On Wall Street, we got some hardcore con artists trying to steal the meager life savings of folks who are struggling to just get by. Supposedly, there are thousands and thousands of men and women who go to work each day at various federal, state, and self regulatory organizations and the main focus of all these Wall Street cops is to ferret out the crooks and protect the investing public. Or so they would like us to think and believe. In reality, most of the men and women regulating the securities industry are dedicated and hardworking. Unfortunately, the politics of regulation frequently trumps the serious business of detection and deterrence -- which results in too many regulators engaged in make-work, spending too much time mingling at industry junkets, and otherwise diverted by a lack of meaningful triage. Consider a recent purported FINRA regulatory case involving, of all things, some quirky attempt to purchase limited concert tickets. And this was a regulatory priority on what planet in our regulatory solar system?
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, Nickolas Vernon Waggoner submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Nickolas Vernon Waggoner, Respondent (AWC 2015045911901, July 6, 2016).
Waggoner was first registerd in 2013 with FINRA member firm AXA Advisors, LLC. The AWC asserts that Waggoner had no prior relevant disciplinary history.
Beau Guss Enterprises International LLC
The purported regulatory tale of Respondent Waggoner starts with the explanation that one of his friends purchases and resells concert and sporting event tickets. Tuck that tidbit of information away for later use.
In March 2015, Waggoner seems to have had quite a bit of spare time on his hands and came up with this intriguing idea of creating a fictitious business and then trying to dupe American Express ("AMEX") into issuing a credit card account to the fabricated company. Lo and behold, after providing AMEX with false information including the business name, revenues, profits, and number of employees, the credit card company went ahead and created an AMEX credit card account for Waggoner's flight of fancy and seems to have issued a card.
The Dirty Two Dozen
I'm not sure whether the March 2015 effort was a dry run but, seemingly emboldened by his success, in April 2015, Waggoner managed to get AMEX to issue an additional 24 credit cards for made-up employees under the March 2015 AMEX company account. The odd thing about all this hocus-pocus is that Waggoner was personally liable for all AMEX account charges for the fictitious company.
How did all this subterfuge and fraud work out? Sort of with the explosive force of a dud. Here's how the AWC puts it:
[A]MEX sent the 24 credit cards to Waggoner at his Firm. The Firm intercepted the cards before the cards were activated.
Okay, take a shot at it. You got any idea as to just what the hell is going on here?
A Man's Got To Know His Limitations
First, we learn from the AWC that Waggoner's ticket biz buddy was looking for ways to bypass the limits imposed on one buyer purchasing tickets for various events. As anyone who has waited and waited and failed to get a choice ticket for a hot concert or event knows, there are big bucks to be made on reselling hot tickets. So much money, in fact, that there's a whole cottage industry of folks who use computers to force their way into the barely opening telephone and online gates that stand between the public and event promoters. Of course, paranoid as many of us are, we suspect that bags of cash are delivered before the announced date and time of the first sale of tickets and that some shady characters are vacuuming up the best seats way before anything is even offered to the public.
Second, it appears that Waggoner (on his own or in concert with his buddy -- this much is unclear from the AWC), came up with the idea of defrauding AMEX into issuing credit cards in the names of some 25 fake employees of a fake company that he created.
Third, Waggoner expected to get a ton of AMEX Reward Points that would be awarded on each ticket purchase made by his friend. How Waggoner would get reimbursed by the ticket-biz buddy isn't set forth in the AWC but I'm sort of guessing that the pals discussed this in advance.
Fourth, Waggoner got his hands on one of the 25 credit cards.
Fifth, AXA got its hands on the next 24 AMEX credit cards. What tipped off AXA or why the employer intercepted the cards is not explained in the AWC.
Getting His Ticket Punched
According to online FINRA BrokerCheck records as of July 20, 2016, AXA indicated that it had "Discharged" Waggoner on June 15, 2015, based upon allegations that:
RR DISCHARGED FOR FAILURE TO DISCLOSE AN OUTSIDE BUSINESS ACTIVITY
How does any of this nonsense become the grist for self regulation on Wall Street? I can parrot back to you what the AWC says but, please, don't assume that I agree with FINRA's asserted jurisdiction. According to the AWC:
[W]aggoner failed to provide prior written notice of his outside business activity to his Firm.
By providing false information to AMEX, Waggoner violated FINRA Rule 2010. He also violated FINRA Rules 3270 and 2010 by engaging in an outside business activity without providing prior written notice.
In accordance with the terms of the AWC, FINRA imposed upon Waggoner a $10,000 fine and an 18-month-suspension from association with any FINRA member firm in any capacity.
Bill Singer's Comment
An Outside Business Activity? Really? That's how FINRA back-doors itself into this credit card idiocy? And "no" -- and don't put words in my mouth -- I am not excusing Waggoner's conduct but I am arguing that the diversion of FINRA staff to this type of issue has consequences on the regulator's ability to focus on more serious transgressions.
Assuming there was a reasonable basis, AMEX could have civilly sued Waggoner and his ticket-biz buddy or even pressed criminal charges against the dynamic duo. Although AMEX seems to have a case for the fraud involved in the inducement to open a bogus account and to issue the cards to the bogus employees, it is unclear as to whether the credit card company sustained any damages. Moreover, it appears that AXA intercepted 24 of the 25 cards, which would have limited the ability to run up any damages beyond the one card. Keep in mind that it appears that Waggoner and his pal intended to pay for any ticket purchases because Waggoner wanted to earn Reward Points. Does that goal excuse the likely criminality and/or fraud inherent in creating a bogus corporate credit card account? Of course not but such misconduct does not also create an obligation for FINRA to create its own dubious case.
In the end, however, as I so often note with these settlements, Waggoner was more than happy to sign off on a $10,000 fine and 18-month suspension, so who the hell am I to question any of this?