Padded Expenses Gets Hartford Broker Barred -- But is it a double-standard?

September 7, 2011

For the purpose of settling alleged rule violations but without admitting or denying the findings, David D. Lee submitted a Letter of Acceptance, Waiver and Consent ("AWC") to the Financial Industry Regulatory Authority ("FINRA") that the regulator accepted. In the Matter of David D. Lee, Respondent (AWC/2010023019701, August 30, 2011).


Lee first became registered in the securities industry in 1989 as an Investment Company Products/Variable Contracts Representative. From 2003 to 2006, and then again from 2007 until his termination on May 10,2010, Lee was registered as a General Securities Representative and an Investment Company Products/Variable Contracts Representative with FINRA member firm Hartford Equity Sales Company, Inc. ("Hartford"). During the period November 5, 2007 through May 10, 2010, Lee was a wholesaler for the Individual Life Sales Division of the Hartford Life Insurance Company and a registered representative of Hartford.

Fraud Du Jour?

On four occasions between November 22, 2008 and December 5, 2009, Lee knowingly submitted expense reports that included "five charges for personal meals."  FINRA alleged that Lee improperly sought and obtained reimbursement for $509 for these non-business expenses.  FINRA does not specify whether the improper invoices were for meals consumed solely by Lee or involved additional charges for non-business guests.

Chump Change

On sixteen occasions between March 2008 and January 2010, Lee improperly sought and obtained $223 reimbursement for personal car wash services from Hartford.

On two occasions in January 2010, Lee submitted requests for reimbursement containing two duplicate expenses for cell phone and meal charges, totaling $168 from Hartford. Although it is unclear whether FINRA deemed these charges as "personal" rather than "business," it appears that the brunt of this allegation is that the same expenses were double-billed to the employer.


In consideration of the above, FINRA alleged that Lee violated NASD Rule 2110 and FINRA Rule 2010: Standards of Commercial Honor and Principles of Trade. Moreover, by submitting the expense reports and improperly receiving reimbursement for the duplicate expenses, car wash services, and personal meals, Lee violated NASD Rule 3110: Books and Records by causing Hartford to have inaccurate books and records.

FINRA imposed a Bar upon Lee from future association with any member in any capacity.

Bill Singer's Comment

Okay, I got it and have no dispute with the charges or the sanction - we at least clear on that?  So, please, don't set me up as a strawman apologist for Lee or any stockbroker who steals from his employer or customers.

On the other hand, I am bothered by this case. Again, not by the charges or the sanctions. What bothers me is the double standard that permeates all of Wall Street regulation.  In this FINRA case, an individual stockbroker is rightfully barred from the industry for defrauding his employer through the submission of bogus business expenses, some of which are double-billed.  A just comeuppance and good riddance!

However, this high dudgeon, this moral outrage by FINRA just doesn't seem to apply to the big boys - be they senior management at major brokerage firms or the too-big-to-fail firms themselves.  For example, remember this incident from about the same 2008 - 2009 time period involved in Lee's case? 

The Perfect Office

No longer content with the corner office or the penthouse in hues of teakwood, former Merrill Lynch CEO John Thain, whose tenure drove Merrill Lynch to lose $15 billion in the fourth quarter of 2009, spent $1,405 on a trash can. As his company was eliminating jobs, a newly acquired $87,000 rug graced the floor of his office.

Most executives hire interior designers, and Thain was no exception hiring Michael Smith, of celebrity design fame. The tab for his designer office - $1.2 million.

"5 Outrageous CEO Spending Abuses and Perks" (Forbes "Personal Spending" by Investopedia, August 3, 2011)

Thain's questionable office expenses in 2008 were well documented and have become the stuff of legend - and, yes, in the face of public outrage, he purportedly repaid the full cost of the renovation.  On the other hand, did FINRA or any regulator bring charges against him for submitting those charges?  Similarly, if Thain was given a regulator's credit for repaying the disputed charges, was Lee offered by FINRA the same expedient option in lieu of the Bar?

Frankly, I think we all know the answers to my questions. 

When its a few hundred dollars in meals and car washes, the lowly man or woman is slammed by the full weight of Wall Street's regulatory outrage.  When its millions of dollars in executive suite perks or Boardroom excess, well, you know, that's different, that's not fraud, no, course not, that's Big Business.  Big Business - as in the comfy future employer of so many of Wall Street's cops.

For additional cases visit Expenses and Credit Cards