Litigation After Death Haunts One Stockbroker

December 26, 2013

When the client is alive and placing orders, there's still plenty of opportunity for all sorts of disputes to arise -- suitability, unauthorized trading, fraud. Frankly, you name it and it's been alleged by one unhappy customer after another; and it's also been denied by one indignant stockbroker after another. You'd sort of think, however, that when a customer dies that the whole he-said-she-said thing would go to the grave as well. Not quite. Customer disputes and litigation have an after life, as today's BrokeAndBroker Blog explains.

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, the Respondent submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted.  FINRA AWC 2012031417901, December 11, 2013.

In 1980,  the Respondent entered the securities industry and after association with several firms he was with S&P Investors, Inc. (''S&P") from 1986 through December 2011 and thereafter with Aspen Equity Partners to the present. The AWC asserts that the Respondent had no prior relevant disciplinary history.

An In-Law's POA

During all times relevant to this matter, S&P permitted Power Of Attorney ("POA") accounts but prohibited the use of discretionary power in a customer's account unless the customer had provided prior written authorization and the account had been accepted in writing by the firm. On January 20, 2004, a customer opened an S&P account with Respondent as the representative of record. The customer's brother-in-law was listed as POA, and that in-law directed all trades pursuant to the POA. Pointedly, none of the trades at issue were solicited by Respondent, nor did he provide any investment advice.

The Gift That Keeps On Giving?

After learning of the customer's death on July 17, 2009, via a letter from the brother-in-law asking to change the account's name, Respondent advised S&P of the customer's death. In response to Respondent's notice, the firm sent the necessary paperwork to the brother-in-law and trading ceased from about July through October 2009 pending return of the paperwork.

The AWC asserts that on October 13, 2009, Respondent resumed placing trades in the deceased's account pursuant to the brother-in-law's direction. At that time, no new POA had been submitted to S&P. 

Post Mortem

FINRA asserted that Respondent's acceptance of the brother-in-law's orders after the account holder's death and in the absence of a new POA constituted the acceptance of improper third party discretionary orders in violation of NASD Rule 2510 and FINRA Rule 2010. In accordance with the terms of the AWC, FINRA imposed upon Respondent a $5,000 fine and a 15-business-day suspension from association with any FINRA member in any capacity, and a $5,000 fine.

The Corrective Action Statement

FINRA AWCs permit the attachment of a Corrective Action Statement to demonstrate the steps taken by a respondent to prevent future misconduct subject to the understanding that such an attachment may not deny the charges or make any statement that is inconsistent with the AWC. Further the Corrective Action Statement does not constitute factual or legal findings by FINRA, nor does it reflect the views of FINRA or its staff. 

This Corrective Action Statement is submitted by the Respondent. It does not constitute factual or legal findings by FINRA, nor does it reflect the views of FINRA, or its staff.

I have learned that though my firm may have Compliance Directors and other individuals who are intended to ensure conformity with regulations, I am chiefly responsible for making sure my customer accounts are papered properly. No longer will I rely solely upon the representations of others when it comes to adherence with FINRA regulations. I will always check for a paper trail. Though not many of my clients have required a power of attorney for trading, I am confident that my new firm will help me achieve these goals. My new firm is aware of my desire to check the proper papering my client's accounts and has stated that this information will be made available to me at my request. . . .

Bill Singer's Comment

I have never, ever been a fan of Corrective Action Statements and rarely, if ever, advocate their use.  Given that the premise of the AWC is that it is a settlement made without admitting or deny the findings, I don't particularly understand the need to offer a statement that tends to typically come off as so much gnashing of teeth, ringing of hands, and, in the end, simply draws more undesired attention to the matter.  Frankly, if you feel compelled to attach a Corrective Action Statement, then you may want to pause before signing the AWC and ask yourself if you might not be better advised to argue your case before a Hearing Panel and, if necessary, on appeal afterwards.  If you ultimately conclude that the costs and/or risks of contesting the charges aren't worth it, then just sign the damn AWC and get over it. In my opinion, you're not gaining much (if anything) by posting a parting shot in the guise of a corrective statement and, worse, you may actually be setting yourself up down the road for more problems. Yes, there are exceptions to my position, but they strike me as few and far between.

Online FINRA records as of December 26, 2013, disclose that on September 7, 2011, an arbitration was filed against S&P (FINRA Arbitration 11-04601) by the administratrix of the estate seeking $1,300,000 in damages as a result of allegations involving suitability, negligence, and breach of fiduciary duty. An apparent response by Respondent to the charges is noted in the FINRA online records as:


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