It's that time of year and you may get involved in all sorts of portfolio moves -- tax transactions, profit taking, repositioning, and the like. Your customer may need some help, as in how to fill out a form. Depending on the demands upon your time and the sophistication of the customer, the task at hand may be minor and something that you will do for free, or, it may prompt you to charge for your efforts. We're not talking big bucks here, you think. I'm not ripping off the account, you say. It's just a hundred or so bucks for my time, you reassure yourself. Hey, no one's gonna know and what's the big deal, you comfort yourself. Then again, it's not always a great sign when you're talking to yourself, as a recent regulatory case demonstrates.
Case In Point
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, Darrell Vanpamel submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Darrell Vanpamel, Respondent (AWC 2013037723101, December 15, 2014).
In 2005, Vanpamel entered the securities industry with FINRA member firm USA Financial Securities Corporation ("USA Financial"). The AWC asserts that he had no prior relevant disciplinary history.
A Few Bucks, Here And There
The AWC alleges that from April 2013 to May 2013, Vanpamel engaged in outside business activities ("OBA") as a result of his receipt of:
Online FINRA BrokerCheck records as of December 29, 2014 disclose that on July 19, 2013, Vanpamel voluntarily resigned from USA Financial based upon allegations that:
I RESIGNED AFTER DISCOVERY OF USA FINDING I WROTE BUSINESS OF INDEX ANNUITIES OUTSIDE THEIR CONTRACTING. CURRENTLY GOING THROUGH INTERNAL INVESTIGATION
FINRA deemed Vanpamel cited conduct as constituting violations of FINRA Rules 3270 and 2010 because he did not provide written notice to his employer member firm prior to engaging in OBA for compensation.
In accordance with the terms of the AWC, FINRA imposed upon Vanpamel a $5,000 fine and a one-month suspension from associating with any FINRA member in any capacity.
Bill Singer's Comment
Going by the BrokeCheck disclosure, it seems that Vanpamel was involved in an OBA involving unapproved index annuities sales; however, going by the AWC, the actual regulatory case brought by FINRA involved about $900 in fees for the preparation of paperwork and other services. Not sure what's the basis of the disconnect but, in the end, the AWC says what it says.
It's sort of easy to chalk this one up to chump change or penny-ante silliness; however, we are seeing more and more regulatory cases brought involving brokers doing a little sumthin' on the side for a few bucks. More often than not, registered reps embark upon these client-service OBAs with the ill-conceived comfort that the charges are so small that no one's likely to care and, in some instances, this doesn't actually add up to a compliance or regulatory problem. In less benign circumstances, this falls into the misplaced belief of "who's gonna find out?" Ultimately, it's just not worth the risk of a fine and suspension.
FINRA Conduct Rule 3270. Outside Business Activities of Registered PersonsNo 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).