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, Frank John Tarazon submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Frank John Tarazon, Respondent (AWC 2011027681401, April 8, 2013).
Tarazon entered the securities industry in 1999; and, thereafter, he was registered with ING Financial Partners, Inc. from 2002 until May 10, 2011. The AWC asserts that Tarazon had no prior disciplinary history with the Securities and Exchange Commission, any state securities regulator, FINRA or any other self-regulatory organization.
The AWC alleges that sometime in January 2007, following the introduction by their mutual accountant, Tarazon and a 75-year-old woman developed a friendship and she became a customer of his. Between May 22, 2007, and May 25, 2010, the customer repeatedly offered Tarazon money for various purposes, including investing in real estate that Tarazon planned to personally purchase. Over time Tarazon borrowed $368,692 as follows (he made regular interest payments on the loans):
The AWC alleges that Tarazon did not notify ING of the loans or seek the firm's approval. FINRA alleged that Tarazon's borrowing from his client constituted violations of NASD Rules 2370 and 2110, and FINRA Rule 2010 because the loans did not follow the regulator's rules and were in further non-compliance with his firm's policies and procedures.
In April 2008, the customer designated Tarazon as a successor and a beneficiary of her trust; however, ING's policies and procedures prohibited registered representatives from being named as a beneficiary on an account or from acting in the capacity of a "guardianship, conservator, trustee, power of attorney, or any similar type of relationship" on behalf of any unrelated person without first obtaining written approval from the Firm. Tarazon did not comply with his firm's notification requirements and was never approved for his roles in the trust.
From at least February 2008 to at least December 2010, Tarazon allegedly had a financial interest in a brokerage account held in the name of a family member at an outside brokerage firm, but the stockbroker did not disclose this account to ING or obtain the firm's approval. Further, during March 2008 until April 2010, and during July 2008 until March 2010, Tarazon allegedly had two outside brokerage accounts in his own name without having disclosed those away accounts to ING or sought the firm's approval to open or maintain, in apparent violation of NASD Rules 3050 and 2110 and FINRA Rule 2010.
During ING's 2008 and 2009 annual inspections, Tarazon falsely stated to his supervisor that he did not have any undisclosed outside brokerage accounts. Also, Tarazon falsely stated on his 2008, 2009, and 2010 Annual Business Questionnaires that he had not been named as a trustee or beneficiary of a customer's trust. The AWC alleges that these failures constituted violations of NASD Rule 2110 and FINRA Rule 2010.
The Cost of Non-Compliance
On May 10, 2011, ING filed a Uniform Termination Notice for Securities Industry Registration ("Form U5″) stating that Tarazon had been terminated for violating firm policy by borrowing money from a customer and failing to disclose same.
According to the terms of the AWC, FINRA imposed upon Tarazon a $20,000 fine and a six-month suspension from association with any FINRA member firm in any capacity.
Bill Singer's Comment
This is one of those cases where I find myself wondering where to begin. For starters, the AWC concedes that this was not a simple situation where a stockbroker had wrongly pressured a customer into lending money; to the contrary, FINRA characterizes the circumstance as one where the customer "repeatedly offered" funds to the stockbroker. The lesson for industry participants is that even if
none of that gets you over the regulatory and compliance hurdles of prior written notification to your employing firm and its approval.
Then there's the whole mess with Tarazon's role as a beneficiary. Stockbrokers serving as trustees or accepting roles as beneficiaries should check their firm's Written Supervisory Procedures and Employee Handbook. These days, if such roles are not outright No-No‘s, then they sure as hell require you to jump through many hoops before your firm will even consider giving its okay. See, for example: "Not About Trust As A Trustee For Former Wells Fargo Advisor."
Additionally, an away account in the name of a registered person or one in which that individual has a beneficial interest is a frequent focus of regulatory concern. Given the many opportunities that such outside accounts present to conceal wrongdoing or evade oversight, brokerage firms have become increasingly resistant to granting employees permission to open or maintain them. Recently, the federal courts sustained brokerage firms' prerogative to forbid stockbrokers from opening or maintaining outside accounts: "
Courts Sustain Wells Fargo, Morgan Stanley, and Merrill Lynch Away Account Denials."
Finally, as with most in-house compliance rules, your firm will likely require you to submit an annual update addressing most of the punch-list items in its written supervisory procedures and employee manuals. Every year when you check off a "NO" to something that's really a "YES," results in a potentially serious violation of willfully failing to disclose material compliance and regulatory events - and that could get you statutorily disqualified.
READ these Borrowing cases:
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READ these Away Accounts articles: