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, Matt David Degenhart submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Matt David Degenhart, Respondent(AWC 20120352602,March 15, 2013).
Degenhart entered the securities industry in June 2008 as a registered representative with MetLife Securities Inc. ("MetLife" ), where he remained until his January 9, 2013, termination. The AWC asserts that Degenhart did not have any prior relevant disciplinary history.
Sometime in August 2012, a client of Degenhart's complained to him that she was not earning any interest on deposits in her checking account and needed money to cover upcoming legal expenses. In response, the AWC asserts that Degenhart advised the customer against investing her checking funds in stocks; moreover, he apparently suggested that she give him the funds on deposit in her checking account, and he would "help her earn a little more interest on it than she currently was receiving."
Apparently trusting in Degenhart, on August 29, 2012, the customer gave her stockbroker a $2,500 check with the payee line left blank (Degenhart filled in his name). Thereafter, the stockbroker deposited the check into his personal checking account and used the funds for what the AWC asserts were personal expenses.
Okay, so, c'mon now, let's be honest with each other. You know what you're thinking. The reason that this became a FINRA regulatory matter is because the stockbroker ripped off his trusting customer and pocketed the $2,500 and then left the women hanging when the lawyer bills arrived. And if you're not gonna fess up to that then, fine, that's where I thought this was going.
On or about December 11, 2012, Degenhart's customer informed him that she had received a lawyer's bill, and on December 12, 2012, Degenhart gave to her a $2,597.09 cashier's check (representing the full return of the $2,500 principal plus about 1.6% interest over the roughly 3 ˝ month period).
Not what you expected, right?
Oh, and the AWC says nothing about the check bouncing or the customer complaining about the interest or the customer complaining about anything. Looks like Degenhart kept his word and the customer was happy.
The AWC fails to disclose how or why FINRA or MetLife got involved - or why the transaction was even deemed a regulatory matter. What the AWC does assert is that ‘Degenhart violated FINRA Rule 2010 by converting funds from [the customer] for his personal use, without [the customer's] knowledge or authorization."
SIDE BAR: Not specified in the AWC and, as such, I dug this up on my own, online FINRA records as of March 21, 2013, disclose that Degenhart was discharged by MetLife on January 9, 2013, based upon allegations that:
REGISTERED REPRESENTATIVE ADMITTED TO DEPOSITING A CUSTOMER CHECK INTO HIS PERSONAL ACCOUNT. THE FUNDS HAVE BEEN REPAID TO THE CUSTOMER.
Based on the facts above and in accordance with the terms of the AWC, FINRA imposed upon Degenhart a Bar in all capacities with any FINRA firm.
Conversion? Based upon those facts? There was no "taking" of property because it appears that the customer gave the funds to Degenhart solely based upon his promise that he would "help her earn a little more interest on it than she currently was receiving."
Going to a more legalese definition, I still see no evidence that Degenhart had deprived the customer of her "dominion, rights, or possession" of her funds. About all that we know is that the customer voluntarily gave to Degenhart her checking account funds with the hope that he could earn more interest on the balance; he took the funds; he deposited the funds in his own account; and, subsequently, upon the customer's request, he returned every penny of principal plus interest. Finally, there is no suggestion in the AWC that the customer complained about any late payment, non-payment, or any irregularity. So - like I said: conversion?
This is a classic case of FINRA playing what I have often called regulatoryhide-and-seek. There are any number of rationale explanations that the self-regulatory organization could have set forth in the AWC to make its case compelling. In fact, I can imagine a number of factors and exacerbating circumstances that would make this AWC intelligible. While this could easily be characterized as a stockbroker borrowing funds from or lending to a customer, I'm not sure that there was a clear intent to convert the funds at issue.
As the AWC presents the facts and rationale in this case, we are left to fill in far too many holes and engage in far too many inferences. While such may make for a good detective story, that should not be the standard of presentation for a formal regulatory document setting forth the circumstances on which an individual has been barred from the securities industry.
I concur with the sensibility of MetLife not wanting its registered persons promising returns in private transactions away from the firm. Moreover, I fully recognize that Degenhart's conduct could have ended in a manner exposing his customer to the loss of her investment and MetLife to a lawsuit. All that being said, it would seem that he could have been given a stern lecture, told to go and sin no more - but a Bar?
When all is said and done, an AWC is a voluntary settlement and if Degenhart agreed to a Bar, so be it. My sense of things is that Degenhart is a relatively young guy and may not have been represented by a lawyer during the FINRA investigation and the negotiation of the settlement terms. If that's the case, I find the sanction in this case overkill and, as such, somewhat shameful. If, however, a lawyer represented Degenhart, then there may be issues that I am unaware of that would have made the sanction acceptable.