October 8, 2015
I keep writing about regulatory cases involving emails asking to wire funds out of brokerage accounts, and, not surprisingly, more examples of these disasters keep rolling in. Maybe it's denial on the part of too many industry employees. Maybe it's a misplaced sense of confidence in one's ability to ferret out fraud and fraudsters. Whatever the hell it is, some folks just don't get the warnings.
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, Pegeen McLaughlin Lodge submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Pegeen McLaughlin Lodge, Respondent (AWC 2014039885601. September 30, 2015).
Lodge has been registered since 1999 and during the times relevant to this matter, she was associated with the FINRA member firm now known as Morgan Stanley as a Client Service Associate, from which she was terminated in January 2014. The AWC asserts that Lodge had no prior relevant disciplinary history with the Securities and Exchange Commission, any state securities agency, FINRA or any other self-regulatory organization.
November 12th Email
The AWC alleges that on November 12, 2013, Lodge received an email from a customer that requested wire transfers of $8,890 and $9,629 from the customer's Morgan Stanley account to two third-party domestic banks. In response, Lodge mailed the customer for a mobile telephone contact number. The customer purportedly replied that he was away at his nephew's funeral but that Lodge could reach him at a telephone number provided in his reply. Lodge processed the two wires without verbally confirming with the customer.
November 14th Email
The AWC further alleges that on November 14, 2013, Lodge received from the customer an email seeking further wire transfers of $19,720 and $28,300 from the brokerage account to the same two third-party domestic banks noted in the earlier transaction. For these wires, Lodge did not request telephone contact information from the customer nor did she speak to him; and, as such, she again, processed the two wires without verbally confirming with the customer.
The AWC asserts that during the relevant time, Morgan Stanley's written policies and procedures required employees to verbally confirm with customers wire transfer requests to third-party bank accounts prior to processing wire transfers - and such communications were to be memorialize in the firm's internal system via an attestation form. For each of the four wire transfers, Lodge completed and submitted an attestation form, on which she attested that asserted that:
- she had verbally confirmed the wire requests with the customer, notwithstanding that she had not; and
- the "reason" for the wires was to pay a vendor.
Not only had Lodge not confirmed with the customer the wire requests but the source of the "reason" for the wire was derived solely from her assumption based upon her relationship with the customer and her purported knowledge of his business.
Unfortunately, the wire requests had not been made by the customer but, in fact, by an imposter who had hacked into the email account. Unbeknownst to Lodge, the wire request had been made by an imposter posing as the customer.
Paying the Price
Online FINRA BrokerCheck records as of October 8, 2015, disclose that Morgan Stanley "Discharged" Lodge on December 17, 2013, based upon:
ALLEGATIONS RELATING TO REPRESENTATIVE'S PROCESSING OF THIRD PARTY WIRE TRANSFERS WITHOUT VERBAL CONFIRMATION FROM THE CLIENT. AFTER THE WIRE TRANSFER REQUESTS WERE PROCESSED, IT WAS DISCOVERED THAT THEY WERE FRAUDULENT. REPRESENTATIVE SELF-REPORTED THE INCIDENT TO MANAGEMENT, AND THERE WAS NO PERSONAL GAIN FOR REPRESENTATIVE.
FINRA deemed Lodge's conduct to have caused her firm to to maintain inaccurate books and records in violation of FINRA Rules 4511 and 2010. In accordance with the terms of the AWC, FINRA imposed upon Lodge a $5,000 fine and a 30-calendar-day suspension from association with any FINRA regulated firm in all capacities.