September 14, 2017
It's always a volatile mix. An elderly client. A client with a disability. A stockbroker. Assets. Cash. Sometimes, human beings try to do the right thing but it comes out all wrong. Other times, the explanation for doing the wrong thing is nothing more complicated than the natural instincts of a bad person. If you live long enough, you find that what folks do in life is often a jumble of good and bad intentions. In a recent FINRA regulatory settlement, we are asked to weigh in on the motivation and consequences of a respondent's actions involving an elderly, blind client. It doesn't look good for the stockbroker. It doesn't end well for the stockbroker. Frankly, I come away from this settlement with no sympathy for him. Looks like he got what he deserved and perhaps far less than he has coming to him. On the other hand, as much as this case is now settled and done with from FINRA's perspective, we are left with many questions and far too few answers.
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, Jaime R. Rodriguez submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Jaime R. Rodriguez, Respondent (AWC 2016051772601, August 28, 2017).
The AWC asserts that Rodriguez was first associated with a FINRA member firm in 2006 and by 2010 had become associated with FINRA member firm HSBC Securities (USA) Inc. ("HSBC") where he remained until his voluntary termination in July 2014. While associated with HSBC Securities, Rodriguez was also a Premier Relationship Manager and a Branch Relationship Banker at what the AWC references only as "an affiliated bank." The AWC asserts that "Rodriguez does not have any disciplinary history."
Elderly and Blind Customer
The AWC alleges that around December 2010:
KF, an elderly and legally blind customer of HSBC and the Bank, met Rodriguez at a Bank branch and Rodriguez became a Premier Relationship Manager for KF. Shortly after meeting KF, Rodriguez began helping KF with grocery shopping and other errands.
2012 Apartment Purchase
About 20 months after Rodriguez and KF developed the above relationship, KF's apartment lease was terminated in August 2012. At that point, the AWC alleges that:
The AWC asserts that KF lived in the apartment for several years but the actual length of time is not set forth in the AWC.
Rodriguez offered KF assistance with locating and purchasing a residence. In October 2012, Rodriguez purchased an apartment for approximately $70,000 in the Bronx, New York using KF's funds. The apartment was supposed to be purchased in KF's name. Unbeknownst to KF, Rodriguez was the sole beneficial owner of the apartment. KF was not able to see or read the documents due to his disability. . .
Joint Bank Account
The AWC further alleges that in December 2012, Rodriguez had recommended that KF open a joint bank account with him so Rodriguez could assist KF with paying his bills. A joint account was allegedly opened at a non-affiliated bank with an initial opening balance of approximately $42,000 and, thereafter, exclusively funded by the customer to the extent that the balance was as high as about $153,000 in September 2013. The AWC concedes that:
The funds in the joint bank account were intended to be used solely for the benefit of KF and were only to be withdrawn with KF's permission.
2013 Apartment Purchase
The AWC further alleges that:
In 2013, after a grocery store within walking distance of the apartment where KF was residing closed, Rodriguez recommended that KF purchase a second apartment. In December 2013, Rodriguez purchased a second apartment in Yonkers, New York for approximately $130,000 using KF's funds from the joint banking account. The apartment was supposed to be purchased in KF's name. Unbeknownst to KF, Rodriguez was the sole beneficial owner of the apartment. KF was not able to see or read the documents due to his disability. KF did not reside in this apartment. Rather, without KF's authorization or consent, Rodriguez began renting the apartment to tenants and collected and retained the rent. . .
FINRA deemed Rodriguez above-cited misconduct to constitute the conversion of about $200,000 from KF in violation of FINRA Rule 2010. In accordance with the terms of the AWC, FINRA imposed a Bar from association with any FINRA member in all capacities.
Bill Singer's Comment
The AWC alleges that the "apartment was supposed to be purchased in KF's name" and that "unbeknownst" to the customer, Rodriguez was made the sole beneficiary owner. The fact that the elderly client was legally blind, however, does not necessarily mean that he was not informed either contemporaneously at the closing or subsequently about Rodriguez's designation as the sole owner. One can imagine a scenario whereby both KF and Rodriguez planned to purchase the apartment in KF's sole name but because of an advancing disability or a growing relationship between the two, the apartment was placed in Rodriguez's name. As such, although the apartment was "supposed" to have been purchased in the client's name it did not turn out that way. Again, that is merely the operation of a lawyer's ever-inquisitive mind and nothing more than supposition built upon conjecture.
Clearly, FINRA's choice of the term "unbeknownst" implies that the elderly client was duped by the stockbroker. Given that nefarious twist implied by the AWC, I wish that there had been more content and context provided as to this issue. In re-reading the AWC, I noted that there was not an allegation of any overt acts taken by Rodriguez to hide or prevent the disclosure of his ownership status from KF. Which begs the question as to whether KF retained a lawyer to handle the legal work necessary to purchase the two apartments. If KF did hire a lawyer, did that professional advise KF that the apartments would be owned solely by Rodriguez? Further, just what the hell happened to the title to both of those apartments: was Rodriguez eventually removed as the sole owner or were the titles changed to insert KF as the sole owner?
By no means am I offering any defense or excuse for Rodriguez. Without question, he has engaged in what appears to be very troubling conduct involving an elderly and disabled client. On the other hand, much or all of the conduct cited in this regulatory settlement could easily be explained away as the desire of an elderly individual to reward a stockbroker for "helping KF with grocery shopping and other errands." The cynic in me doubts that version but the lawyer in me has made careful note of what was and what was not said in the AWC. Given the vulnerability of elderly and disabled clients of the financial services community, I would urge FINRA to more extensively make its case when settling regulatory allegations involving such individuals.
Finally, if for no other reason that offering some educational guidance to the industry's compliance staff and those who are concerned for elderly/disabled individuals, the AWC should have explained how these issues about the apartments and the joint account come to light. Did KF file a complaint? Was KF ever informed of the "unbeknownst" aspects cited in the AWC? Is KF alive or deceased? Were the revelations of Rodriguez's role uncovered by heirs or guardians of KF?