My role as the publisher of the BrokeAndBroker.com Blog often involves summarizing rambling legal documents or trying to convey the gist of a complicated lawsuit or enforcement action. There are times, however, when putting things into my own words may convey the impression that I am trying to spin things in order to make a point (and, yeah, sometimes I'm guilty as charged). In my opinion, a recent Financial Industry Regulatory Authority disciplinary proceeding presents an outrageous bit of misconduct by the registered representative respondent. Confronted with the lurid details of the violations and in order to present an unvarnished picture of what happened, I have extracted large swaths of verbatim quotes from FINRA's Office of Hearing Officers and the National Adjudicatory Council decisions. This one you truly have to read to believe!
By altering computer notes of customer contacts after the customer complained about the suitability of a recommendation, and failing to inform his firm of the alterations when he produced a copy of the notes in discovery in an arbitration proceeding, Respondent David B. Tysk violated NASD Rule 2110, FINRA Code of Arbitration Procedure for Customer Disputes IM-12000, and FINRA Rule 2010. For this misconduct, Tysk is suspended in all capacities for three months and is fined $50,000.By failing to inform the claimant in an arbitration proceeding that a copy of computer notes of customer contacts produced in discovery had been altered, Respondent Ameriprise Financial Services, Inc., violated FINRA Rule 2010. By failing to inform the claimant of the alterations, and failing to produce an exception report in discovery as required, Ameriprise violated FINRA Code of Arbitration Procedure for Customer Disputes IM-12000 and FINRA Rule 2010. For this misconduct, Ameriprise is censured and fined $100,000.Respondents are assessed the costs of the hearing
Pages 2 -4 of the OHO DecisionThis disciplinary proceeding originated from a referral by a FINRA Dispute Resolution arbitration panel to FINRA's Member Regulation Department pursuant to FINRA Code of Arbitration Procedure for Customer Disputes Rule 12104.1 The arbitration panel made the referral because Respondents Ameriprise Financial Services, Inc. and David B. Tysk produced documents in an arbitration proceeding without disclosing that Tysk had altered the documents after receiving a complaint letter from a customer.The altered documents were printouts of notes of Tysk's contacts with customer GR, which Tysk had maintained in a computer program. Tysk made the changes appear as if they were notes made contemporaneously with the events described. GR became suspicious because the notes seemed to be too-perfectly tailored to the defense of his claim. GR requested further discovery to determine whether the notes had been altered after he lodged his complaint with Ameriprise. Respondents opposed the requests.For months after the firm provided the notes in discovery, Tysk said nothing about the alterations. In a meeting to prepare for the arbitration hearing, he finally disclosed to Ameriprise that he had altered the notes. Nonetheless, neither Ameriprise nor Tysk informed GR that the notes had been altered.As the arbitration hearing date approached, GR continued trying to obtain information about whether the notes were what they appeared to be. Ameriprise and Tysk opposed GR's efforts.Just before the hearing, Ameriprise found an exception report relevant to GR's claim, which it should have provided months earlier. As soon as it could, Ameriprise turned it over to GR. GR claimed that the report was a "smoking gun," which may have been intentionally withheld, because it could have prompted Tysk to doctor his notes. GR demanded to be allowed to examine Tysk's computer program to analyze the notes.Over Respondents' objections, the arbitration panel ordered Ameriprise and Tysk to give GR access to Tysk's computer hard drive. A forensic examination of the hard drive revealed for the first time substantive edits that Tysk had made to the notes after receiving GR's complaint letter.At the conclusion of the arbitration hearing, the arbitration panel sanctioned Ameriprise and Tysk for violating arbitration discovery rules. The panel referred the matter to FINRA's Member Regulation Department for a disciplinary investigation.After the investigation, the Department of Enforcement filed a Complaint, which it subsequently amended. The gravamen of the Amended Complaint is that Ameriprise and Tysk violated just and equitable principles of trade and the Code of Arbitration Procedure by producing the notes during the arbitration without disclosing that Tysk had altered them.The underlying facts are largely undisputed. Respondents assert nonetheless that they did not act unethically. In summary, Respondents contend that Tysk altered his computer notes in good faith, to make them more accurately reflect the substance of conversations he had with GR. They argue that they complied fully with FINRA's arbitration discovery rules because they produced the notes at the arbitration hearing. Respondents maintain that they planned to have Tysk disclose the alterations during his testimony at the arbitration. They argue that this was the appropriate approach because arbitration procedures do not provide for extensive discovery, such as pre-hearing depositions and written interrogatories, and do not require an explanation in advance of the hearing that the notes had been altered. As to the separate claim that Ameriprise failed to produce the exception report as required, the firm attributes this failure to simple error, which it corrected promptly. . . .
"GR had 'over $29,000,000 invested with me' and 'does not and will not need this money during his lifetime'"
Tysk felt strongly that GR's annuity was suitable and that Ameriprise's review confirmed that "everything" concerning the annuity was "in order." However, while preparing for his interview with Storrar's delegate, Tysk noticed that his Act! notes relating to GR were deficient, "not like all of my other notes, with the exception of my mother." The Act! notes contained no references to the annuity, its cost, or surrender charge. At the hearing, Tysk testified that "[i]t bothered me that I had a lot of information and things in my head and pieces of the story that weren't there and I wanted to add them." Therefore, Tysk said, "I added electronic notes in my contact management system." Tysk made most of the edits from May 13 through May 27, 2008.55 He added:
notes regarding meetings that I had with [GR] to essentially kind of preserve my thoughts and recollections . . . I thought it was important to write things down. I think it felt good to review the file, I think it made me feel good, frankly, to just go through things kind of beginning to end.
In response to a Rule 8210 request, Tysk explained further:
At the time I thought it was rational and prudent for me to preserve facts and details known to me in chronological order . . . to write down the details of his complex file and our complicated relationship for my personal use so I would not forget them over time . . . My only thought and purpose was to preserve for myself and my file the details of my personal and business relationship with [GR] as I recalled those details at the time.
Tysk testified that "[t]he notes weren't written for another reader"; he wrote them for himself. Tysk denied he acted to protect himself in light of GR's complaint letter. He also claimed that he was not worried that the references in GR's letter to NASD, the SEC, and the Minnesota attorney general were an implied threat that GR would report the matter to regulatory authorities if Ameriprise refused his request to waive the surrender charge. While Tysk asserted that he "wasn't concerned" about the complaint, he conceded that he did have some "concerns with the letter . . . because I knew the letter contained things that were not true."
Acting on that hunch, on May 8, 2009, GR's counsel sent a supplemental request to Ameriprise and Tysk to produce "[a]ll documents showing edits made by Mr. Tysk to the notes in the contact report . . .including but not limited to the edits made on May 27, 2008." This prompted Tysk's counsel on June 22, 2009, to ask Tysk by e-mail, "Do you know anything about any edits being made to the contact reports?" The e-mail continued, "I assume he picked the date [May 27, 2008] b/c that is the 'created date' stamped on the contact report . . . My assumption was that was simply the date the report was printed off the computer." Tysk responded, "You are correct with your assumption. There are no other documents showing edits per the request."Tysk did not reply to his counsel's query asking if he knew "anything about any edits."Tysk testified that after receiving the June 22 e-mail, he searched Act! attempting to locate earlier versions of his notes but was unsuccessful.On August 21, 2009, Tysk met for the second time with counsel to prepare for the arbitration hearing. This was when Tysk first disclosed that he had altered his Act! notes. His counsel immediately informed Ameriprise's legal department and asked Tysk to try to locate additional versions of his notes.
At the arbitration hearing. Claimant requested that the Panel award sanctions against Respondents due to various issues in regard to discovery problems with Respondents. After considering the pleadings, testimony and evidence presented, the Panel will award sanctions based on the following findings:
Tysk concedes that "a rep who modifies his notes makes us wince," and that altering the Act! notes was "not a best practice." But he insists that Enforcement failed to prove that he acted unethically in violation of NASD Rule 2110 and FINRA Rule 2010.First, Tysk denies that he altered his notes to bolster his defense. He made the substantive edits in May 2008, six months before GR filed his arbitration claim. Even though this was after GR complained to Ameriprise about him, Tysk claims that he did not expect GR to file an arbitration action. Tysk points out that Ameriprise's review of GR's complaint concluded that "there was no question" that the annuity was a suitable investment for GR. Therefore, he was justifiably "100 percent comfortable with the transaction," and confident that nothing would come of the concerns expressed in GR's letter.Second, Tysk argues, he acted ethically and in good faith, because his motivation was to "make sure that his notes were accurate. Therefore the first cause of action must fail because it requires proof that he acted unethically, or in bad faithAs for the allegation that Tysk violated Ameriprise's document retention policies, Tysk argues that he "could not have knowingly or intentionally violated the firm's policies because he didn't know about the firm's policies."158 Furthermore, Ameriprise, which wrote and enforced the policies, evaluated Tysk's conduct and concluded that he did not violate them, a finding that Tysk believes the Panel should deem dispositive.
Tysk backdated a customer record and concealed the revisions he made during the discovery stage of an arbitration proceeding. We intensely condemn such deception . . .In making our sanction determination, we have weighed Tysk's claims of mitigation, and found only aggravating factors associated with his misconduct. Tysk admitted to his actions, and they were intentional. The extent to which Tysk attempted to conceal his misconduct and avoid detection, even after knowing that he was a party to an arbitration proceeding, is also aggravating. As an example, during the arbitration proceeding his attorney directly asked Tysk whether he knew about any revisions to his notes. Rather than being forthright, Tysk chose to remain silent about his wrongdoing until several months after being confronted. By entering the backdated descriptions and attempting to conceal them, Tysk demonstrated a troubling lack of integrity. We agree with the Extended Hearing Panel that Tysk subverted the arbitration process, which is an aggravating factor. See Noonan, 52 S.E.C. at 265 ("If arbitration is to be a meaningful alternative to litigation, its processes must be fair and free of abuse.") If Tysk's misconduct had not been discovered by a forensic investigation, the ability of the arbitrators to find the truth would have been undermined. The fact that Tysk's concealment was revealed does not lessen its potential to harm the arbitration process; his concealment is an aggravating circumstance.
By entering the backdated descriptions and attempting to conceal them, Tysk demonstrated a troubling lack of integrity. We agree with the Extended Hearing Panel that Tysk subverted the arbitration process, which is an aggravating factor.