Was a time when the BrokeAndBroker.com Blog regularly reported about imposters who pretended to be brokerage firm customers and managed to dupe the unsuspecting into issuing wires out of the victim's account. Then there came a time when the BrokerAndBroker.com Blog's esteemed author and publisher Bill Singer tired of writing the same snarky article about how the same brokerage firms kept approving wire transfers without their real client's authorization. After a while, you sort of feel like you're this lone voice screaming in the wilderness and the sound ain't quite carrying. Maybe it's the cool nip in the air heralding the holiday season but we're publishing yet another piece about how easy it is to overwhelm the flimsy first, second, and last lines of defense that Wall Street has half-heartedly erected against online imposters and hackers. Make sure to watch the hilarious embedded TED speech video about online imposters.
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, Andrew Anthony Uccelli submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Andrew Anthony Uccelli, Respondent (AWC 2015045019001, October 11, 2016).
In 1992, Uccelli was first registered and by 2002, he was registered with FINRA member firm First Allied Securities, Inc. The AWC asserts that Uccelli had no prior relevant disciplinary history in the securities industry.
Wire from Customer JP
The AWC asserts that on February 9, 2015, Uccelli received an email at what the AWC characterizes as an "unapproved email address." The email at issue was purportedly sent from a First Allied Securitie customer, who is only identified by the initials "JP." Customer JP allegedly requested the transfer of $23,570 from his First Allied Securities' account to an account in Indonesia, his nation of residence. In the email, JP explained that he needed the funds in order to purchase art and furniture.
Following his receipt of JP's message in his unapproved email address, Uccelli replied from that address and asked he customer to sign a Letter of Authorization ("LOA"). In response to that request, Uccelli received the signed LOA in his unapproved email address.
Verification by Operations
The AWC asserts that on February 10, 2015, First Allied Securities' Operations Department telephoned Uccelli in order to verify that he had received verbal confirmation from JP. This follow-up was part of the brokerage firm's process for vetting third party wire transfer requests. During the telephone conversation with the Operations Department, Uccelli allegedly falsely attested that he had verbally confirmed the wire transfer request with JP; in fact, Uccelli had not verbally communicated with the client.
Clearing Firm Back-Stop
At this point, the AWC becomes a bit muddy with the fact pattern. It appears - or at least I infer - that First Allied Securities' Operation Department relied upon Uccelli's false attestation and allowed the proposed transfer to make its way through the necessary stages. At some point for reasons not explained in the AWC, First Allied Securities' clearing firm flagged the transaction for further review.
Without explaining to us any of the intervening considerations or possible contacts, the AWC then jumps to a point in time when First Allied Securities' Anti-Money Laundering Officer telephoned Uccelli to discuss the wire. Again, without explanation, the AWC explains that the AML Officer instructed Uccelli to verbally re-confirm the wire with JP. The following day, Uccelli telephoned the AML Officer and purported lied about having verbally confirmed with JP.
Unapproved Email Address
The AWC asserts that from February through March 2015, in connection with JP's requested wire transfer, Uccelli:
sent 12 emails from his unapproved email address to JP; and
received 9 emails at his unapproved email address from JP
In fact, the AWC alleges that while employed at First Allied Securities, used his unapproved email address to engage in business communications with other firm customers, despite the written supervisory procedures prohibiting the use of unapproved email addresses for securities-business related correspondence with Firm customers.
As is likely not much of a surprise to regular readers of the BrokeAndBroker.com Blog, it turns out that the emails purporting to be from JP requesting a wire were from an imposter.
According to online FINRA BrokerCheck files as of October 25, 2016, First Allied Securities, Inc. "Discharged" Uccelli on March 18, 2015, based upon allegations that:
REGISTERED REPRESENTATIVE USED AN UNAPPROVED EMAIL ADDRESS FOR BUSINESS COMMUNICATION AND PROVIDED FALSE STATEMENTS TO THE FIRM.
FINRA deemed Uccelli's conduct to constituted violations of FINRA Rule 2010. In accordance with the terms of the AWC, FINRA imposed upon Uccelli a $5,000 fine and a 45-calendar-day suspension from associating with any FlNRA member in any capacity.
Bill Singer's Comment
Compliments to First Allied Securities' Operations Department for contacting Uccelli in February 2015 to verify that he had verbally confirmed the wire transfer request with JP. It is encouraging that the brokerage firm has an email-wire-request compliance protocol in place; unfortunately, I'm not sure that the protocol is effective if it simply relies upon the registered representative who received the wire request to swear on a stack of bibles that he or she really, truly, and honestly spoke with the client to confirm the proposed transfer. I've never quite understood why brokerage firms don't simply require that a compliance staffer directly contact the purported customer seeking a wire.
Compliments to First Allied Securities' clearing firm, which flagged the proposed wire transfer. It would have been helpful if the AWC had explained what troubled the clearing firm about the proposed wire; especially since we know that the introducing firm's operations department didn't stop the process from moving forward.
The proposed wire transfer apparently looped back to First Allied Securities' AML Officer, who asked Uccelli to verbally re-confirm. What prompted the wire transfer to be sent to the AML Officer: was it the concerns of the clearing firm and, if so, what exactly signaled an issue? Yet again, is it really a meaningful compliance protocol for the AML Officer to simply ask the registered rep to directly contact the customer pursuant to re-confirming the wire -- shouldn't the AML Officer make that call pursuant to an independent attempt to verify?
After re-reading the AWC several times, I realized that FINRA had left out a key fact: was the wire ultimately processed?
At the end of all the revelations and finger-pointing, we are left with various brokerage departments flagging the proposed wire transfer but not quite stopping the transaction. It comes off as a game of flag football with a fast and agile runner evading every attempt to deflag him as he fakes his way past the goal line. I almost got him. He was only an inch from my grip. I thought Jack was playing safety. My shoe fell off just as I was about to catch him.
Yet again, FINRA doesn't untap the potential of its AWCs as powerful tools to educate the industry or to generate notices to members. Far too much of what passes for the regulator's published settlements smacks of reading toe tags in the morgue. What is needed is some discussion of the forensics of both compliance and regulation:
What should or could First Allied Securities have done to detect the imposter at an earlier stage?
What compliance policies are likely to be effective in detecting such fraud?
How could First Allied Securities have better coordinated its in-house compliance efforts?
What did the clearing firm spot and how can introducing and clearing firms best co-ordinate such reviews?
What are the "Best Practices" that FINRA would recommend in such situations as presented in this AWC?