There are those among us who never bother themselves with the grand philosophical, moral, or ethical questions of life and just do whatever the hell they want: right and wrong be damned. And then, there are many of us, who find ourselves bruised and bloodied at the bottom of a chasm into which we fell after we failed inadvertently stepped upon a slippery slope. In today's BrokeAndBroker.com Blog, we consider a Wall Street regulatory settlement in which a stockbroker did something wrong by impersonating three of his customers, but we are perplexed when deciding whether the best regulatory response is to punish the wrongdoer or to preemptively address an ongoing source of trouble. Consider this a thought-piece.
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, Aleksandr Yusupov submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Aleksandr Yusupov, Respondent (AWC 2015044388101, February 8, 2016).
In 1997, Yusupov was first registered and by April 2009 was associated with FINRA member firm Pruco Securities, LLC., where he remained until January 2015. The AWC asserts that Yusupov had no prior disciplinary history with the Securities and Exchange Commission, FINRA, any other self-regulatory organization or any state securities regulator.
What's Your Impression?
The AWC asserts that during telephone calls on November 6 and 14, 2013, and July 28, 2014, Yusupov impersonated three of his relatives. As characterized in the AWC, the impersonations were undertaken by Yusupov on behalf of his relatives:
as an accommodation to them, when he called Pruco's Customer Service Department and inquired about premiums due for their term life insurance policies. During those telephone calls, Yusupov, the insurance agent for all three accounts, and beneficiary and payee for his mother's and wife's policies falsely represented himself as EK, (his cousin) SK (his mother) and IB (his wife), in an effort to obtain premium amount information to pay the policy premiums.
FINRA deemed Yusupov's conduct as a violation of FINRA Rule 2010 because he "failed to observe high standards of commercial honor and just and equitable principles of trade. " In accordance with the terms of the AWC, FINRA imposed upon Yusupov a $5,000 fine and a 30 calendar-day suspension from associating with any member firm in any and all capacities."
Bill Singer's Comment
These customer impersonation cases tend to hit me in one of two ways: On the one hand, I fully understand the important regulatory and compliance issue that registered persons not impersonate customers; however, on the other hand, sometimes the cited conduct comes off as a misguided attempt to expedite paperwork but shy of a regulatory/compliance violation. Notwithstanding my ambivalence, it is a virtually impossible to ask a Wall Street regulator to draw a fine line between when it is and when it isn't okay to impersonate a customer, and, accordingly, I generally side with the regulator when a registered rep engages in the impersonation of a customer.
Why, then, does this Yusupov settlement leave me uneasy?
For starters, I am drawn to FINRA's acknowledgment that Yusupov's impersonations were done as an "accommodation" for his cousin, his mother, and his wife. Accommodation was not my word of choice but the verbatim reference from the AWC. There is no allegation by FINRA that Yusupov's goal in impersonating his three family members resulted in any losses to the customers or to any undue financial benefit to him. Does the fact that the registered rep impersonated three family members justify his conduct? Frankly, "no" -- and I cannot be much clearer in my view than conceding that point.
It's hard to put a finger on the cause of my discomfort but I think it's that FINRA seems to come off a bit heavy-handed with the actual charge. In a sense, it's as if we all agree that the cited conduct is "misconduct" but we now have to find an actual rule that it violates and, gee, we're sort of relegated to trying to pound a square peg into a round hole. Pointedly, do Yusupov's telephone calls on behalf of his cousin, mother, and wife in order to ascertain their upcoming insurance premiums truly constitute violations of FINRA Rule 2010 for failure to observe high standards of commercial honor and just and equitable principles of trade?
Did the three telephone calls truly constitute a failure to observe high standards of commercial honor? Were those calls "dishonorable" under the totality of the circumstances -- and particularly when measured against much of Wall Street's truly dishonorable commercial practices? What about Yusupov's telephone calls was unjust and/or inequitable? Keep in mind that it is FINRA that deemed his alleged misconduct as a misguided "accommodation" for his three family-clients. There isn't even a whiff of a suggestion that Yusupov attempted to engage in an unjust or inequitable transaction to the detriment of his customers or his firm.
Finally, and perhaps must importantly, why do registered reps engage in what are best characterized as so-called customer accommodations when it comes to impersonating customers in order to ascertain insurance premium amounts or the nature of various insurance-product holdings? Could it be that the insurance industry has imposed unnecessary and cumbersome hurdles between policyholders and their access to policy information? Could it be that the insurance industry uses such hurdles to retard the ability of policyholders to liquidate or transfer their holdings to other firms or competitors? Has the insurance industry implemented policies and procedures under the guise of customer protection that are, in reality, subterfuges to inhibit the migration of assets? Notwithstanding those questions, I still concede that such dubious insurance industry practices are not excuses for a stockbroker to impersonate his customers, even if the motivation was well intentioned. When all is said and done, I do not want a registered rep who services my brokerage account to be impersonating me on a telephone call. Period. End of story
That FINRA may be on the side of the angels, however, is not enough to deter me from acting as a Devil's Advocate and raising questions as to whether the regulation of Wall Street should entail more than simply dinging registered reps for misconduct. When a regulator is confronted with a pattern of repetitive misconduct, fairness demands that the regulator consider if there are circumstances prompting such conduct that should be scrutinized and subjected to reform. I have no problem making Yusupov pay the fine and do the time; but I would also like to see FINRA question why these impersonation cases often involve similar fact patterns lacking in a motive to defraud the customers.