November 18, 2013
Ya got yer home. Ya got yer office. Ya even got yer home-office. In these days of telecommuting, the whole concept of what's a work office and what's a home office sort of blurs; and when you add into that mix, laptops, tablets, smartphones, and the Cloud, geez, good luck trying to figure out what's work and what's play. On the other hand, FINRA thinks that the distinction between office and home is a critical one; and, frankly, I think the regulator has a point (or at least sometimes). Consider the mess that three registered persons got themselves into when some office files were moved to their homes.
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, Gabriel Schulman, Jonathan Perry, and Paul Ferrante submitted a Letters of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted.
- In the Matter of Gabriel Schulman, Respondent (AWC 2011026449801, November 1, 2013).
- In the Matter of Jonathan S. Perry, Respondent (AWC 2011026450101, November 1, 2013).
- In the Matter of Paul D. Ferrante, Respondent (AWC 2011026450201, November 1, 2013).
Schulman was first registered in 2006, Perry in 2007, and Ferrante in 2002; and during the relevant times for this matter, they were all registered with Northwestern Mutual Investment Services, LLC , until their January 18, 2011 terminations. The AWCs assert that none of the three respondents had prior relevant disciplinary history with the Securities and Exchange Commission or any state agency or self-regulatory agency.
The Cookie Cutter
Each of the AWCs contain essentially similar assertions and allegations, and the full-text relevant section from Schulman's AWC is reprinted below:
FACTS AND VIOLATIVE CONDUCT
Regulation S-P requires that member firms have procedures to, inter alia, ensure the security and confidentiality of customer records and information and protect against unauthorized access to or use of customer records or information that could result in substantial harm or inconvenience to any customer. In January 2011, while registered with NIS and in anticipation of his move to a new firm, Schulman moved documents related to NIS customers he serviced from his NIS office to his home. The documents contained nonpublic personal information as that term is defined under Regulation S-P of the Securities Exchange Act of 1934, and Schulman moved them without authorization and in contravention of NIS's policies. Most of the documents were moved on Sunday, January 16, 2011. Among other things, the nonpublic personal information included customers' asset and income information, health information, addresses, birth dates, and employment information. By removing the customers' files from NIS's control and possession, Schulman placed the customers' nonpublic personal information at risk. By virtue of the foregoing, Schulman violated FINRA Rule 2010.
According to online FINRA documents as of November 13, 2013, NIS "discharged" Schulman Perry, and Ferrante on January 18, 2011, based upon allegations:
REPRESENTATIVE WAS DISCHARGED AFTER HE ENTERED THE OSJ AFTER HOURS WITHOUT ANY APPARENT LEGITIMATE BUSINESS PURPOSE AND REMOVED CONFIDENTIAL AND PROPRIETARY DOCUMENTS.
In accordance with the terms of the AWC, FINRA imposed upon Schulman, Perry, and Ferrante, each a $5,000 fine and a five-business-day suspension from associating with any member firm in any and all capacities.
Bill Singer's Comment
Home, Not-So-Sweet Home
A number of alarms should go off before any registered persons puts his or her hands on customers records during that period of time when you've made up your mind to say bye-bye to your current employer.
First, between that moment when you have resigned but before you've walked out of the office for the very last time, you may still be subject to a whole host of legal, regulatory, compliance, and ethical constraints -- many of which may well remain with their teeth embedded in your tender parts even after you've become former employee. Consequently, take a pause and think it through before you start copying files or removing documents.
Second, have a long, thoughtful conversation with your proposed new employer about all the counsel, guidance, and assistance that the firm will provide to you in terms of what you should and shouldn't do. Regardless of all that freebie advice, however, you might still want to cough up a few bucks and have a consultation with an independent industry lawyer.
Ferrante's Side Of the Story
Unlike Respondents Schulman and Perry, Respondent Ferrante responded to his former employer's allegations with a detailed written statement. Was it worthwhile for Ferrante to memorialize his version of the facts and his rationale? That's a difficult question and one which I do not feel qualified to answer in the absence of my first-hand knowledge of the events. Nonetheless, before you post a lengthy defense of your conduct, carefully consider whether your words may come back to haunt you in a subsequent regulatory investigation and/or employment-related litigation. Not only should you be attentive to comments that could compromise your ability to best defend your actions in the future, but you should also anticipate that the tone of your comments -- combative, angry, petty -- could put you in a negative light before a hearing panel when you are attempting to argue that you conducted yourself in a reasonable and rational manner.
Also, what's the point of spilling your heart and soul out in a passionate explanation, if you are subsequently going to settle regulatory charges arising from the same set of facts? On top of that, if the goal of resigning is to put a bad workplace behind you, why raise the profile of your termination by offering an expansive response? Many of you may respond that you were just blowing off steam and thought it only fair to get your shots in. After all, you would note, you didn't expect to come under FINRA investigation for the circumstances of your departure -- and those ensuing customer complaints were instigated by your former firm as retaliation. Keep in mind, however, that the words you fired off in anger may well be read in the context of unforeseen and unanticipated investigations and complaints -- and you may come to wish that you had not written what you did.
Notwithstanding the issues that I have raised above, Respondent Ferrante offered an extensive reply to his former employer's allegations. Was Ferrante's written explanation effective? A cynical answer might be that despite his counter-statement, he was still fined $5,000 fine and suspended for five business days. Did FINRA enhance or reduce its sanctions, in part, based upon this respondent's written statement? Who knows. I reprint Ferrante's response in full-text as it appears in online FINRA documents as of November 18, 2013:
SPECIFICALLY MY AGENT CONTRACT WITH NORTHWESTERN MUTUAL MADE CLEAR THAT AS AN AGENT, I AM FREE TO EXERCISE MY OWN JUDGMENT (SECTION RELATIONSHIP) AND DETERMINE THE TIME, PLACE AND MANNER OF MY CONDUCT. MOREOVER, SECTION 11: RECORDS OF THE AGENT CONTRACT EXPRESSLY STATES THAT IT IS MY RESPONSIBILITY TO "HOLD AND PRESERVE ALL RECORDS RELATING TO TRANSACTIONS BY OF FOR NORTHWESTERN MUTUAL." THUS THE AGENT CONTRACT MAKES IT CLEAR THAT I WAS PERMITTED TO CONDUCT BUSINESS AT ANY TIME OF DAY, INCLUDING "AFTER HOURS" AND THAT NOT ONLY WAS I ENTITLED TO POSSESS FILES RELATING TO TRANSACTIONS CONDUCTED FOR THE BENEFIT OF NORTHWESTERN MUTUAL, BUT I WAS OBLIGATED TO HOLD THESE FILES AND ENSURE THAT THEY ARE IN GOOD ORDER ALTHOUGH THERE DO NOT APPEAR TO BE ANY PROVISION THAT RESTRICTED MY ACCESS TO THE OSJ TO "LEGITIMATE BUSINESS PURPOSE" ONLY. THE FORM U5 DISCLOSURE NONETHELESS IMPLIES THAT MY CONDUCT WAS NOT LEGITIMATE. IF THERE WERE QUESTIONS REGARDING THE BUSINESS PURPOSE OF MY VISIT TO THE OFFICE, THEN THE APPROPRIATE PERSONNEL SHOULD HAVE INQUIRED AND I WOULD HAVE CLEARED UP THE CONFUSION. I BELIEVE THAT NMIS PURPOSEFULLY DID NOT MAKE THESE REASONABLE INQUIRIES NOR DID THEY REVIEW THE APPLICABLE CONTRACTS, RATHER, THE U5 DISCLOSURE SEEMS TO BE CONSISTENT WITH TH OTHER RETALIATORY EFFORTS OF NMIS, THE RUSSO GROUP AND NORTHWESTERN MUTUAL. IN THE MONTHS LEAPING UP TO MY TERMINATION FROM NMIS, I HAD BEEN HONEST ABOUT MY CONVERSATIONS WITH COMPETING AGENCIES AND MY THOUGHTS ABOUT LEAVING IF CERTAIN THINGS DID NOT IMPROVE. AS YOU CAN UNDERSTAND, A LOT GOES INTO A DECISION TO CHANGE AGENCIES, INCLUDING THE NEED TO UNDERSTAND THE LEVEL OF COMMISSIONS BEING LEFT BEHIND AND THE DESIRE TO ENSURE THAT IF DID DEPART, THAT CLIENT FILES WERE COMPLETE AND THAT CLIENTS WOULD NOT BE IMPAIRED BY MY CAREER CHOICES AT THE TIME I WAS TERMINATED, I HAD NOT YET FINALIZED MY DECISION REGARDING MY FUTURE WITH THE RUSSO GROUP. MY TERMINATION MADE THE DECISION FOR ME.
AT THE TIME I WAS TERMINATED, NORTHWESTERN MUTUAL DEMANDED THAT I RETURN THE CLIENT FILES THEN IN MY POSSESSION. ALTHOUGH THE OPERABLE AGREEMENTS DO NOT SPECIFY THE TIME PERIOD WITHIN WHICH THIS RETURN OF FILES NEEDED TO OCCUR, I RETURNED THE FILES WITHIN FOUR BUSINESS DAYS OF THE DEMAND TO DO SO, WHICH IS REASONABLE. OVER THE YEARS I HAVE KNOWN MANY AGENTS WHO LEFT THE RUSSO GROUP AND OPENLY TOOK CLIENT FILES WITH THEM WITHOUT ANY PROBLEMS. I HAVE CLEARLY BEEN SINGLED OUT FOR ADVERSE TREATMENT AS THESE INDIVIDUALS WERE NOT TREATED THE WAY I HAVE BEEN TREATED NOR DID THEY HAVE SIMILAR ENTRIES ON THEIR US.
I WOULD ALSO LIKE TO POINT OUT THAT THE RUSSO GROUP UNILATERALLY TERMINATED MY STATUS AS A NORTHWESTERN MUTUAL AGENT WITHOUT ADVANCE NOTICE, DESPITE THE FACT THAT MY ACTIONS WERE ENTIRELY WITHIN THE SCOPE OF MY AGENT CONTRACT AND CONSISTENT WITH PAST PRACTICE. BY DOING SO, THE RUSSO GROUP BREACHED THE AGENT CONTRACT, WHICH ONLY PERMITS IMMEDIATE TERMINATION FOR CAUSE, SUCH AS THE FAILURE OF AN AGENT TO COMPLY WITH THE TERMS OF THE AGENT CONTRACT. I SHOULD HAVE BEEN AFFORDED THE 30 DAYS REQUIRES BY THE AGENT CONTRACT, WHICH ALSO WOULD HAVE ALLOWED ME TO COLLECT COMMISSIONS GENERATED DURING THIS PERIOD. THESE ACTIONS ARE CURRENTLY THE SUBJECT OF CONVERSATIONS BETWEEN MYSELF AND NORTHWESTERN MUTUAL AND MAY ESCALATE.
DURING MY CAREER, I HAVE PRIDED MYSELF ON MY ETHICAL AND STRAIGHTFORWARD DEALINGS. I RESPECTFULLY REQUEST THAT YOU CONSIDER THE FACTS AT PLAY HERE AS WELL AS THE MOTIVATIONS OF THE RUSSO GROUP AND NMIS IN ATTEMPTING TO DARKEN MY OTHERWISE PRISTINE BUSINESS CONDUCT RECORD.
Also WATCH: (Hosted by Bill Singer, Esq.)