Here we go again. Marital bliss ain't all it's cracked up to be. Add one elderly wife. Add one part husband. Add two parts brokerage account for the benefit of the kids. Shake. Remove cash from the account. Pour into one big regulatory glass and garnish with a compliance nightmare.
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, James W. Stowell submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of James W. Stowell,Respondent (AWC 2016049887101, June 20, 2018).
The AWC asserts that Stowell was first registered in 1988 and by 1994, he was registered with FINRA member firm Robert W. Baird & Co.
Inc. The AWC asserts that "Stowell has no prior disciplinary history."
Elderly Client's TOD Account
The AWC alleges that in 2012, an "elderly" customer opened with Robert W. Baird & Co. Inc. a Transfer on Death ("TOD") account for the benefit of her children. The customer purportedly explained to Stowell that she was "funding the account with her own funds, and stated that she was not giving her husband access to the account."
November 2015 Withdrawal
The AWC alleges that at the end of November 2015, the customer's husband called Stowell in order to arrange to to withdraw funds from the TOD account, and he stated that his wife's:
health was deteriorating, and she required $20,000 for an urgent treatment. Stowell asked to speak to the customer, but the husband said she was too ill to speak. When Stowell told the husband that he could take the husband's instructions only if he had a power of attorney, the husband claimed he had a power of attorney and said he would provide it, but he did not.
The AWC alleges that the account lacked available cash for distribution. Without having received the requested Power of Attorney, Stowell raised cash through the sale of a mutual fund, and the stockbroker then authorized Baird to issue a $20,000 check to the customer.
January 2016 Withdrawal
In January 2016, the husband again allegedly requested a second withdrawal of $10,000, which Stowell authorized without a Power of Attorney. The proceeds were again raised through the allegedly unauthorized sale of mutual funds, and a check forwarded to the customer.
January/February 2016 Withdrawal
In late January/February 2016, the husband sought another $10,000 withdrawal, which was accomplished in the same fashion as the first two; namely, without a Power of Attorney, via an unauthorized sale of mutual funds, and finalized through a check to the customer.
The AWC asserts that:
The customer's account has been reimbursed and her investment positions prior to the husband's withdrawal requests have been reinstated.
The AWC alleges that on July 19, 2017, Baird filed a Uniform Termination Notice for Securities Industry Registration ("Form U5") reporting Stowell's voluntary termination due to retirement.
FINRA deemed that Stowell violated FINRA Rule 2010 by:
taking orders from an unauthorized person (the customer's husband) to withdraw funds
from the TOD account; and
selling mutual fund shares without discretionary
In accordance with the terms of the AWC, FINRA imposed upon Stowell a $7,500 fine and a 45-day-suspension from association with any FINRA member in any capacity.
Bill Singer's Comment
I get it. You get it. We all get it. In hindsight, we all knew that the second we learned it was an elderly client and that the husband was calling for a withdrawal that this was going to end in a mess. The warning signs could not be clearer The elderly wife funded the TOD account with her own money for her children and pointedly informed the stockbroker that she did not want her husband to have access to the account. All of which goes out the window when the husband gets access to the account without the wife's express authorization.
The road to Hell is paved with good intentions. No good deed goes unpunished. I'll give you all of that. On the other hand, what part of this is my money, this is for my kids, and I don't want my husband to have access to this account suggested to Stowell that he could drop his guard and do the husband's bidding? The customer and only the customer has the power to authorize transactions in his or her account -- and when the exceptions to that Golden Rule do pop up, they almost always come with a list of mandatory paperwork, signatures, authorizations, and approvals. There is a point where customer service ends and misconduct begins.
One quibble with this AWC is that it asserts that for each and every of the three cited mutual fund sales, a check was "issued" to the customer. Assuming that the check was cut solely in the name of the elderly wife, why did Baird need to reimburse her account and reinstated the mutual fund positions? No . . . I'm not an idiot although I may easily fool you if you know me. Unfortunately, as a stickler for detail, I am unable to find any statement in the AWC that the husband converted the three checks or forged his wife's signature or any indication whatsoever that the issued checks were otherwise intercepted. From a regulatory perspective, the misuse of the proceeds does not alter the fact that Stowell should not have done jack without the Power of Attorney or after directly speaking with the customer. Be that as it may, the AWC should have provided just one more bit of content and context so that we understand what happened to the $40,000 in proceeds paid out in three checks.