The thing about death is that there's supposed to be a finality to it. For example, after you die, you can't place orders to buy and sell stocks -- you can't even check your email or send out tweets. I mean, you know, you're dead and there's not much connectivity in the after-life, or so I'm supposing. Notwithstanding, in today's blog, we consider the case of a deceased Wells Fargo customer whose account reflected trading some nine months after he crossed over.
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, Michael David Garris submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of E: Michael David Garris, Respondent (FINRA AWC 2017053705201, July 22, 2019)
The AWC asserts that Garris was first registered in 1987 and by May 2011, he was registered with Wells Fargo Clearing Servics, LLC. The AWC asserts that Garris "has no relevant disciplinary history."
February 2017: Customer dies
The AWC alleges that in June 2014, Garris began servicing a Wells Fargo customer, who maintained two accounts at the firm. About 2 1/2 years later, in February 2017, the customer died. It appears that it was only in March 2017, that Garris became aware of the customer's death when the stockbroker's assistant notified him that she had received a telephone call conveying the news. Also during March 2017, Garris exchanged emails and telephone calls with the deceased customer's nephew, who personally confirmed his uncle's death.
The AWC alleges in part that Wells Fargo's:
written procedures for associates stated that registered
representatives must notify the Firm upon receiving notice of a customer's death.
However, Respondent did not report the customer's death to the Firm.
October and November 2017 Post-Mortem Trades
The AWC alleges during October and November 2017, Garris executed 26 trades involving $381,452.98 (which generated $9,313.07 in commissions) in the deceased customer's accounts. The AWC asserts that the trades were "unauthorized" (a finding likely compelled by the circumstance of the customer's death). Allegedly, Wells Fargo reversed the 26 unauthorized trades and made the accounts whole by restoring all affected positions and refunding all commissions.
Without Sufficient Authorization (Ya think?)
The AWC asserts that on July 11, 2018, Wells Fargo filed a
Form U5 stating that it had terminated Garris effective June 14, 2018, "after
a review concluded he placed trades in a customer's accounts without sufficient
FINRA deemed Garris's cited conduct as constituting violations of FINRA Rule 2010, and, in accordance with the terms of the AWC, FINRA imposed upon Garris a $5,000 fine and a one-year suspension from association with any FINRA member firm in any capacity.
Bill Singer's Comment
I'm having a bit of trouble understanding why Wells Fargo only first discharged Garris on June 14, 2018, roughly 16 months after the customer's death. Moreover, the last of the 26 unauthorized trades took place in November 2017 but Wells Fargo terminated Garris in June 2018. What was going on for the six or so months between the last entered trade and the firm's investigative discovery?
What alerted Wells Fargo to the customer's death and when did the firm first have that information?
How difficult was it for Wells Fargo Compliance staff to figure out that a customer who died in February 2017 could not possibly place orders to buy and sell securities in October and November 2017? If, the customer's estate alerted Wells Fargo per probate, then the date of the customer's death would have been provided to the brokerage firm, and it would not have taken much of a forensic effort to quickly recognize the post-mortem trades.
This AWC is a failure because it leaves unanswered the most crucial question in this matter: Why did Garris enter 26 trades during October and November 2017 in the account of a client he knew had died in February 2017? Similarly, the AWC fails to allege what losses (if any) resulted from the unauthorized trading.
Generally, FINRA broker-dealers should have written supervisory procedures requiring that upon notice of an individual account holder's death, all "OPEN" orders are cancelled and further trading in the account is blocked. Typically, the account should be denoted as in the name of a "DECEASED" and further activity suspended until the firm is in receipt of a death certificate or other legal notification. These steps are taken so as to ensure the preservation of assets for any estate and to limit the firm's exposure in any estate litigation. Thereafter,the name of the account is generally changed from that of the deceased into one reflecting the "ESTATE OF . . ." such alteration may require the production of various court orders or letters testamentary, as the circumstances may dictate.
In the absence of legal documentation and authorization from your firm's legal/compliance department, registered persons should not merely follow the instructions of a surviving spouse, sibling or any other individual claiming the right to control the deceased's assets. As is often the case, the assets of a deceased may be subject to a will contest or, in the absence of a valid will, the estate may require judicial intervention. Based upon years of dealing with the deceased, a stockbroker may believe that there is only a single surviving child or spouse who will inherit the account; however, life is full of surprises and your assumptions may be ill-informed.
July 24, 2019, 5 p.m. EDT DEADLINE for Submission of FINRA Board Candidates' Statements to BrokeAndBroker.com Blog
On August 19, 2019, the Financial Industry Regulatory Authority ("FINRA") will conduct its annual meeting, at which time the self-regulatory organization will elect one small firm Governor (up to 150 registered representatives) and one large firm Governor (500 or more registered representatives) for a three-year term. I am one of the founders of the NASD Dissident/Reform Movement (now the FINRA Dissident/Reform Movement), and a member of the 1998 slate of the first four petition candidates to successfully challenge the self-regulatory-organization's process of anointing its industry Board members. I am a fervent proponent of robust, contested elections as a means of democratizing FINRA's Board, which I view as a gerrymandered body designed to entrench the power of the regulator's Large Member Firms and industry special interests. That rigged construct rebuffs meaningful Wall Street reform, artificially constrains the Small Firm Members' influence, and denies proportionate representation for the industry's associated persons and public customers. The BrokeAndBroker.com Blog offers all candidates an opportunity to post a statement concerning their nomination. Submissions must be received by 5 p.m. EDT, July 24th.