April 25, 2017
FINRA has a few thousand employees, millions of dollars in funding, and a mandate to protect the investing public and police the securities industry. Sometimes the excuse for a regulator coming up short is found in the organization being under-staffed and under-funded. Sometimes the explanation is that the inept are managing the incompetent. Sometimes,you get lots of excuses and explanations but nothing that quite amounts to a satisfactory answer. In a recent FINRA AWC regulatory settlement, BrokeAndBroker.com Blog publisher Bill Singer finds a number of inconsistencies. The AWC says on the one hand. BrokerCheck says on the other hand. Then there are facts that suggest yet another hand. All of which leaves us with that oddity of a three-handed creature. Case In PointFor 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, John Edward Olinghouse submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of John Edward Olinghouse, Respondent (AWC 2015045276901, April 17, 2017). The AWC asserts that Olinghouse entered the securities industry in 1991 by June 2011, he was registered with FINRA member firm HD Vest Investment Services, Inc. The AWC asserts that Olinghouse had no prior disciplinary history. The Old Cut-And-PasteThe AWC alleges that between November 2011 and April 2015:
[O]linghouse falsified forms for numerous customers and submitted them to HD Vest He did so in some instances by cutting customers' signatures from documents and pasting or taping the signatures onto new forms and then photocopying the forms. In other instances, Olinghouse used white-out to adjust information on forms that had already been signed by customers. . .FINRA deemed Olinghouse's conduct to constitute violations of FINRA Rules 4511 and 2010. Undisclosed SettlementThe AWC also asserts that:
In July 2013, while Olinghouse was registered through HD Vest, Olinghouse was the subject of a civil complaint involving one of his customers. The complaint alleged, in part, that Olinghouse had rendered improper financial advice. Olinghouse, however, did not bring this complaint to the attention of HD Vest. Rather, in October 2014, Olinghouse settled the complaint by executing a settlement document and writing a check for $5,000.FINRA deemed Olinghouse's non-disclosed settlement to constitute a violation of FINRA Rule 2010. DischargedOnline FINRA BrokerCheck records as of April 25, 2017, disclose that HD Vest "Discharged" Olinghouse on April 27, 2015, based upon allegations that:
IN A ROUTINE EXAMINATION OF THE REGISTERED REPRESENTATIVE'S OFFICE, DOCUMENTS WERE DISCOVERED THAT CAUSED THE FIRM TO COMMENCE AN INTERNAL REVIEW OF THE AUTHENTICITY OF CLIENT SIGNATURES ON VARIOUS DOCUMENTS. DURING THE INVESTIGATION THAT THE [sic] REGISTERED REPRESENTATIVE ADMITTED TO AFFIXING INAUTHENTIC CLIENTS [sic] TO CERTAIN DOCUMENTS SUBMITTED TO HD VEST. FINRA SanctionsFINRA imposed upon Olinghouse a $15,000 fine and a one-year suspension from association with any FINRA member firm in any capacity.
Bill Singer's Comment
A one-year suspension? That's it? Really?? Wow . . . I must really be getting crotchety in my old age because I would have expected far more down-time, if not a Bar. Perhaps Olinghouse benefitted from some exception lawyering.
State InvestigationUnder the BrokerCheck heading of "Customer Dispute - Settled," HD Vest disclosed that it had received a written customer complaint on May 1, 2015, seeking $23,000 in damages relating to a Variable Annuity. The firm reported that the matter had "Settled" on June 23, 2015 for $5,000.In disclosing the "Allegations" attendant to the above customer complaint, HD Vest post this explanation on BrokerCheck:
CO-GUARDIANS THROUGH COUNSEL FOR A FORMER CLIENT OF THE REPRESENTATIVE ALLEGED IN A PUBLIC COURT FILING (REPORT TO COURT ON STATUS OF ORDER DIVIDING MARITAL ESTATE, CASE NO. GR 13-00062 FILED IN THE FAMILY DIVISION OF THE SECOND JUDICIAL DISTRICT COURT OF THE STATE OF NEVADA), THAT OVER THE COURSE OF THE REPRESENTATIVES'S RELATIONSHIP WITH THE FORMER CLIENT AND HER HUSBAND, THE REPRESENTATIVE RENDERED IMPROPER ADVICE AND COUNSEL RESULTING IN SIGNIFICANT FINANCIAL LOSSES TO THE FORMER CLIENT AND HER HUSBAND, INCLUDING, EARLY WITHDRAWAL PENALTIES FROM A VARIABLE ANNUITY AND THE REPRESENTATIVE POTENTIALLY DISREGARDED A PROFESSIONAL EVALUATION OF THE CLIENTS LACK OF OF MENTAL CAPACITY TO ENTER INTO AGREEMENTS. IT IS FURTHER ALLEGED IN THIS COURT FILING AND UNDER SEPARATE CORRESPONDENCE SUBMITTED TO THE COURT BY AN INVESTIGATOR ASSIGNED TO THE AGING AND DISABILITY SERVICES DIVISION OF NEVADA'S DEPARTMENT OF HEALTH AND HUMAN SERVICES (ADSD) DATED JULY 12, 2013, THAT THE REPRESENTATIVE DID NOT WORK ETHICALLY OR IN THE FAVOR OF HIS CLIENTS WHILE DISPENSING FINANCIAL ADVICE.Why didn't any of the above make it into FINRA's AWC? Was the self-regulatory organization aware of the above allegations when it agreed to resolve its case with Olinghouse for $15,000 and a one-year suspension? How Many Customer Settlements?Then there is a troubling time-line that the AWC doesn't quite explain. We know from the AWC that "In July 2013, while Olinghouse was registered through HD Vest, Olinghouse was the subject of a civil complaint involving one of his customers." FINRA's BrokerCheck discloses that a Nevada investigation reported on July 12, 2013, that Olinghouse did not work ethically in dispensing advice to a client, whose guardians had filed papers in state court pursuant to the division of a marital estate. The AWC further asserts that "in October 2014, Olinghouse settled the complaint by executing a settlement document and writing a check for $5,000."BrokerCheck discloses that HD Vest discharged Olinghouse on April 27, 2015, and that the May 1, 2015 customer complaint settled on June 23, 2015, for $5,000 but HD Vest discloses that it is "not aware if the representative personally contributed to the settlement amount."
Here it is April 2017 and it appears that FINRA entered into an AWC whose statement of the underlying facts does not conform to what is published on FINRA's BrokerCheck. Corrective Action StatementOlinghouse's AWC includes a provision under "III. OTHER MATTERS" that generally sets forth this admonition:
- Was there a customer complaint made sometime in 2013 that Olinghouse settled in October 2014 and a second customer complaint made in May 2015 that Olinghouse settled in June 2015?
- As reflected on BrokerCheck as of April 2017, how can HD Vest still be unaware whether Olinghouse "personally contributed" to the $5,000 settlement?
I may attach a Corrective Action Statement to this AWC that is a statement of demonstrable corrective steps taken to prevent future misconduct. I understand that I may not deny the charges or make any statement that is inconsistent with the AWC in this Statement This Statement does not constitute factual or legal findings by FINRA, nor does it reflect the views of FINRA or its staff.
As more fully explained in a 1998 NASD (FINRA's predecessor) document: "Regulatory Short Takes: NASD Clarifies Policy On Corrective Action And Mitigation Statements"
Respondents in a settled disciplinary action may submit a Corrective Action Statement and/or a Mitigation Statement to NASD Regulation. This article clarifies the NASD policies regarding such Statements.
A Letter of Acceptance, Waiver and Consent (AWC) permits a respondent in an NASD Regulation disciplinary action to settle the matter prior to the filing of a formal complaint. A Corrective Action Statement may be attached to the AWC, which is filed with the SEC and available to the public, provided such statement is: (1) limited to demonstrable steps taken to correct a problem associated with the disciplinary action; (2) generally no longer than 2-3 pages; and (3) contains the following legend:
This Corrective Action Statement is submitted by the Respondent. It does not constitute factual or legal findings by NASD Regulation, Inc., nor does it reflect the views of NASD Regulation, Inc., or its staff.
Separately, respondents may submit a Mitigation Statement for consideration by NASD Regulation and the National Adjudicatory Council. Generally, such Statements are used to describe mitigating circumstances surrounding the violation for the decision maker to consider in its review of the terms of a settlement. Unlike Corrective Action Statements, Mitigation Statements are not attached to the AWC or public order.
Respondents may also settle a matter after the complaint is filed by submitting an Offer of Settlement. While both Corrective Action and Mitigation Statements may be submitted to NASD Regulation in connection with Offers of Settlements, these Statements are not attached to the final Order Accepting the Offer of Settlement, which is filed with the SEC and available to the public.
NASD Regulation will not accept Corrective Action or Mitigation Statements that deny the allegations or are inconsistent with the findings in the settlement. . .
FINRA AWCs permit the attachment of a Corrective Action Statement to demonstrate the steps taken by a respondent to prevent future misconduct subject to the understanding that such an attachment may not deny the charges or make any statement that is inconsistent with the AWC. Further the Corrective Action Statement does not constitute factual or legal findings by FINRA, nor does it reflect the views of FINRA or its staff.I am no fan of Corrective Action Statements and rarely, if ever, advocate their use. Given that the premise of an AWC is a settlement made without admitting or denying the findings, I don't understand why anyone would voluntarily submit a statement that typically make admissions of facts and findings; promises to correct situations that have not necessarily been acknowledged or admitted to; and, in the end, simply draws more undesired attention to the matter. If you feel compelled to attach a Corrective Action Statement, then ask yourself if you might not be better advised to argue your case before a Hearing Panel and, if necessary, on appeal. If you conclude that the costs and/or risks of contesting the charges aren't worth it, then just sign the damn AWC and get over it.
Some think that a Corrective Action Statement gives you a parting shot at unfair regulation or an opportunity to put your own spin on the matter. I would suggest that you simply avoid the temptation. As with any post-game analysis, it's just not going to change the score. Moreover, if during subsequent examinations, a regulator finds that you engaged in similar misconduct to that discussed in your statement, or, it is alleged that you failed to implement the promised revised policies and procedures, your own words may prove blunt instruments used to beat you into submission.
Notwithstanding my opinion, Olinghouse apparently determined that it was advisable to submit this Corrective Action Statement:
CORRECTIVE ACTION STATEMENT
With regards to a statement of demonstrable corrective steps taken on page 4 Paragraph D under Other Matters; I want to state that the corrective steps taken are that I have retired from the securities business and will not be associated with any FINRA member in any capacity in the future.
Corrective Action Statement is submitted by the Respondent. It does not constitute actual or legal findings by FINRA, or its staff.