An irreverent Wall Street Blog
UBS Reversed $5 Million Unauthorized Order
June 1, 2016
BrokeAndBroker Blog's Bill Singer made a mistake. Not my first. Not my last. By way of full disclosure, I misread the FINRA regulatory settlement about which today's blog is based. The fault was all mine and the self-regulatory organization is totally blameless. Oddly, I was prepared to publish virtually the same commentary premised upon my mistaken understanding that there was a $5,000 unauthorized trade. Imagine my surprise when I discovered that the sum was $5 million !
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, James Parker
Scullin submitted a Letter of Acceptance, Waiver and Consent ("AWC"),
which FINRA accepted. In the Matter of James Parker Scullin, Respondent
(AWC 2014043554601, May 24,
2016).
In 1986, Scullin first became
registered with a FINRA member firm and, thereafter, left the industry in 1988
and re-entered in 2010. The AWC asserts that by June 2011, Sculling was registered with FINRA member firm UBS
Financial Services, Inc. The AWC asserts that he had no prior relevant
disciplinary history.
SIDE BAR: As to the circumstances of Scullin's separation from UBS, the AWC asserts that he remained with that firm until November 21, 2014, when UBS filed a Uniform Termination Notice for Securities Industry Registration (""Form U5") terminating his association.
A Matter of
Authority
Around the time when Scullin
joined UBS in mid-2011, he became the registered representative for the account
of an entity only referred to in the AWC as "MS." There were purportedly two
individuals with trading authority for the MS account. Despite not having any
discretionary authority for the MS account, the AWC alleges that sometime around
September 12, 2014, Scullin entered a trade for over $5,000,000 without
informing or seeking the authorization of either of the two individuals with
trading authority.
Using
Concealer
As set forth in the
AWC:
In late September 2014, MM, one of the individuals with authority over the MS account, questioned Scullin about the trading activity in the account, but Scullin concealed the unauthorized trade. In early October 2014, UBS questioned Scullin about the trade. Scullin initially concealed the fact that it was unauthorized, but later admitted to the Firm that the trade was not authorized by MM or anyone at MS. In October 2014, UBS reversed the trade.
FINRA
Sanctions
In accordance with
the terms of the AWC, FINRA imposed upon Scullin a $15,000 fine and a
9-month-suspension from association with any FINRA member firm in all
capacities.
Bill
Singer's Comment
Online FINRA BrokerCheck
records as of June 1, 2016, indicate that UBS Financial Service, Inc.
"Discharged" Scullin on October 29, 2014, based upon allegations
that:
MR. SCULLIN'S EMPLOYMENT WAS TERMINATED WHEN THE FIRM LEARNED THAT HE (1) ACTIVELY TRADED IN AN UNDISCLOSED COMMODITIES ACCOUNT OUTSIDE UBS; (2) EXERCISED DISCRETION WITHOUT WRITTEN AUTHORIZATION IN VIOLATION OF FIRM POLICY; AND (3) ENTERED AN UNAUTHORIZED TRADE.
An odd aspect of this AWC is that I misread the fact pattern and, as I initially had drafted today's article, I noted that the September 12, 2014, unauthorized trade was for a mere $5,000. Notwithstanding that somewhat paltry figure, I still found the case of interest. Imagine my surprise when I reviewed the AWC one last time before releasing the article for publication and -- oops! -- there were three more zeros involved. Five thousand mushroomed to five million.
After revising this blog and increasing the cited unauthorized trade from $5,000 to $5,000,000 a few things took on a different shade. For starters, UBS's October 2014 trade reversal took on far more import as the firm was booking ten times the trade amount as I had first misread. In industry parlance, that's quite the "hickey."
By way of double checking after the revelation that I had misread the dollar amount of the unauthorized trade, I reviewed Scullin's online FINRA BrokerCheck records and took note of this interesting
tidbit under the
category of "Customer Dispute - Pending," which asserts that on December 1,
2014, Scullin was named in a FINRA arbitration 14-03513 seeking $7 million
in damages based upon allegations that:
CLAIMANTS ALLEGE UNAUTHORIZED TRADING AND EXCESSIVE COMMISSIONS. TIME FRAME: 2014.
Frankly, my added research leaves me puzzled. Assuming that UBS reversed the $5,000,000 unauthorized trade in October 2014, how come "Claimants" filed a FINRA Arbitration in December 2014 seeking $7 million in damages? Were there $2 million in "excessive commission?"
I attempted to locate a disclosure of FINRA Arbitration 14-03513 on UBS Financial Services, Inc.'s BrokerCheck file but found no such item. A few possible explanations for this circumstance could be that the MS Account sued only Scullin, which would explain why the matter is reported as pending on his BrokerCheck record and not his former employer's or the "Claimants" referenced in the pending customer dispute on Scullin's BrokerCheck record are not the MS Account claimants but another group of customers (perhaps those involved with the away commodities account or UBS didn't report the pending arbitration or UBS didn't need to report the pending arbitration or the so-called pending customer matter isn't still pending but was not updated on Scullin's BrokerCheck record or FINRA didn't timely update its online database or . . . hey, come up with your own possibilities.
If BrokeAndBroker readers want to further research the puzzle and provide me with an answer, I will be happy to offer you the generous reward of publishing your name in the august annals of this industry blog -- unless you would prefer to remain anonymous, in which case I could send you a very nice email thanking you for your effort and complimenting you on your modesty. This offer void where prohibited. Not valid in Guam, Alaska, or Hawaii. Limited to one per household. May not be combined with other offers. FINRA employees and agents are not eligible unless prior written authorization from the self-regulatory organization was obtained and a verified copy of said authorization is provided. Why do folks insist on touching park benches that have a "WET PAINT - DO NOT TOUCH" sign? How come you can count out the correct amount of pocket change for the bus and you obsessively count in like four times to make sure it's correct but when you drop the change into the bus's coin machine you're five-cents short and who the hell carries extra nickels these days?