Today's featured FINRA regulatory settlement presents us with a Respondent who seems to have done some incredibly stupid stuff. On the other hand, nothing about the allegations or assertions appear to add up to anything warranting a self-regulator's involvement. Which makes me wonder: Do we have all the pertinent facts? Was the underlying violation worse than the settlement document makes it seem? Or, in the end, was this simply about another little guy getting bulldozed by dubious regulation? I'm just not sure what to make of this settlement and will leave it to my readers to draw their own conclusions. In any event, join me at the illustrious parking garage at Wells Fargo's office where FINRA is aggressively protecting vulnerable investors from the abuses of validated parking!
Case In PointFor 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, Thomas James Stewart submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Thomas James Stewart (AWC 2016048768101, February 17, 2017).The AWC asserts that Stewart was first registered in 2007 and in August 2013, he was registered with FINRA member firm Wells Fargo Advisors, LLC until his February 3, 2016 termination.Signed or InitialedThe AWC alleges that during the relevant time of July 16, 2015, to November 25, 2015, Stewart parked his car at a garage at his office location. According to the AWC, Wells Fargo paid for employee parking subject to certain conditions. Among the apparent prerequisites to get your parking validated was that a "manager or other designated employee signed or initialed the back of the parking garage ticket." The $734 Parking CaperAs more fully set forth in the AWC, during the relevant time, Stewart allegedly:
[W]ithout authorization, validated his daily parking garage ticket on 50 separate days by stamping the parking garage ticket with the Firm's parking stamp and forging a manager's or other employee's signature or initials on the back of the ticket. The total value of the falsely validated parking garage tickets was $734 . . .
Online FINRA BrokerCheck records as of February 27, 2017, disclose under the heading "Employment Separation After Allegations," that on January 4, 2016, Stewart voluntarily resigned based upon allegations that:
Mr. Stewart resigned after allegations were made related to improper submission of parking garage tickets for payment of parking at the branch office.
FINRA SanctionFINRA deemed Stewart's conduct as constituting conversion in violation of FINRA Rule 2010's requirement that he "observe high standards of commercial honor and just and equitable principals [sic] of trade." [Ed: the misspelling of "principles" as "principals" is in the AWC as published and still presented as of February 27, 2017.
In accordance with the terms of the AWC, FINRA imposed upon Stewart a Bar from associating with any FINRA member firm in all capacities.
Bill Singer's Comment
A Bar? A Bar for $734 in invalid validated partking? A Bar based upon an employer's claim that an employee engaged in an "improper submission" of garage tickets? Wow, FINRA must not have a lot to do. Moreover, how the hell did we get from Wells Fargo's assertion that Stewart had resign in the face of allegations about his 'improper submission" of tickets to the far more dire allegation of "conversion," alleged by FINRA? Not saying FINRA got it right or wrong but where are the additional facts that raised this tiff over dotting one's i's and crossing one's t's when it came to following the rules for submitting validated parking request to something that comes off as a cold, calculated, and nefarious plot to rip off Wells Fargo for 50 parking validations?CFPB Order Y'all recall that not-so-distant bit of painful regulatory misconduct involving Wells Fargo Bank and its subsidiaries and a couple of million unauthorized account openings and a $185 million fine? By way of refresher, the Consumer Financial Protection Bureau's Consent Order cited the relevant period for that fiasco as running from January 1, 2011, to September 2016. READ the CFPB Wells Fargo Consent OrderFINRA Hotline Also, I did take notice that in December 9, 2016, FINRA published "FINRA Seeks Information from Former Registered Bank Employees of Wells Fargo" (News Release, FINRA, December 9, 2016), which, in part, explains:
The Financial Industry Regulatory Authority (FINRA) has asked former Wells Fargo bank employees whose securities registrations were terminated to contact FINRA if they have concerns about the notice filed by Wells Fargo regarding their termination . . .
FINRA wants to review the facts and circumstances surrounding these allegations and has created a dedicated phone line and email address for use by former registered Wells Fargo bank employees to report instances where they believe there are material issues associated with the processing of their Form U5, including the accuracy and completeness of the language filed by Wells Fargo Advisors describing the reason for termination. Qualifying former Wells Fargo employees can contact FINRA at (800) 334-0668 or U5review@finra.org. The dedicated phone line and e-mail address will be available for the next 90 days. Phone calls will be answered between 9 a.m. - 5 p.m. EST Monday through Friday; calls received outside of those hours will be returned.
Apparently, FINRA only first started its Well Fargo review around December 2016, which is some five years after the firm's account opening fraud began' however, it only took FINRA about 15 months from the last act by Stewart in his parking-validation-conversion-scheme to investigate AND settle the case against him. Now that's regulatory progress. Not that I want to compare the fraudulent opening of two million unauthorized accounts by a major financial services organization with the alleged conversion of $734 in parking validation by a single registered rep but, you know, I guess that I am making that comparison. Just by way of further comparison, we should be seeing many Wells Fargo executives barred by FINRA for their role in the conversion of client assets pursuant to the unauthorized account openings. I'm guessing that FINRA may expel its Wells Fargo member firm given that it barred Stewart -- but I could be going out on a limb with that. High Standards While we're delving into FINRA's response to conversion and all sorts of dastardly deeds of regulatory misconduct, let's read FINRA Rule 2010: Standards of Commercial Honor and Principles of Trade:
A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.
Not sure if Stewart noticed, not being a lawyer and all, but the AWC asserts that he had failed to "observe high standards of commercial honor and just and equitable principals [sic] of trade." Uh oh! Someone at FINRA misused the word "principals" when FINRA Rule 2010 clearly references "principles." Did anyone at FINRA review this AWC prior to signing off on it? The spelling error of such a critical word in such an all-important regulatory rule doesn't exactly comport with "high standards." Frankly, someone at FINRA improperly submitted for publication the AWC with this spelling error: is that improper submission serious enough that someone who drafted and/or reviewed the settlement agreement should be barred from further employment at FINRA?
Autopsy of a ConversionOn a more serious note, let's consider this language from the AWC's "OVERVIEW" section:
Between July 16, 2015 and November 25,2015 (the "Relevant Period"), Stewart used the Firm's parking garage stamp without authorization to validate 50 parking garage tickets worth $731 to pay for his daily parking As a result, Stewart converted $731 of the Firm's funds for his own benefit in violation of FINRA Rule 2010.
Wells Fargo's parking program seems to have required:
approval of garage parking by a manager or other designated employee
the signature or initial the back of each approved parking ticket by said individual authorized to approve the parking
the affixation of a parking stamp validating each garage ticket
Let's start with the most basic premise that is not addressed in the AWC: Was there an understanding among most Wells Fargo employees at Stewart's office that once you had been approved to use the office garage that such was a standing approval? If not, what exactly was the protocol? Did each employee need to get pre-approval each day in order to park in the garage subject to validation? If so, just how do you get pre-approved on a daily basis if you're arriving at the office, say, around 8 a.m. each morning? Were you supposed to get approval the prior night? Were you supposed to send an email or instant message prior to entering the garage? All of which would lead me to ask FINRA whether Stewart was under the impression that he had been approved to use the office garage subject to validated parking for each workday -- that's #1 above. If that's not the case, was validated parking in Stewart's office limited to certain circumstances such as only certain days of the week or only when meeting at the office with clients? Next, how the hell did Stewart get his hands on the validation stamp? Was it left out in the office and other employees would routinely use it after getting the original Step #1 okay from a manager; or was it kept in a relatively secure location that required Stewart to inappropriately enter someone's vacant office or wrongfully unlock a cabinet? I keep re-reading the AWC and still don't understand the underlying facts. During a period of just over four months, Stewart is charged with the unauthorized validation of 50 parking garage tickets, or about $14.62 per ticket. Just by way of rough math, let's say that there are 20 business days in a month, which would work out to something like 80 business days during four months, give or take a few holidays. As to the 50 days on which Stewart "converted" money from Wells Fargo's garage parking fund, would he have been approved for validation had he asked? For me, that's an important question because it transforms this case from one about forgery and conversion to one about not getting a pre-approval that would routinely have been forthcoming? By way of underscoring that distinction, note that Stewart was not fired by Wells Fargo but voluntarily resigned; and that his former employer characterized the underlying issue as "related to improper submission of parking garage tickets for payment of parking at the branch office." How did "improper submission" get translated by FINRA into conversion? No . . . don't put words in my mouth and don't set me up as a strawman! I note - in fact, duly note - that the AWC says that Stewart forged signatures/initials. That is a no-no. Under most circumstances, that should NEVER happen and I am not condoning it. I am, however, simply wondering if all this was prompted by the unavailability of a manager to sign-and-stamp something that would have been routinely approved. If, in fact, Stewart had reason to believe that his parking would not be covered by the normal validation protocol, then that ‘s a whole different issue and one that should have been spelled out in the AWC. Given my understanding of most parking validation programs, businesses typically offer employees validated office parking during business hours on workdays. As such, the deal is that if you show up between 9 and 5, Monday to Friday, we validate your parking. That's a nice perk. So . . . let's imagine that each workday at 9 a.m Stewart showed up, parked his car, and at 5 p.m. got his ticket validated by a manager before he went downstairs to the garage and his trip home. If on 50 of those occasions, Stewart couldn't find the manager and no one else was around to sign/initial, now what? If the way things worked in the office was that you initialed your ticket on behalf of the missing manager and stamped the back, then Stewart is getting railroaded. It that's not how things were supposed to go, then FINRA's case is stronger. All of which points out that the sins of omission are often as bad as those of comission. FINRA needed to say more in this AWC. It could be that Stewart never parked his car in the office garage and submitted someone else's ticket for validation - not sure that makes sense but, hey, okay, it's a possibility. Maybe Stewart arrived late or left early on each of the 50 days and was not entitled to validation and in a fit of pique he helped himself. Again, that should be spelled out in the AWC. Maybe Stewart and the manager weren't getting along and it was always a battle to get the ticket stamped. Add whatever variations you wish. The bottom line is that an AWC should provide sufficient content and context so that we're not fumbling around with unanswered questions.