July 17, 2018
Let's see if you can guess where this fact pattern is going and how it will end. We got an 87 year old customer. The customer gives to his stockbroker blank checks to be drawn against his brokerage account. Those checks are to be used only in the event that the elderly customer can't write out the checks for the sole purpose of paying his caregivers. Hmmm . . . what could possibly go wrong?
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, Mitchell Toby Yanow submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Mitchell Toby Yanow, Respondent (AWC 2018058538001, July 11, 2018).
The AWC asserts that Yanow entered the securities industry in 1991, and in April 2015, he was registered with FINRA member firm Stifel, Nicolaus & Company, Inc. The AWC asserts that "Yanow has no disciplinary history in the securities industry."
Elderly Client's Blank Checks
The AWC alleges that sometime around July 2017, an 87-year-old Stifel Nicolaus customer gave blank checks drawn on his brokerage account (which had a check-writing feature) to Yanow. The elderly customer entrusted Yanow with the checks so that the stockbroker could periodically pay the customer's caregivers for their services in the event that he became unable to do so.
Given that we are discussing a regulatory settlement, it will likely not come as a surprise to anyone that Yanow did not use the checks for their intended purpose. Sadly, the AWC alleges that Yanow "used the checks to convert at least $205,586 of AW's funds." Pointedly, without the elderly cusgtomers knowledge or consent, from at least August 2017 through May 2018, Yanow allegedly used 33 of his customer's checks to pay such personal expenses as:
overdue homeowner's association fees, his children's summer camp fees, and the purchase of a 1976 Corvette automobile.
Online FINRA BrokerCheck files as of July 17, 2018, disclose that Stifel Nicolaus "discharged" Yanow on May 10, 2018, based upon allegations that:
FA took money from a client account for his personal use without authorization.
FINRA deemed Yanow's conduct to constitute violations of FINRA Rules 2150(a) and 2010. In accordance with the terms of the AWC, FINRA imposed upon Yanow a Bar from association with any FINRA member in any capacity.
Bill Singer's Comment
Compliments to FINRA on getting this lowlife out of the industry and relatively quickly. If you have any elderly parents, family members, or friends, please show them this article as a warning. Few if any circumstances would support a customer's giving of blank checks to any stockbroker. An experienced Estate and Trusts lawyer can recommend far more appropriate and safer devices for accomplishing the same ends.
A few aspects of this FINRA settlement trouble me. First, did the fact that 33 checks were written against an elderly customer's account pop up on any Stifel computer exception report? Keep in mind that we're dealing with 33 checks written over a period of about 10 months -- which works out to just shy of once week. Had there been any check writing activity beforehand? To whom were the checks made payable? Given that we're also dealing with over $200,000 in converted funds over the same 10 months, that works out to about $20,000 a month -- did that fact pop up on any Stifel exception report? Accordingly, did Stifel and/or Yanow reimburse the customer for the converted funds, and, if so, why isn't that set forth in the AWC? Finally, did anyone -- the customer or Stifel -- file criminal charges against Yanow?
As set forth in part on FINRA.org under the heading "Senior Investors"http://www.finra.org/industry/senior-investors:
FINANCIAL EXPLOITATION OF SENIORS
With the aging of the U.S. population, financial exploitation of seniors is a serious and growing problem. FINRA's Securities Helpline for Seniors has highlighted issues relating to financial exploitation of this group of investors, including the need for members to be able to more quickly and effectively address suspected financial exploitation of seniors and other specified adults.
FINRA rules provide members with ways to respond to situations in which they have a reasonable basis to believe that financial exploitation has occurred, is occurring, has been attempted or will be attempted. Members can better protect their customers from financial exploitation if they have the ability to contact a customer's designated trusted contact person and, when appropriate, place a temporary hold on a disbursement of funds or securities from a customer's account.
FINRA Rule 4512 (Customer Account Information)
requires members to make reasonable efforts to obtain the name of and contact information for a trusted contact person upon the opening of a non-institutional customer's account or when updating account information for a non-institutional account. The trusted contact person is intended to be a resource for the member in administering the customer's account, protecting assets and responding to possible financial exploitation.
FINRA Rule 2165 (Financial Exploitation of Specified Adults)
permits, under FINRA rules, a member that reasonably believes that financial exploitation has occurred, is occurring, has been attempted or will be attempted to place a temporary hold on the disbursement of funds or securities from the account of a "specified adult" customer. Specified adults include a natural person age 65 and older or a natural person age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.