About twenty years ago, songstress and wannabe Wall Street regulator Anita Baker asked in her hit song "Giving You The Best That I Got": Ain't there something I can give you in exchange for everything you give to me? In a recent regulatory settlement, the Financial Industry Regulatory Authority rewrote the verse to Here's what we're gonna give you for everything that you took. Instead of roses and chocolates, one registered representative wound up with a fine and suspension. Oddly, FINRA's love note to the respondent seems to have gotten lost in the mail and took about 2 1/2 years to deliver. Is this the best regulation that Wall Street's self-regulatory organization has got to give?
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, Patrick Gordon Carr submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Patrick Gordon Carr, Respondent(AWC 2013038423801, February 8, 2016).
Carr was registered with FINRA member firm UBS Financial Services, Inc. from July 2008 through August 2013, and registered with another firm thereafter. The AWC asserts that Carr had no prior relevant formal disciplinary history with the Securities and Exchange Commission. any self-regulatory organization or any state securities regulator.
Ain't there something I can give you
The AWC alleges that during the relevant period from June 2012 through January 2013, UBS prohibited employees from receiving over $100 in gifts from customers in any one-year period. Separately, the member firm admonished employees that it would be impermissible to use a family member or any other person as an indirect agent or nominee in order to circumvent any prohibited conduct.
In exchange for everything you give to me
Notwithstanding UBS's policies, the AWC asserts that in 2012 and 2013, Carr accepted a gift(s) from a UBS customer in the form of a total of 150 shares of stock with a cumulative value of about $5,000. Following his receipt of the stock gifts, Carr allegedly transferred the shares with the consent of the customer from the customer's account a Carr's mother-in-law's brokerage account.
Everybody's got opinions 'bout the way they think our story's gonna end
FINRA deemed the above cited conduct to constitute a violation of FINRA Rule 2010. In accordance with the terms of the AWC, FINRA imposed upon Carr a $5,000 fine a 30-business-day suspension in any and all capacities with any FINRA member firm.
Bill Singer's Comment
At first blush, not much to look at here or question. As with all FINRA member firm, UBS has compliance policies that say that "You Can't Do X." Such a compliance scheme is almost biblical in its Thou Shall Not simplicity. Of course, for some folks, telling them that they can't do something is akin to an invitation to figure out ways to get around what's not allowed. In anticipation of just such a quest at circumvention, UBS preemptively warns its employees that, no, you can't enlist the aid of a third party to do what you yourself can't do.
In examining Carr's conduct, we see that during the 7 month span from June 2012 to January 2013 (within the 365-day ambit), he indirectly accepted through his mother-in-law about $5,000 in stock gifts from a UBS customer. The $5,000 valuation was roughly 50 times greater than the annual dollar gift limit. The use of the mother-in-law's account constituted an "indirect" back-door. As to anything in the so-called "plus column" of mitigation for Carr, we do have the regulator's concession that the gift(s) were made with the customer's consent.
But is the combination of FINRA's assertions in the AWC and our inferences correct? Do we have a full and true and fair picture of the purported misconduct? Maybe yes. Maybe no. Consider the following:
According to online FINRA BrokerCheck records as of February 24, 2016, (the details of which are not presented in the AWC), UBS "Discharged" Carr on August 29, 2013, based upon allegations that:
MR. CARR'S EMPLOYMENT WAS TERMINATED AFTER A FIRM REVIEW FOUND THAT HE HAD CIRCUMVENTED THE FIRM'S POLICIES ON GIFTS AND ENTERTAINMENT WHEN HE INSTRUCTED A CLIENT TO GIFT SHARES OF A SECURITY TO HIS FAMILY MEMBER RATHER THAN GIFT THE SHARES DIRECTLY TO HIM. IN ADDITION, MR. CARR PROVIDED INADEQUATE ANSWERS DURING THE FIRM'S REVIEW.
In response to his former employer's above disclosure, Carr responded:
ON 08/19/2013 I WAS QUESTIONED BY UBS ABOUT A JANUARY 2013 GIFT OF SHARES BY ONE OF MY ADVISOR'S CLIENTS TO MY MOTHER-IN-LAW. I THOUGHT THIS WAS ALL RIGHT BECAUSE I HAD PROCESSED SIMILAR GIFTS FOR MY ADVISOR PREVIOUSLY. THE CLIENT INITIATED THIS GIFT AND THE CO-TRUSTEE ON THE ACCOUNT (THE CLIENT'S SON) APPROVED THE TRANSFERS. ON 08/29/2013, I WAS TERMINATED FOR CIRCUMVENTING THE FIRM'S GIFTING POLICY. I NEVER CONCEALED THE GIFTS AND ALL TRANSFERS WERE DOCUMENTED WITH SIGNED LETTERS OF AUTHORIZATION. NEITHER THE CLIENT OR HER SON FILED A COMPLAINT REGARDING THIS MATTER.
Whoa . . . hold on here. What?
Carr's BrokerCheck response asserts that the gift was made by "one of my advisor's clients." I got the impression from the AWC that the client was Carr's but on BrokerCheck we are informed that, in fact, the customer may have been that of an advisor for whom Carr worked. In and of itself, that point isn't such a big deal; however, when we take into account Carr's assertion that he "thought this was all right because I had processed similar gifts for my advisor previously," that presents a counter-factual which is not addressed by UBS on BrokerCheck and not referenced in the AWC.
Did UBS and/or FINRA investigate Carr's allegations about his advisor's prior acceptance of customer gifts? Was that made up? Was there some validity to it? Even if that factor is not exculpatory for Carr, his reliance upon the prior gifting practices of the purported advisor for whom he worked does put things in a somewhat less harsh light than if this misconduct was cooked up by Carr on his own. Similarly, if Carr thought that there was a culture of acceptance at UBS for the gifting practice that subsequently came under scrutiny, that too would provide some mitigation as to the respondent's intent to knowingly violate a company compliance policy. For industry veterans, we know that far too much of what is presented as written compliance policies and procedures are often responded to with a wink, wink, nudge, nudge, say no more -- and particularly when the transgressor is a big producer or senior trader.
Also, UBS's BrokerCheck disclosure asserts that Carr was evasive when caught: "provided inadequate answers during the firm's review." What are we to make of the apparent conflict between UBS's assertion that Carr was evasive when questioned about the gifts and his assertion that he "never concealed the gifts and all transfers were documented with signed letters of authorization"? The AWC makes no reference whatsoever to any consideration by FINRA of any alleged evasion or non-cooperation by Carr. How then are we to reconcile UBS's BrokerCheck allegation, Carr's BrokerCheck response, and the AWC's silence on the issue of the respondent's purported evasion?
As I often note when I discuss AWCs in the BrokeAndBroker.com Blog, it's not my place to second-guess a respondent's decision to sign off on the FINRA settlement because I lack first-hand knowledge of the facts and the substance of the settlement discussions that yielded the final product of the AWC. Carr's AWC discloses that he was represented by legal counsel and there may well have been other regulatory and/or legal concerns that made this AWC a compelling offer to accept.
One final point: Why did it take FINRA until February 2016 to settle this matter? As is unequivocally stated in the record, UBS discharged Carr on August 29, 2013, for allegedly circumventing the firm's customer-gifts policy. As set forth in the AWC, and in the firm's and the employee's BrokerCheck responses, the essential facts were never in dispute: Carr admitted to having accepted the gifts and transferring the shares to his mother-in-law's account. What exactly required some 30 months of FINRA investigation, negotiation, and settlement? I mean, seriously, Wall Street's self-regulatory organization required nearly 2 1/2 years to resolve this set of facts?