September 16, 2013
In the end, this settlement just doesn't add up. You're expecting a FINRA bang but get a whimper. Just what does it take to get a stockbroker barred from Wall Street these days? Or is this just a regulator overstating the underlying facts in an effort to make "bad" seem "worse."
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, Gregory Louis Zerillo submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Gregory Louis Zerillo, Respondent (AWC 2012033819001, September 11, 2013).
Zerillo was registered with Bank of America Investment Services since 1999 and with Merrill Lynch, Pierce, Fenner & Smith from October 2009 through July 26, 2012, as a result of the firms' merger (Bank of America Investment Services and/or Merrill Lynch, Pierce, Fenner & Smithm hereinafter the "Firm").
The AWC alleges that:
From February 2011 through July 2012 (the "relevant period"), Zerillo accepted gifts of $189,000 in the form of money orders from MB, an 88 year old widowed customer of his, in $1,000 increments. During the relevant period, Zerillo deposited $161,000 of these money orders, in batches of $10,000 or less, into his Bank of America checking account
If the AWC is accurate and my understanding correct, during a period of about 17 months, Zerillo got $189,000 "in $1,000 increments" -- meaning that he received 189 money orders of $1,000 each over that span, or about 11 per month. 189 money orders or 11 a month for 17 months. Wow.
The Firm's procedures had prohibited registered representatives from accepting cash or cash-equivalent gifts, and the AWC asserts that in order to minimize the Firm's ability to detect the prohibited gifts, that Zerillo had instructed the elderly customer to use money orders and that he further compounded the circumvention by batching the deposits. Sometime around July 18, 2012, the Firm followed up on an anonymous tip regarding the money orders and investigators visited Zerillo's office, where they purportedly recovered $24,000 in as yet undeposited money orders.
According to online FINRA documents as of September 16, 2013, Zerillo was discharged by the Firm on July 26, 2012 based upon allegations of:
CONDUCT INVOLVING MISAPPROPRIATION OF CLIENT FUNDS
Fine And Suspension
FINRA deemed Zerillo's conduct to be in violation of FINRA Rule 2010, and in accordance with the terms of the AWC, the regulator imposed a $10,000 fine and an eight-month suspension in all capacities from association with a FINRA member firm.
Bill Singer's Comment
Am I missing something here? Either FINRA has way, way, way overstated this case in terms of the misconduct, or, the facts are correctly set forth - all of which leaves me asking just what the hell it takes these days to get barred by FINRA?
I can only read what is written by the self-regulatory organization in its published AWC. As such, I see an 88-year-old widow. That's about as negative a set-up as one can imagine, with the exception of such a customer also having Alzheimer's. On the other hand, just because someone is a senior citizen doesn't render them mentally incompetent or bereft of an ability to give money to whomever she wishes for whatever reasons.
All of which prompts what I would deem a number of fair questions (but unanswered by the AWC):
- Why did FINRA inform us of the customer's age and her status as a widow -- if the age and widowhood had meaning, then what was it?
- What were Zerillo's explanations for the $189,000 in gifts, the utilization of $1,000 increments, and the resort to so many money orders?
- Was there a personal and/or professional relationship outside the office between the customer and stockbroker?
- Did the elderly widow or any of her family members complain about the gift giving?
- Was there any indication of over-reaching in the gift giving, as opposed to the mere mechanics by which the gifts were structured?
Ultimately, this AWC doesn't add up for me and, as such, amounts to something of a failed effort at regulation. Given the fairly horrific picture that FINRA painted of the conduct at issue, I had anticipated the imposition of a fine far in excess of $10,000 and a multi-year suspension, if not a Bar. Just what the hell was FINRA thinking when it agreed to a $10,000 fine and a mere six-months of suspension?
This AWC is unfair to Zerillo if the underlying conduct is more benign than the AWC implies or than most reasonable readers would infer; on the other hand, if the underlying conduct has been fairly represented in the AWC, I truly cannot understand why the sanctions imposed are as relatively light as they seem.