From January 2017 through November 2018, Leung inaccurately classified certain of his personal expenses as business expenses on Montrose Securities' general ledger, in violation of FINRA Rule 2010. Leung then used the inaccurate general ledger to prepare monthly FOCUS reports, which were also inaccurate, understating the amount paid to Leung and overstating the firm's business expenses. Because Leung's conduct caused the firm's books and records to be inaccurate, Leung further violated FINRA Rules 4511 and 2010; his conduct also caused Montrose Securities to have inaccurate books and records, in violation of Section 17(a) of the Securities Exchange Act of 1934 and Rules 17a-3 and 17a-5 thereunder, and FINRA Rules 4511 and 2010.In addition, from January 2017 through November 2018, Montrose Securities and Leung failed to establish and maintain a supervisory system, including written supervisory procedures (WSPs), regarding business expense reimbursement reasonably designed to ensure compliance with FINRA Rule 4511 and Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder. Based on the foregoing, Montrose and Leung violated FINRA Rules 3110(a) and (b), and 2010.
[D]uring the above period, Leung improperly characterized over $152,000 of personal expenses as business expenses, resulting in the firm paying for $152,000 of personal expenses that did not relate to the firm's business or customers such as: gas, groceries, vacation dining and hotel stays, and sporting events.
FINRA's online BrokerCheck discloses that the only "Direct Owners and Executive Officers" of the firm are Leung, who is listed as "PRESIDENT - FINOP - CHIEF COMPLIANCE OFFICER," and the owner of "75% or more" of the firm. Montrose is NOT a public company. Montrose conducts three -- and only three -- types of business: retailing corporate securities over-the-counter, selling corporate debt securities, and arranging for transactions in listed securities. Notably, Montrose does not refer or introduce customers to other brokers and dealers, and BrokerCheck further notes:
Industry ArrangementsThis firm does not have books or records maintained by a third party.This firm does not have accounts, funds, or securities maintained by a third party.This firm does not have customer accounts, funds, or securities maintained by a third party.Control Persons/FinancingThis firm does not have individuals who control its management or policies through agreement.This firm does not have individuals who wholly or partly finance the firm's business.
From January 2017 through November 2018, Montrose and Leung failed to establish and maintain a reasonable supervisory system, including WSPs, to supervise the reimbursement of firm business expenses. The firm's WSPs stated Leung was responsible for establishing and maintaining the firm's supervisory manual and for the firm's overall supervisory system. The WSPs also stated that Leung was responsible for carrying out the firm's WSPs, and for formally reviewing the firm' procedures on an annual basis.The firm's WSPs did not address what business expenses employees could be reimbursed for or require employees to submit any documentation describing the business purpose for each expense. The firm also did not conduct any reviews in order to determine whether the expenses had been improperly charged to the firm or not. Due to these supervisory deficiencies, the firm had no way to reasonably evaluate or verify whether the payments Leung recorded on the firm's general ledger as "business expenses" were accurate, as required by FINRA Rule 4511, and Exchange Act Section 17(a) and Rules 17a-3 and 17a-5 thereunder. And as a result, Leung inaccurately characterized over $152,000 of personal expenses as business expenses; he then improperly made payments for these personal expenses.
The firm did not conduct reviews?
When John Thain became Merrill Lynch's CEO in early 2008, he hired Michael S. Smith Design to revamp his office suite, spending approximately $1.22 million according to documents.Additionally, documents showed that Thain signed off on the purchases personally, and that he used over $30,000 to pay the expenses Smith incurred in doing the work.The following is a list of the items in his suite:
. . .Thain was appointed as Merrill's CEO as the firm suffered massive losses from investments tied to the depressed real estate market under his predecessor Stan O'Neal, who was ousted in late 2007.Those losses continued through 2008, forcing Thain and his management team to sell the brokerage firm to Bank of America in mid September or face near certain liquidation as investors fearing further losses began pulling lines of credit and other financing.
It has been an honor to lead this company over the last very difficult year. The decisions that I made were always with the best interests of our shareholders and employees above all. I believe that the decision to sell to Bank of America was the right one for our company and our clients. While the execution has been difficult, I still believe in the strategic rationale of the transaction and I wish you all the best for the future of the combined companies.. . .The final topic is the expenses related to my office. The $1.2 million reported in the press was for the renovation of my office, two conference rooms and a reception area. The expenses were incurred over a year ago in a very different environment. Nonetheless, they were a mistake in the light of the world we live in today. I will therefore reimburse the company for all of the costs incurred. . . .
MARIA BARTIROMO: John, I want to ask you more about the environment that we're in, but I've gotta ask you first about the office. You spent more than $1 million renovating your office. Is this true?JOHN THAIN: Well, first of all, it is true. This was a year ago, actually a little bit more than a year ago, in a very different economic environment and a very different outlook for Merrill and the financial services industry. It was my office. It was two conference rooms and it was a reception area. But it is clear to me in today's world that it was a mistake. I apologize for spending that money on those things, and I will make it right. I will reimburse the company for all of those costs.BARTIROMO: Why did you need to renovate the office? What was wrong with Stan O'Neil's office?THAIN: Well, his office was very different than the general decor of Merrill's offices. It really would have been very difficult for me to use it in the form that it was in. And, you know, it needed to be renovated no matter what. It would have been better for me to simply --I should have -- simply paid for it myself at the time.
(BrokeAndBroker.com Blog / October 16, 2020)http://www.brokeandbroker.com/5486/finra-rule-proposal/From my perspective, FINRA is an inept and frequently ineffective regulator, which I have long characterized as the lap dog of its larger member firms. Frankly, FINRA comes off as little more than a hijacked trade-group intent on eliminating its smaller members and promoting financial superstores and regional brokerages. Harsh words? Absolutely. Off the mark and unfair? I think not.