FINRA Says Stockbroker Was His Brother's Keeper In Trust Conversion

September 26, 2012

My Gavel

In response to the filing of a Complaint on September 8, 2011, by the Department of Enforcement of the Financial Industry Regulatory Authority ("FINRA"), Respondent David E. Haeffele submitted an Offer of Settlement dated September 5, 2012, which the regulator accepted.  Under the terms of the Offer of Settlement, without admitting or denying the allegations in the Complaint, Respondent Haeffele consented to the entry of findings and violations and to the imposition of the sanctions. FINRA Department of Enforcement, Complainant, vs David E. Haeffele, Respondent (Offer of Settlement, 2009019590502, September 24, 2012).

Respondent Haeffele was registered since 1986, and from 1992 he was registered with cfd Investments, Inc. ("CII") until September 10, 2009, when that firm terminated him.

Brothers David And John

During the relevant period of June 1998 through September 2009, Respondent Haeffele owned thePeoria, IL financial and estate planning firm of Haeffele & Associates, which offered retail brokerage services through CII. Respondent's brother, John Haeffele, worked as a registered representative  in the Peoria office as a CII registered representative selling selling securities and insurance.

A Matter of Trust

The Offer of Settlement alleges that during the relevant period,  Respondent Haeffele knew that John Haeffele and John's wife were co-trustees of a trust created by a customer for the benefit of that customer's disabled daughter.  Moreover, the customer maintained a CII brokerage account for the Trust that John Haeffele serviced as the broker (in addition to his capacity as a trustee).

The Phone Call

On or about July 21, 2009, the Offer of Settlement alleges that the customer telephoned Respondent Haeffele and stated that John Haeffele had converted Trust funds; also, the customer read to Respondent a letter of admission by John Haeffele to the conversion.  Thereafter, the customer demanded that the brothers Haeffele make the Trust whole.

Later that same day, Respondent Haeffele allegedly met with his brother to discuss the situation and John admitted to converting a substantial amount of money from the Trust.  Further, John told his brother that he was trying to resolve the matter with the customer and the customer's attorney but had intentionally not alerted or involved CII.


CII's annual questionnaire asked, in relevant part:

"Have you received any written or verbal customer complaint? If Yes - Did you promptly notify the cfd compliance department of the complaint?"

In the last version of the annual questionnaire which Respondent Haeffele signed and dated September 19, 2008, the Offer of Settlement asserts that he answered "No."

CII's written supervisory procedures provided in relevant part that

"any RR who receives an oral statement of a grievance from a client or prospective client should notify the [Compliance Director] of the same."


The Offer of Settlement asserts that the annual questionnaire and the  written supervisory procedures put Respondent Haeffele on notice that he was required to report to CII the customer complaint about his brother's conversion. In contradistinction to that asserted duty, the Offer of Settlement alleges that Respondent Haeffele failed to report the customer's phone call and the fact that his brother was  improperly attempting to settle the matter away from the firm.

Into The Light

Around August 12, 2009, the customer's attorney contacted CII's Chief Compliance Officer and related the conversion scenario, prompting a firm investigation into the Haeffele brothers' conduct. As a consequence of the allegations and investigation, the firm terminated John Haeffele and permitted Respondent Haeffele to resign.  During both the firm's and FINRA's investigation, Respondent Haeffele admitted to:

  • receiving the customer's complaint,
  • knowing of his brother's conversion,
  • knowing of his brother's improper settlement efforts, and
  • failing to timely notify CII of the matters.


FINRA charged Respondent Haeffele with failing to report his brother's conversion, the customer's telephone complaint, and his brother's efforts to settle the dispute away from the firm, in violation of FINRA Rule 2012.  In accordance with the terms of the Offer of Settlement, FINRA imposed upon Respondent a $10,000 fine and a 20 business day suspension from association with any member of FINRA in all capacities.

SIDE BAR:  In November 2010, John Haeffele pled guilty in federal court to one count of mail fraud and admitted to converting approximately $375,000 from the Trust and a second trust created by the same customer. John Haeffele was sentenced to 33 months in prison and ordered to pay $409,000 in restitution.

According to online FINRA records as of September 26, 2012, the customer sought in excess $1 million in damages as of August 25, 2009, and CII settled the matter on May 10, 2012, for $445,000.  On July 18, 2011, pursuant to an Acceptance, Waiver and Consent settlement, FINRA barred John Haeffele. In the Matter of  John R. Haeffele, Respondent(AWC 2009019590501, July 18, 2011).

Bill Singer's Comment

Truly a case of biblical proportions - indeed, FINRA says that stockbrokers are their brother's keeper.

As to the sanctions imposed upon Respondent Haeffele, given the facts and circumstances, FINRA seems to have shown remarkable restraint, particularly in regard to the length of the suspension. My guess is that some of that charity was engendered by Respondent Haeffele's cooperation with his firm's and FINRA's investigation and his apparent willingness to fully disclose the situation once confronted.  Similarly, while the non-disclosure aspects of Respondent's conduct posed considerable impediments to the prompt detection of his brother's misconduct, there is no suggestion that the Respondent was involved in the conversion or benefited from the crime.

The theory behind undisclosed settlements - which detractors correctly characterize as "hush money" - is that it may be sound business to reimburse the losses of a good (but presently unhappy) customer.  Quietly forking over a few hundred or thousand dollars as the cost of retaining thousands of dollars in annual commissions or fees often seems a no-brainer to many stockbrokers.  Of course the same set of facts seems a violation to many in-house compliance officers and industry regulators because it subverts, compromises, and circumvents perhaps the most critical of all first lines of defense: knowledge of a customer complaint.Without question, this is as pandemic a problem as Wall Street has. Producers at Merrill LynchMorgan Stanley, JP Morgan, Wells Fargo, or UBS are just as likely as a counterpart at a smaller local/regional firm to go the route of handing over a relatively piddling sum to assuage an unhappy customer.  A perceived nuisance is a nuisance no matter how large or small the member firm.  And who the hell needs to or wants to answer all those idiotic questions from those morons in compliance?  I'll take care of this on my own and make it up with some house product or cross-selling some higher compensated crap.

While, in some instances, the customer-service goal may be commendable, unfortunately, the execution of this scenario often runs afoul of engaging in a violation of as basic a building block, a keystone as it were, of compliance and regulation as exists. Whatever the motivation behind the undisclosed payments, they tend to come off looking more like hush money than honorable reimbursement. Of course, let's be honest here: Stockbrokers often figures it's easier and cheaper to shut up a client before the firm finds out and before a regulator starts poking around.  In the case of John Haeffele, however, the sum in dispute was far from piddling and he failed to pay even an improper "away settlement."  As such, his role in talking to the customer and the customer's attorney smacks more of delaying the inevitable than a bona fide attempt to settle.

Finally, if FINRA is going to go after one brother for failing to turn in another when the former is on notice of fraud, I can only await with bated breath and gleeful anticipation the day when FINRA will go after a whole host of C-suite executives at major brokerage firm for similarly being on notice of their organization's fraud on the markets and the public.  And then, if only I live this long, perhaps there will be a host of cases in which regulators are charged with having been on notice of the misconduct of the likes of Madoff, Stanford, and others and having failed to timely taken action.

Hey, a guy can dream, can't he?

For additional cases discussing "away settlements," READ: