FINRA Bars Two Brokerage Employees For Bogus Business Expenses

October 12, 2016

At first glance, you're likely going to roll your eyes in bemused disbelief. We have two brokerage firm employees submitting personal expenses under the guise of business expenses. The legal term for such subterfuge is conversion. The more common description would be theft. Whatever it is, we don't always take it seriously because popular culture typically presents the circumstances as some little guy evening the score. When we're all done smirking, however, it ain't funny and it ain't about some noble Robin Hood stealing from the rich and bestowing the loot on the poor. More often than not, it comes down to a steak dinner, a manicure, tickets to the playoffs, or school supplies for the kiddies. The larger issue is why can't Wall Street detect this crap sooner? And what does that failure of oversight say to the investing public?

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, Ellen Elizabeth Sims and Kelly R. Moose submitted separate Letters of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted:
  • In the Matter of Ellen Elizabeth Sims (AWC 2016050463901, October 5, 2016)
  • In the Matter of Kelly R. Moose (AWC 2016050239301, October 5, 2016)
Sims entered the securities industry in May 2014 with FINRA member firm M Holdings Securities, where she remained until her May 6, 2016 termination.
Moose entered the securities industry in January 2010 and was employed at several FINRA member firms. During the relevant period, she was an associated person with FINRA 
member firm First Winston Securities, Inc. from July 2014 until her May 11, 2016 termination.  

The AWCs asserts that neither Sims nor Kelly had any prior relevant disciplinary history.

The AWCs asserts that between:
  • Between October 2015 and May 2016, Sims made a number of personal charges on a Firm credit card, including expenses for clothing, entertainment, transportation, and food. She then caused the Firm to pay for those personal transactions without proper authorization. Sims thereby converted more than $1,000 from the Firm.
  • April 2015 and May 2016, Moose charged a number of personal expenses to a Firm credit card, including expenses for clothing, food, and home decor. She thereby inappropriately caused the Firm to pay for those personal expenses, converting more than $35,000 from the Firm.
FINRA deemed Sims' and Moose's cited conduct to constitute conversions of their firms' funds in violation of FINRA Rule 2010.

In accordance with the terms of the AWCs, FINRA imposed upon Sims and Moose a Bar from associating with any FINRA member in any capacity.

Bill Singer's Comment

I don't know about  you but these personal expenses cases often leave me feeling a bit sad. For starters, these cases typically end up with the respondent being barred from the industry and stigmatized with an online record that portrays the individual as little more than a common thief, who destroyed a Wall Street career for a few hundred or thousand dollars. In Sims' case, her $1,000 conversion was spread over 7 months, so let's calculate that out to stealing about $142.86 a month. In Moose's case, her $35,000 conversion was spread over 13 months, which works out to about $2,692.31 a month.

The thing about these conversion cases is that they are not rare, which is also sad because the frequency of such theft suggests a misplaced sense of entitlement among employees who view their employer's bank account as a private piggy bank. 

No . . . I'm not getting all high-and-mighty or sanctimonious. After all, who among us hasn't taken home a box of paperclips, some pads of paper, or a box of pens?  Going a step further, who among us hasn't taken a sick-day when we weren't sick? It's all a form of conversion if you think it through. 

Among the reasons that I presented both the Sims and Moose AWCs in one blog is to give you an opportunity to see how such a case hits you; and to see how you grapple with the similarity of sanctions but disparity of converted dollars.  Pointedly, is it fair that Sims is barred for converting $1,000 but Moose got to rack up at whopping $35,000 and only settled for the same sanction?  Personally, I have no problem with that outcome but, inadvertently, it may send a perverse message that if you're going to risk your career by converting your employer's funds, you may as well go big because you're literally in for a penny, in for a pound. 

Wall Street is about books and records and assuring the investing public that your life savings are safe and secure with the firms where you house your accounts.  We have a multi-level system of regulation of the financial services community that includes in-house compliance departments, self-regulatory organizations, state securities divisions, federal regulators, and local, state, and federal criminal prosecutors. How is it, then, that with all those layers of compliance and regulatory oversight, two relatively lower-level employees manage to steal money from under the noses of their industry employers for periods that run for months and in excess of a year?  How did these conversions fly under the radar system for so long?

Frankly, FINRA should issue an educational notice to members discussing the nuts-and-bolts of these conversion cases:
  • How were these respondents caught? 
  • What tipped off the victimized employer? 
  • What auditing procedures failed and which worked -- and what could be implemented to provide for earlier detection?