussed taking the policy loan. Possibly Johnson thought that his wife had authorized his signing and, hey, what's the big deal anyway? Perhaps the telephone call from the insurance company scared the wife into believing that she was a victim of identity theft -- and she simply failed to recognize that this was her husband's doing. Maybe, possibly, and perhaps, Johnson acted in desperation without his wife's prior knowledge and when his career seemed at stake, she came to his defense.
Maybe . . . possibly . . . perhaps . . . those are not helpful words when it comes to trying to understand a regulatory action.
After 33 years in the biz, I'm going to infer from all the facts and circumstances that FINRA would not have taken a paltry $5,000 fine and imposed a three-month suspension if the self-regulator believed that Johnson had engaged in truly nefarious conduct involving forging his wife's name and attempting to steal her insurance proceeds. On the other hand, three months ain't all that light of a suspension, so FINRA must have had some concerns beyond accepting any explanation that this was just another marital failure to communicate.
Finally, I note that the executing signature on the AWC is not that of a lawyer but of Johnson, which suggests that he may have represented himself in this matter -- a circumstance that raises the question as to whether a lawyer might have been able to reduce the term of suspension or achieved a clearer wording of the AWC. Regardless, Johnson opted to accept the settlement and if the outcome was good enough for him, it is not my place to second guess that choice.