Here's an interesting cocktail of facts: an IRA, a mother, powers of attorney, and a stockbroker son. Add into that mix questions about whether a $60,000 transfer was a gift. As with all mixtures of family and money, this one doesn't end particularly well.
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, John Lamar Gibson submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of John Lamar Gibson, Respondent (AWC 2013037965101, April 4, 2014).
In 1985, Gibson entered the securities industry with FINRA member firm J.J.B. Hilliard, W.L. Lyons, LLC, where he remained until the firm discharged him on August 13, 2013, for the circumstances related in this AWC. The AWC asserts that Gibson had no prior disciplinary history in the securities industry.
From September 2011 to July 2013, the AWC alleges that Gibson improperly used two powers of attorney to transfer approximately $60,000 from his mother's Individual Retirement Account ("IRA") at Hilliard, Lyons to her personal bank account; and, thereafter, he allegedly wrongfully withdrew those transferred funds for his personal use. The AWC contends that the powers of attorney included provisions allowing attorney-in-fact Gibson to make gifts (including to himself); however, it was asserted that applicable law requires that such gifting must be made in good faith and in accordance with his mother’s “history of personal giving.”
The AWC concludes that Gibson’s withdrawals for his personal use were not in accordance with his mother’s history of personal giving and constituted violations of FINRA Rules Rule 2150: Improper Use of Customers' Securities or Funds; Prohibition Against Guarantees and Sharing in Accounts and 2010: Standards of Commercial Honor and Principles of Trade. The AWC concedes that Gibson fully repaid the funds following the detection of the cited transfers from his mother's IRA.
In accordance with the terms of the AWC, FINRA imposed upon Gibson a Bar from association with any FINRA regulated broker-dealer in any capacity.
Bill Singer’s Comment
There seems to be so much more to this story than reported to us in the AWC, and that is both unfortunate and troubling. Unfortunate because the allegations involve common enough circumstances that industry compliance managers should be provided with sufficient details so as to better spot these potential concerns and to implement meaningful policies. Troubling because FINRA seems to not fully recognize that it has an important role to play here in terms of educating the industry and warning an unwary investing public.
Consider what we don't know:
- Was there any assertion by Gibson that his mother was aware of his actions and condoned them?
- Were the mother's mental faculties impaired to an extent that would color the allegations against her son with an even more ominous tone?
- Was the mother contacted by either Hilliard, Lyons or FINRA -- and, if so, what was her version of the contested transfers?
- How were the transfer detected and what guidance would FINRA offer industry supervisors as to how to best detect such occurrences?
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Auction Rate Securities are the unwanted gift that keeps on giving. In today's BrokeAndBroker.com Blog, we report about yet another bit of collateral damage in which a lowly associate gets caught up in the litigation and regulatory meat grinder that has become the legacy of ARS. It ends well for the Claimant but he certainly got pounded and chopped up in the process of gaining his expungement -- which will still require a further confirmation by the courts.
In a Financial Industry Regulatory Authority (“FINRA”) Arbitration Statement of Claim filed in October 2013, Claimant Dabit sought expungement of a customer complaint filed in April 2008 from his Central Registration Depository record (“CRD”) and $50 in compensatory damages for his FINRA filing fees. In the Matter of the FINRA Arbitration Between Amin N. Dabit, Claimant, vs. UBS Financial Services Inc., Respondent (FINRA Arbitration 13-03081, April 1, 2014).
Going Through The Motions
In February 2014, the parties agreed to a telephonic evidentiary hearing. Respondent UBS did not oppose the relief sought and did not appear at the hearing.
The underlying issue in the customer arbitration involved Auction Rate Securities (“ARS”), and although the customer’s complaint resulted in a settlement with UBS, Claimant Dabit was not a party to the settlement and did not contribute to it.
The sole FINRA Arbitrator recommended expungement and offered the following rationale:
[T]he complaint arose out of the sale of an auction rate security (ARS) that was made prior to the widespread illiquidity in the ARS market that occurred in February 2008. . .
[C]laimant did not participate in any of the alleged sales practice violations mentioned in the complaint letter. He had acted under a broker as a Client Services Associate. During this time he had no sales responsibilities relative to the alleged sales practice violations noted in the complaint letter.
A settlement was reached between Respondent and several regulatory bodies relating to the breakdown of liquidity of the Auction Rate Securities. This settlement had nothing to do with Claimant's activities while employed at UBS Financial Services Inc. Claimant was neither asked to nor did he participate in any of the settlement. . .
Bill Singer's Comment
My compliments to this FINRA arbitrator for cutting through the crap and doing justice for Claimant Dabit. As the arbitrator noted, Dabit was not the primary servicing stockbroker to the complaining customer but a mere "Client Services Associate." Apparently, Dabit was little more than a convenient target for what now seems like a shotgun pleading.