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, Peter C. Bishop submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Peter C. Bishop, Respondent (AWC 2011029601801, November 26, 2012).
Bishop was first registered in 1989 and from 2002 through October 4, 2011, was registered with RBC Capital Markets, LLC. The AWC asserts that he has no prior FINRA disciplinary history.
The AWC alleges that from January 4, 2011, to September 6, 2011, Bishop placed four trades totaling $13,000 in an RBC customer's account, for which the stockbroker earned about $150 in commissions. In and of itself, not such a big deal - but for three issues:
In accordance with the terms of the AWC, FINRA imposed upon Bishop a $10,000 fine and a one-month suspension from association with any FINRA member in any capacity.
Bill Singer's Comment
The above write-up seem a bit too slick for you? Hey, I felt the same way but that's about all the facts that FINRA's AWC provided. Consequently, leaving no stone unturned for my loyal readers, I started digging.
In an online FINRA document as of December 3, 2012, the self-regulatory organization discloses that RBC terminated Bishop on September 4, 2011, for:
VIOLATING COMPANY POLICY BY ENTERING TRADES IN ACCOUNT OF DECEASED INDIVIDUAL
Nice to know that such policies exist.
You know, I must be getting old. After all, if you were to have asked me what FINRA would have done to a stockbroker who placed four unauthorized trades over a six-month period in one individual's account, I probably would have suggested a possible Bar; or, if there was some mitigation, maybe a year or so suspension. But a $10,000 fine and a one-month sitdown? Wow - either FINRA has way over-stated the facts in this case or Bishop had an incredible lawyer.
All of which prompted me to do some more digging.
As a frequent critic of FINRA's sometimes overly brief fact patterns and facile rationale, I was wondering whether there was more context and texture to this unauthorized trading case. It was just too tantalizing: A broker enters three trades after knowing that the client is dead but only gets a relative slap on the wrist.
The Main-e Points
My regulatory instincts were correct! In Re Peter C. Bishop (State of Main, Office of Securities, Consent Order, 11-7784, November 5, 2012), the following allegations are noted:
2. On or about January 4, 201, Bishop completed a transaction in a client account without the client's prior authorization and marked the trade order as solicited although, unbeknownst to Bishop at the time he entered the trade order, the client had passed away on December 18, 2010. Bishop did not have a written discretionary authority agreement with respect to the account.
3. Bishop represented to the Office of Securities ("the Office") that in November 2010 he had discussed with his client a strategy to transfer equities into fixed income funds over a period of six months that met with her approval. Bishop further represented to the Office that, prior to her death, he discussed with his client the specific commodities fund purchased for his client's account on January 4,2011, but not the precise timing, amount, or purchase price.
4. According to Bishop, his normal practice when effecting trades for his client was to leave a message on her answering machine when he could not reach her directly informing her of the trade he proposed to make. On January 4, 2011, when he did not reach the client by telephone, he also submitted the trade ticket with the intent to cancel it if the client had not returned his call by the close of business because he did not have discretionary authority for the account.
5. Bishop did not receive confirmation from the client on January 4, 2011 and he did not cancel the trade at the end of the day.
6. That evening Bishop received a call from the client's son informing him that his mother had passed away on December 18, 2010. Bishop made a notation of the client's death in his Day-Time on January 4, 2011.
7. On January 5, 2011, Bishop submitted a Trade Error Form to reverse the trade. The corrective action described on the form indicated: "Trade needs to be busted. Broker used discretion in a non-discretionary account." No mention of the client's death was made on the Trade Error Form.
The Consent Order notes that Bishop told FINRA in October 2011, that he had asked his sales assistant to cancel the January 4th trade on January 5th because the customer had passed away, but, inexplicably, the account was never marked "deceased." Moreover, despite the son's call and his purported conversation with his sales assistant, Bishop made three more trades in 2011 on April 21, July 29, and September 6th.
The Consent Order further informs us that on September 6th, the customer's son telephoned Bishop to remind him of his mother's December 2011 death. Following an email from the deceased customer's daughter on September 9, 2011, by which Bishop was informed of the daughter's role as executor of her mother's estate, the stockbroker asked his sales associate to perform an account valuation and to verify the beneficiaries. Upon reviewing the account's activity, the sales associate noticed the three post-mortem trades and notified her supervisor.
The Consent Order imposed upon Bishop a $5,000 civil fine and restricted his agent, investment advisor or investment advisor representative Maine Licenses of two years so that he will not act in any principal, supervisory, or managerial capacity for a broker-dealer or investment adviser. Further, 15 days after learning of any investigation, proceeding, or customer complaint against him arising from his securities, insurance, or finance roles, Bishop was obligated to notify the Office. Also, he is prohibited from exercising discretionary trading authority in Maine and his supervisor must make at least 10 follow-up calls semi-annually to his Maine customers.'
A Grave Issue
To my eyes, FINRA painted the Bishop case in broad brushstrokes that failed to address important aspects of Bishop's knowledge and conduct; whereas, the State largely filled in the blanks. I have my opinion as to Bishop's conduct and the appropriateness of FINRA's and Maine's sanctions; you are welcome to yours. Whatever our differences, I hope that we can at least agree that theConsent Order presents a more cogent case and better establishes the basis upon which sanctions were imposed. Hopefully, the good folks at FINRA will take note of the glaring deficiencies in the self-regulatory organization's published AWC.
The issue of unauthorized trading - and of entering trades in the account of a deceased customer - is not a rare violation or an esoteric issue. Whether a situation for a stockbroker at an independent or regional firm or at Bank of America, Wells Fargo, JP Morgan, Morgan Stanley, RBC, UBS, or wherever, as long as human being have brokerage accounts, death and estate issues will exist. As such, it is imperative that when such a fact pattern rears its head, that FINRA makes better use of the opportunity to note the problems and issue the necessary admonitions.