Failure To Report Email Customer Complaints About Unauthorized Trades Gets Broker Fined and Suspended

June 22, 2012

A woman looks at her email on a computer scree...

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, Daniel M. Micha submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Daniel M. Micha, Respondent (AWC 2010023805301, June 19, 2012).

Micha entered the securities industry in 1983, and during the relevant times involved in this matter, he was registered with RBC Capital Markets, LLC as an Investment Company & Variable Contracts Products Representative, a General Securities Representative, and a Direct Participation Program Representative. The AWC asserts that Micha has no prior relevant disciplinary history.

The AWC alleges that Micha had a 63-year-old public customer and on August 18, 2009, the broker effected in the customer's two fee-based accounts the unauthorized sale of nine securities positions, totaling $326,000.  Thereafter, on August 25, 2009, the customer complained about the sales in an email to Micha, to which he replied on August 31, 2009.  On September 23, 2009, the customer sent a second complaint via email to Micah, to which he replied on September 24, 2009.

According to the AWC, Micha deemed the customer's complaints not to be of "sound substance or truth," and, accordingly, did not believe he was obligated to report the emails to RBC Capital.

SIDE BAR: Online FINRA regulatory documents as of June 22, 2012, disclose that RBC Capital received a customer complaint against Micha on 09/23/2009, which the company characterized as:


The FINRA online disclosure states that the original claim sought $15,000 in damages but apparently was increased to $65,301.11.  On June 20, 2011, RBC Capital stated that it had settled the claims for $44,987.58 of which Micha allegedly contributed $22,493.79.

FINRA alleged that Micha's unauthorized trading, his failure to disclose to RBC Capital the existence of the written customer complaints, and the attendant failure to timely amend his Uniform Application for Securities Industry Registration and Transfer ("Form U4″) constituted violations of Article V, Section 2 of the FINRA By-Laws, FINRA Rule 1122: Filing of Misleading Information as to Membership or Registration, and FINRA Rule 2010: Standards of Commercial Honor and Principles of Trade.

In accordance with the terms of the AWC, FINRA imposed upon a $10,000 fine and a 20-business-day suspension from association with any FINRA registered broker-dealer in any capacity.

Bill Singers Comment

It's almost Compliance 101 but, apparently, it still mystifies some folks: You have to disclose to your firm the existence of all written customer complaints.  To take it a step further, although from a regulatory perspective you may not have to disclose merely "oral" customer complaints, the fact is that most industry employers don't make that distinction for in-house purposes.

The theory is let's err on the side of safety.  The other consideration at operation here is the old let's nip it in the bud approach.  By the time many registered persons have engaged in amateur hour replete with emails, cellphone calls, private meetings in restaurants, private meetings at the client's home, chances are things have gone from bad to worse -  as in the broker has now provided a claimant's attorney with a record of correspondence and possibly a number of tape recorded conversations.

Which is not - and let me underscore this - which is not to say that most registered persons aren't quite capable of resolving most of the piddling disputes that come their way.  Further, a prompt and courteous response to an irate customer may often tip the balance from the filing of a lawsuit to some accommodation that retains the customer's business.  This dilemma likely occurs everyday at most firms on the Street.  There are lots of lawyers and compliance employees at major firms such as Wells FargoMerrill LynchMorgan Stanley, JP Morgan, and UBS, who spend much of their day putting out small customer complaint brush fires to avoid larger conflagrations.  Most of the time, industry brokers are best advised to pick up the phone and get immediate in-house help.

What this case demonstrates is the need for all registered persons to timely notify their employing firms of customer complaints, even those deemed to be baloney. Frankly, FINRA showed marked reserve in only imposing a twenty-business-day suspension and a $10,000 fine; perhaps there was some merit to Micha's characterization of the customer's complaint, although the settlement dollars undercut that.