Michael Mclntyre entered the securities industry in 1981 with Morgan Stanley (then known as Dean Witter), where he remained until his December 22, 2009, termination for allegedly submitting false expense reimbursement forms. Ultimately, his conduct was investigated by the Financial Industry Regulatory Authority ("FINRA") and became the subject of a Complaint. FINRA Department Of Enforcement, Complainant, vs. Michael A. Mcintyre, Respondent (FINRA Hearing Panel Decision 20100214065-01, July 9, 2012).
During McIntyre's tenure, Morgan Stanley provided an Expense Allowance to eligible Financial Advisors to be used to "advance the development of their respective businesses." The advisor's prior year's gross revenue was used to set the amount of eligible business expense reimbursement, which was further subject compliance with Morgan Stanley's policies for submitting T&E Expense Reports and supporting receipts.
According to FINRA's Decision in its case against McIntyre:
Mclntyre knew that Morgan Stanley would not reimburse expenses that were not in approved categories or which were not supported by an expense receipt. Indeed, Mclntyre testified that he had been required to submit expense reports and supporting receipts in each of the 20 to 24 years that he had qualified for business expense reimbursement under Morgan Stanley's Expense Allowance Program. The Expense Allowance award was separate from the Financial Advisors' Compensation package.
For the year 2008, Mclntyre qualified for a $4,000Expense Allowance but he did not spend that amount on qualified expenses. Apparently, in an effort to secure the full payment of the allowed amount, he fabricated on his computer 10 restaurant receipts for September through October 2008 totaling $3,300.90 in order to make it appear that he was entitled to be reimbursed for business expenses that he had not incurred. Morgan Stanley fully paid the expenses.
For the year 2009, Mclntyre again qualified for a $4,000 Expense Allowance, and, once again, did not spend up to that full amount. This time he fabricated 17 restaurant receipts from August through November 2009 in the amount $3,447.83, which he submitted for and received reimbursement in the amount of $808.42 before Morgan Stanley apparently investigated the bona fides of the charges and declined to make further reimbursement.
Following an internal investigation under the direction of the firm's Legal and Compliance Division, Mclntyre's branch manager confronted him and asked if the receipts he had submitted for 2009 were legitimate. At first, Mclntyre denied that he had fabricated any receipts but quickly admitted to some false submissions. Thereafter, concluding that it had been defrauded out of $4,109.40 in improper reimbursement, Morgan Stanley terminated McIntyre.
Following its investigstion, FINRA charged Mclntyre with violating Rules 2110 and 2010 by submitting false expense reports and intentionally misappropriating Morgan Stanley's Funds. Notwithstanding that no public customer or security was involved in the alleged fraud, McIntyre's conduct was found to be covered under FINRA's rules because it reflected on his "ability to comply with the regulatory requirements of the securities business and to fulfill his fiduciary duties in handling other people's money."
By way of defense and/or mitigation, McIntyre argued that once he qualified for an Expense Allowance award, he was entitled to the full amount of the award as part of his compensation package. It was his contention that he was being paid dollars that he had fully earned as part of his annual compensation and not actually seeking reimbursement for allowable business expenses.In advancing this theory, McIntrye admitted that the expenses he termed "legitimate business expenses" were not included on Morgan Stanley's list of allowable expenses.
In support of his interpretation, Mclntyre asserted that his branch manager (and other unidentified managers at Morgan Stanley) led him to believe that the 2008 and 2009 Expense Allowance awards were part of his compensation package, and that each year his branch manager urged him to submit expense vouchers by the annual deadline so that he could receive the full amount he had earned. The FINRA Hearing Panel rejected McIntyre's defense.
In addition to his contention that the paid expenses were his from day one, McIntyre also argued that he had:
fabricated receipts because he suffered a flood at his home in October 2009 as a result of a broken water pipe. The Hearing Panel rejected this argument as disingenuous. Although Mclntyre's home did sustain substantial water damage in mid-October 2009, there is not a shred of evidence to support Mclntyre's assertion that he lost any receipts for reimbursable business expenses.
The Hearing Panel was equally dismissive of this flood story.
As to the proper sanctions to be imposed upon him, Mclntyre argued against a Bar because he was guilty of nothing more than a "judgment lapse." The Hearing Panel disagreed and termed Mclntyre's misconduct as "premeditated, intentional, and ongoing." Moreover, the Panel found it:
aggravating that Mclntyre refuses to acknowledge his misconduct. Mclntyre continues to assert that he did nothing wrong in receiving the funds because he had "earned" them as part of his compensation plan despite the fact that he had submitted expense reimbursement requests for more than 20 years at Morgan Stanley. . .
Finding McIntyre's misconduct to pose an unwarranted risk to the investing public, the Hearing Panel imposed upon him a from associating with any FINRA member in any capacity and also ordered him to pay costs in the amount of $1,343.25, which includes the hearing transcript costs and an administrative fee of $750.
Over the years, I have frequently written about these business expense cases. They hit at every level of Wall Street - at Goldman Sachs, Merrill Lynch, Morgan Stanley, JP Morgan, Wells Fargo. Sometimes it's a shlub who tried to get away with buying some Christmas presents while pretending they were business expenses. Sometimes it's a misguided hot-shot broker or trader who takes a few pals to a strip joint. Sometimes it's a member of the C-suite who pays hundreds of thousands of dollars to decorate the office. For example, consider these cases:
In terms of folks Mickey Mousing around with expenses, who could forget FINRA's Department of Enforcement v. Tina Newman (OHO 2008011719501, March 30, 2011), in which registered person Newman was Barred for improper use of her corporate credit card. FINRA alleged that Newman improperly:
Accordingly, FINRA alleged that Newman improperly used her member firm's corporate credit cards to pay for a personal vacation and misappropriated her firm's credit card rewards points for her personal use. Subsequently, Newman reimbursed her firm for the charges but not for the credit card rewards points. FINRA found that she intentionally created fictitious and false entries in the firm's books to cover up her conversion of firm funds for her personal benefit.
Of course, there's always the classic FINRA Department of Enforcement v. Matthew S. Kaplan (OHO 20070077587, June 28, 2008), where Kaplan was Barred for using a corporate credit card for escort services! If you would like to read a truly unusual regulatory decision, I would recommend this one to you. After all, where else might you find such a tidbit as this?:
On June 18, 2003, Kaplan had dinner and drinks with MP, a friend who also was a portfolio manager for one of Kaplan's clients at Lazard. They discussed MP's marital difficulties, and Kaplan suggested using an escort service as a solution to MP's problems. Kaplan agreed to pay for the service, although MP did not know that Kaplan intended to pay for it with his Lazard charge card. Kaplan made the arrangements for the escort service and then met MP at a hotel where they availed themselves of the services offered by Exotica/Ce Soir. Although the charge was personal and not an appropriate business expense, Kaplan claimed that the $4,950 Ce Soir charge was for concert tickets for MP to see Bruce Springsteen at Giants Stadium. Lazard paid the charge . . .
A final thought - and one that I have voiced on this pages in the past. Although I do not under any circumstances defend McIntyre's conduct, I remain troubled by Wall Street's double standards. In McIntyre, an individual stockbroker is rightfully barred from the industry for defrauding his employer through the submission of bogus business expenses. 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 McIntyre'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 McIntyre offered by FINRA the same expedient option in lieu of the Bar?
Frankly, I think we all know the answers to my questions.