Stockbroker Fined And Suspended For Undisclosed Insurance Biz

March 30, 2015

For 20 years, one registered person timely and fully disclosed her outside business activity to her employer FINRA member firm. Inexplicably, a few years ago, she apparently embarked upon another outside business but failed to notify her firm -- that proved a costly lapse. Today's Blog examines the ensuing regulatory settlement involving her failed disclosure.

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, Deborah S. Giffin submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Deborah S. Giffin, Respondent (AWC #2013038786501, March 13, 2015).

In 1995, Giffin entered the securities industry and since 2006 has been registered with FINRA member firm Woodbury Financial Services Inc. The AWC asserts that Giffin had no prior formal disciplinary history with the Securities and Exchange Commission, any state securities agency, or any self-regulatory agency.

Two Decades of Compliance

The AWC makes it clear that since 1994, Giffin "has been involved with a fully disclosed outside business activity, Giffin Planning Services. . ." Pursuant to that outside business activity ("OBA"), Giffin provides financial planning and receives commissions on fixed life insurance. So far, so good - and so far, compliant!

Going to the Rulebook

Many registered persons engage in other professions and careers; and such OBAs require prior written notice to your employer pursuant to FINRA Rule 3270. In addition to FINRA's rules, member firms' in-house policies and procedures typically impose a further obligation to obtain the firm's approval, which, oddly, is not actually required under FINRA Rule 3270. Consider the following [Ed: yellow highlight supplied]:

FINRA Conduct 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).

4 Years Late

Starting in late 2010, the AWC alleges that Giffin conducted most of her insurance business through (and received most of her insurance commissions from) Ensphere Marketing Group. Unfortunately, the AWC alleges that it was not until October 2014 that Giffin disclosed her Ensphere OBA to Woodbury, in violation of the firm's written supervisory policies and FINRA Rule 3270 and 2010.

In accordance with the terms of the AWC, FINRA imposed upon Giffin a $5,000 fine and a 45-day suspension in all capacities.

Bill Singer's Comment

From 1994 through the onset of the Ensphere Marketing disclosure issue, FINRA acknowledges that Giffin had timely and fully disclosed to her employer the existence of her Giffin Planning Services OBA. When confronted with that history and fact pattern, a number of questions came to my mind:
  • Why did Giffin fail to timely submit notice in 2010 about Ensphere Marketing?
  • Was it an oversight?
  • Did she not believe Ensphere constituted a reportable OBA? 
  • Did she believe that all OBA was covered under her prior notice for Giffin Planning?
FINRA may have asked those and other questions; and the self-regulatory organization may have gotten the answers. Sadly, the AWC doesn't offer us any explanations or answers to the questions that I noted. When publishing a regulatory settlement involving an otherwise compliant veteran registered rep who is now being fined $5,000 and suspended for 45-days, FINRA should provide further content and context explaining to us what prompted the Giffin's violation.

In light of FINRA's half-hearted presentation of the underlying facts, the 45-day suspension seems excessive given Giffin's prior OBA compliance and her blemish-free industry record as set forth in the AWC (her online FINRA BrokerCheck disclosure discloses only one reportable customer complaint in 2008 that was settled pursuant to a full refund of all annuity premiums). Still -- Giffin was represented by legal counsel for the AWC and Giffin signed off on the settlement, which implies that she was ultimately satisfied with the result.