by Bill Singer
Undisclosed Customer Settlement Checks Move Broker Into Regulatory Checkmate
May 10, 2012
One too many checks leads to a FINRA checkmate
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 Robert Fetsko submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted.In the Matter of Michael Robert Fetsko, Respondent (AWC 2010023219601, May 7, 2012).
Background
Fetsko entered the securities industry in April 2000 as a General Securities Representative of Wells Fargo Advisors, LLC, where he remained until May 18, 2010. According to the AWC, he had no prior relevant disciplinary history.
Check, Check, Checkmate
Bill Singer
The AWC alleges that Fetsko had a Wells Fargo customer who maintained a margin account; and this same customer had power of attorney over his sister's brokerage account. Allegedly, in 2008, the customer complained to Fetsko about a margin balance; and, thereafter, in July 2008, Fetsko purportedly wrote and delivered a $13,870 check to the complaining customer in order to settle that dispute.
Thereafter, in January 2009, the AWC alleges that Fetsko engaged in a similar $1,429 payment to the customer as resolution for another margin balance dispute involving the sister's account.
Finally, in April 2009, the AWC alleges that Fesko paid $2,450 directly to another customer in order to resolve a "potential dispute regarding a promised dividend …"
FINRA found that Fetsko had failed to inform Wells Fargo about the customer complaints and the ensuing settlements, in violation of NASD Rule 2110 and FINRA Rule 2010. According to the terms of the AWC, FINRA imposed a $5,000 fine and a 10-business-day suspension from association with any FINRA member in any capacity.
Bill Singer's Comment
Unfortunately, there's a nasty side to these private deals between a broker and a customer. Once paid, some customers figure that they now have an insurance policy against future losses and will insist upon future settlements from the broker. Worse, some customers - particularly those who are savvy about Wall Street's rules and regulations - may engage in extortion and demand further payments just to keep their mouths shut and not contact the broker's firm or a regulator. Not exactly the anticipated outcome when the check was signed or the ATM withdrawal handed over as a settlement.
It's a slippery slope that often greets a broker who opts for the expediency of paying off a complaining customer. Sometimes the motive is nothing more than keeping a good customer happy following a miscommunication involving a relatively small sum of money. Similarly, given the paperwork required to notify an employer and all the regulators about a few hundred or a few thousand dollars in settlements, many registered men and women figure it's easier to just pull out the old checkbook and take of things quietly.
Notwithstanding the appeal of disposing of minor customer complaints on the side with a few bucks worth of hush money, it's just not permitted. Further, such conduct typically involves a double regulatory violation of not disclosing a customer complaint and not disclosing a settlement. Not exactly the bonus round you want to find yourself in. Still, it's a common stumbling block for brokers all over Wall Street - at indies, at regionals, and at big boys such as Merrill Lynch, Wells Fargo, Morgan Stanley Smith Barney, UBS, and JP Morgan.
In most customer complaints/cases in which you were named as a respondent/defendant or referenced as a subject, and settled after May 18, 2009 for less than $15,000, the Form U4, Item 14I does not require a "YES" answer. Further, if a customer's claim is for less than $5,000 in damages, you may not even have a disclosable U4 matter for a mere oral complaint. In Fetsko's case, he would not have had to answer "YES" on the Form U4 concerning the three under-$15,000 settlements, although he may have had an affirmative disclosure for 24 months concerning the existence of at least one (or more) customer complaints that alleged losses in excess of $5,000.