An irreverent Wall Street Blog
by Bill Singer
by Bill Singer
Stockbroker Barred For Living Trust Trustee Conduct
January 30, 2013For 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, Eileen J. Fern submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Eileen J. Fern, Respondent (AWC 2012031533801, January 28. 2013).
Fern entered the securities industry in 1982, and between August 2011 and February 2012, she was registered with FINRA member firm Independence Capital Co., Inc. The AWC asserts that Fern had no prior disciplinary history. Fee CapThe AWC alleges that between approximately 2001 and 2012, Fern served as a trustee of a living trust of an Independence Capital customer whose securities account was serviced by Fern (the "Trust Customer"). Pursuant to the trust agreement, Fern was entitled to a 2% maximum annual compensation (based upon trust corpus). Notwithstanding that fee cap, around November and December 2011, without the knowledge or consent of the Trust Customer, Fern purportedly withdrew $15,764 from the customer's fixed annuities as trustee compensation - allegedly a compensation overpayment of $10,986. The AWC alleged that such conduct violated FINRA Rule 2010. Borrowing Around February 2012, the AWC asserts that Fern became aware that the Trust Customer was questioning the amount of trustee fees paid to Fern in 2011. Allegedly, Fern borrowed $35,000 from another Independence Capital customer whose securities account she serviced, and the stockbroker used $31,764 of the borrowed funds to repay the Trust Customer's living trust. Such a payment seems to have been in excess of the total fees paid to Fern in 2011 but the AWC does not explain the motivation behind this apparent overpayment. Although Independence Capital's written supervisory procedures ("WSPs") permitted its registered representatives to borrow from customers, such a transaction required the prior written approval by the Compliance Department. Notwithstanding, the AWC alleges that Fern failed to notify her firm of the borrowing from the customer and only acknowledged the transaction after confronted by her firm. The AWC alleged that such conduct violated FINRA Rules 3240 and 2010.At this point, I'd like to confidently inform you of the sanctions imposed by FINRA pursuant to the AWC; unfortunately, I don't know whether the disclosed sanction is a typo or just an oddball result. Here's what the relevant portion of the AWC says:B. I also consent to the imposition, at a maximum, of the sanction of a bar from association with any member of FINRA in any capacity. . .Bill Singer's Comment
To follow up on my last point - I'm not exactly sure how
you impose "at a maximum" a Bar. What's the minimum? Is FINRA still negotiating or ruminating about
the sanction and has only placed a ceiling of a Bar into the mix?
Was any fine discussed or waived? By way of some additional
context for this case, I did some research and found an online FINRA document
about Fern as of January 30, 2013, which disclosed that on February 17, 2012,
the "Strongsville Ohio Police Department" investigated allegations
of
MISAPPROPRIATION OF CUSTOMER FUNDS FROM A FIXED ANNUITY
In the "Summary" portion of this
online document, we are advised:
CUSTOMER WENT TO THE POLICE AFTER SPEAKING WITH A INSURANCE COMPANY EMPLOYEE ABOUT HER POLICY.
Additionally, the online document
discloses that Independence Capital discharged Fern on Feberuary 24,
2012:
MISAPPROPRIATION OF CUSTOMER FUNDS CURRENTLY UNDER INVESTIGATION BY STRONGSVILLE POLICE DEPARTMENT VIOLATION FINRA RULE 3240 AND COMPANY POLICY.
Many brokerage firms have a very
negative attitude about registered persons acting as trustees or executors
because it often opens up a whole nasty can of worms about over-reaching and
frequently attracts the unwanted attention of lawyers for unhappy family
members who didn't quite get the bucks that they anticipated when good old
Uncle Joe or Aunt Jane died. Consequently,
registered persons should always confirm in advance with their employer firm
whether serving as an executor or trustee for a customer is okay - and if the
firm says "yes," then make sure to comply with all internal notice requirements
and FINRA's rule.