An irreverent Wall Street Blog
by Bill Singer

Stockbroker Fined And Suspended For Helping Senior Citizen

June 3, 2013

At first blush, this regulatory settlement seems to portray a stockbroker ripping off an elderly customer and, thereafter, that client's estate. If you carefully read the facts, however, you realize that the senior citizen was not a customer. Additionally, there's no assertion of any criminal charges or civil suit by the customer or his estate.

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, Stanley L. Dalton submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Stanley L. Dalton, Respondent (AWC 2011030756401, May 21, 2013).

Dalton started in the securities industry in 1993 and after having been registered with two FINRA member firms, in March 1997 he joined Capital Investment Group, Inc. (the "CIGI"), where he remained until the firm filed a Uniform Termination Notice for Securities Industry Registration ("Form U5") indicating that on December 31, 2011, he had been discharged for low production.  The AWC asserts that Dalton had no prior disciplinary history.

The Non-Customer Services

The AWC alleges that while registered with CIGI from February 2009 through July 2009, Dalton served as power-of-attorney for a non-customer elderly individual who resided in a nursing home. As power-of attorney for this senior citizen, Dalton performed a variety of services such as:
  • consulting with the resident manager of the long-term-care facility;
  • paying bills;
  • reviewing bank statements;
  • filing  tax returns; and 
  • helping establish a charitable trust. 
For the above services, Dalton purportedly earned about $2,146. 

Outside Business Activity

Although Dalton had not notified CIGI of the above POA activities and, as such, had not received approval of same, on a 2009 CIGI questionnaire, he represented that he had disclosed and received approval for all of his outside business activities ("OBA").

In July 2009, the elderly individual died and Dalton was appointed by the court as the estate's executor, for which he earned about $4,211 during January 2010.  Apparently the AWC deemed the executor role as constituting a further undisclosed and unapproved OBA.

FINRA's Sanctions

The AWC characterized the services POA and executor services rendered by Dalton as OBA for which he had failed to provide the requisite prior notice and to obtain the firm's approval, in violation of NASD Rule 3030 and FINRA Rule 2010.

In accordance with the terms of the AWC, FINRA imposed upon Dalton a $5,000 fine and a 30-day suspension from association with any FINRA member in any capacity.

Bill Singer's Comment

According to the AWC's fact pattern, Dalton had been paid $2,146 for providing five months of POA services to the elderly individual, which would break down to about $429 a month or about $107 a week (let's call that $20 a business day). As to the four thousand or so dollars he earned as an executor, keep in mind that he was court appointed.

So, what do we have here?  What's this case all about?

No matter how many times I re-read the AWC, I kept coming away with the mistaken belief that Dalton had defrauded an elderly client; however -- and this is a very important point -- the elderly individual was not a client, and there is not even the merest suggestion in the AWC that Dalton had done anything improper in handling the senior citizen's affairs or had received excessive compensation. 

Dalton got paid something like $20 a day subject to the provisions of a POA and was also paid about $4,200 as a court-appointed executor.  Remember that the senior citizen was not a customer of Dalton's or CIGI's, and there is no indication of any criminal action against Dalton or of any civil suits pertaining to the subject matter in the AWC.

Frankly, you tell me, what does Dalton's role as a "stockbroker" have to do with any of this since the conduct at issue never involved a customer of Dalton's at CIGI (or apparently even a CIGI customer)?  As to Dalton's conduct as an executor, does it truly need to be spelled out that it occurred after the elderly individual's death and subject to court oversight?

All of which leaves us with the regulatory point of this FINRA matter: the undisclosed and unapproved OBA. 

Did the facts here set up as an OBA? Should Dalton have realized that his activities had allegedly crossed the line into OBA? I'm going to give FINRA the benefit of the doubt on this one but only by a hair.  Regardless, this is one of those regulatory cases that comes off seeming far worse than the actual facts suggest.   

Whether you agree with FINRA's charges or not, you need to be aware of the OBA Rule:

FINRA Rule 3270: Outside Business Activities of Registered Persons

No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Passive investments and activities subject to the requirements of NASD Rule 3040 shall be exempted from this requirement.

Supplementary Material:

.01 Obligations of Member Receiving Notice. Upon receipt of a written notice under Rule 3270, a member shall consider whether the proposed activity will: (1) interfere with or otherwise compromise the registered person's responsibilities to the member and/or the member's customers or (2) be viewed by customers or the public as part of the member's business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered. Based on the member's review of such factors, the member must evaluate the advisability of imposing specific conditions or limitations on a registered person's outside business activity, including where circumstances warrant, prohibiting the activity. A member also must evaluate the proposed activity to determine whether the activity properly is characterized as an outside business activity or whether it should be treated as an outside securities activity subject to the requirements of NASD Rule 3040. A member must keep a record of its compliance with these obligations with respect to each written notice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1).

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