When it comes to matters of trusts (and maybe trustees), famed Wall Street regulator Billy Joel warns that After you've heard lie upon lie, There can hardly be a question of why. As a recent FINRA regulatory case demonstrates, you get a chance to tell the truth, the whole truth, and nothing but the truth when it comes to getting a broker-dealer's permission to serve as a Trustee. Think carefully before you open your mouth or sign your name at the bottom of a certification.
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, Joseph B. Feldman submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Joseph B. Feldman, Respondent (AWC 2016049120701, July 15, 2016).
In 1972, Feldman registered with FINRA member firm Merrill Lynch,Pierce, Fenner & Smith, Inc., which (as set forth in his online FINRA BrokerCheck file) he subsequently left in 1983 and after associating with three other firms, he rejoined Merrill Lynch in 2012. The AWC asserts that Feldman had no prior relevant formal disciplinary history with the Securities and Exchange Commission, any self-regulatory organization or any state securities regulator.
A Matter of Trust
Following Feldman's return to Merrill Lynch in January 2012, the AWC asserts that the member firm "allowed representatives to serve as trustees for relatives; however, Merrill Lynch prohibited representatives from receiving compensation for such services."
Upon rejoining Merrill Lynch, Feldman purportedly disclosed that he was serving as a Trustee for a relative's trust. At some point in the future on a date not specified and for reasons not explained in the AWC, Merill Lynch's compliance department allegedly asked Feldman "whether he would receive compensation as a result of his service as trustee." In response to that query, the AWC alleges that Feldman falsely stated "the trust will not compensate Joseph B. Feldman for trustee services." According to the AWC, Merrill Lynch approved Feldman's Trustee role based upon his representation that he was uncompensated.
So far, so good. Moreover, on his 2014 and 2015 Annual Compliance Certifications, Feldman apparently disclosed his role as an uncompensated Trustee. Further, it appears that Feldman also notified Merrill Lynch that he was engaged in the "Outside Business Activity" of an uncompensated Trustee.
As likely comes as no shock to you, it turns out that Feldman received the following payments for his Trustee service:
January 2014: $12,582;
January 2015: $12,350; and
February 2016: $12,300
The AWC asserts that the February 2016 "payment led to his termination from the firm, as a supervisor noticed the check with its memo line of "TTEE FEES."
We've both had our share of believing too long
When the whole situation was wrong
Online FINRA BrokerCheck records as of July 29, 2016, disclose that Merrill Lynch
"Discharged" Feldman on February 17, 2016, based upon allegations that:
Conduct involving failure to follow the Firm's directive related to an approved outside business activity.
In accordance with the terms of the AWC, FINRA imposed upon Feldman a $5,000 fine and a three-month suspension from association with any FINRA member in any and all capacities.
SIDE BAR: 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 [Ed: yellow highlight supplied]:
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 ***
01Obligations 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).