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JP Morgan And FINRA Connect The Dots When It Matters
March 17, 2017Today's FINRA regulatory case started with a credit card. Then there was a protest by the card-holder, an associated person of FINRA member firm J.P. Morgan Securities. Then there was an in-house investigation. Then you got some whoppers of excuses as to why the charges weren't the employee's. Then we have the end of an employment relationship. Then we have a regulatory settlement. And then, BrokeAndBroker.com Blog's Bill Singer goes off on a tirade.
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, William L. Olsen submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of William L. Olsen, Respondent (AWC 2015048316801, March 9, 2017).[O]n or about November 5, 2015, when he was interviewed as part of that investigation, Olsen abandoned his stolen-wallet and forgery claims. Instead, Olsen claimed that someone must have drugged him before the disputed charges were incurred, because he had no memory of the 15-hour period during which the charges were incurred. Therefore, Olsen claimed, he could neither confirm nor deny that he made any of the disputed charges. Olsen had no plausible basis for claiming that someone had drugged him. Moreover, Olsen knew that he had been at the location where the charges were incurred and that he, in fact, had authorized the charges at issue. JPMS and its bank affiliate terminated Olsen in early December 2015 after concluding that both his initial fraud claim and his subsequent alternative explanations during the internal investigation were false.Discharged Online FINRA BrokerCheck files as of March 17, 2017, assert that FINRA member firm JP Morgan Securities "Discharged" Olsen on December 3, 2015, based upon allegations that:
NON SECURITIES RELATED. REGISTERED REP FILED FALSE CLAIMS ON HER [sic] PERSONAL CHASE CREDIT CARDS
Sanctions FINRA deemed Olsen's conduct to constitute a violation of FINRA Rule 2010. In accordance with the terms of the AWC, FINRA imposed upon him a $10,000 fine and a six-month-suspension from association with any FINRA member in any capacity.
Bill Singer's Comment I shed no tears for Olsen. Given his moronic (albeit entertaining) excuses for not paying his credit card debt, I have no sympathy for him whatsoever. That being said, I hope that you will make an effort to understand my fundamental problem with FINRA's handling of this matter and other similar ones. I recognize that many of my readers will disagree with my position. Notwithstanding, at least give me the concession that my opinion is sincere. FINRA is a self-regulatory organization. It is not a collection agency. It is not the moral conscience of Wall Street, which is often morally bankrupt and ethically challenged. Moreover, FINRA is, in my opinion, little more than a glorified trade group because it has disenfranchised from its voting on rules and elective office every single associated person who is employed by the organizations member firms. That places FINRA in the role of a lapdog for the employer/management firms for whom hundreds of thousands of disenfranchised human beings work. That means that FINRA investigates associated persons according to rules and regulations promulgated by employer/management and then adjudicates the resulting disciplinary cases before panels that are operating according to the same employer/management approved rules and regulations. All of which has earned FINRA the reputation, at times, of conducting a kangaroo court or operating from a Star Chamber. In fairness, there are many bad actors operating within the FINRA member firm community. To some extent, FINRA does a commendable job in ferreting out the malefactors and in sanctioning misconduct. On the other hand, all of that ferreting and sanctioning would come from a far better place -- a moral high ground, if you will -- if FINRA refashioned itself from a "self" regulator of its few thousand member firms and into a "private sector" regulator for the hundreds of millions of its customers and associated persons. That latter transformation would require a larger tent and opening up the self-regulator's election process to far more than its employer/management member firms. How do my concerns and objections come into play with the silliness presented in today's Olsen AWC? For starters, how nice and how convenient it must be for the J.P. Morgan Chase conglomerate to have the ability to access the credit card accounts, banking accounts, and securities accounts of its employees. Imagine if that same in-house investigation needed one of those pesky subpoenas to make the same inquiry of a non-affiliated bank or non-affiliated credit card issuer. On top of all that lovely in-house convenience, it must be quite wonderful when FINRA takes action against a member firm's employees not solely for misconduct involving securities products sold by that firm or for misconduct involving that member firm's customers but, lo and behold, for alleged misconduct involving non-securities products, non-customers, and conduct that didn't even occur at a FINRA member firm but at an affiliate or parent! FINRA pretends that there is arms-length compliance and regulation afoot in these cases and, in furtherance of that pretense, the self-regulator does not name the name of a member firm's parent or any affiliate. As shown in the Olsen AWC, J.P. Morgan Securities (the FINRA member firm) has unnamed affiliates and an unnamed parent. The dubiousness of FINRA furthering such opacity is obvious when you simply read J.P. Morgan Securities BrokerCheck disclosure about Olsen's discharge, which specifically references "PERSONAL CHASE CREDIT CARDS." Chase credit cards? How did that name of the unnamed slip through undetected? Why is it okay to disclose that name on BrokerCheck but not in an AWC? To take things to an even farther point of absurdity, consider this disclosure on FINRA member firm J.P. Morgan Securities' website:
What I want FINRA to comprehend is that it has a role to play as a disinterested industry regulator. It can't be in the business of helping its member firms get paid for bounced bank checks or disputed credit card charges. We have courts for such matters. Those who fail to pay their bona fide debts always face the threats of criminal and civil charges. We don't need to deflect the limited resources of FINRA away from protecting public investors. Which is not to say that those who engage in conduct such as that presented in the Olsen AWC should be unleashed on the public. Nor is it to suggest that such fraudsters ought not be weeded out of the FINRA member firm community. Keep in mind, however, that FINRA's response to Olsen's alleged misconduct was to simply charge him a $10,000 fine and put him on the shelf for six months. Finally, let's remember that only a few years ago, on January 7, 2014, former United States Attorney Preet Bharara had this to say about JPMorgan Chase Bank's agreement to pay $1.7 billion to victims of Bernard Madoff's fraud (the largest-ever bank forfeiture and penalty paid at the time):J.P. Morgan Securities is a marketing name for a wealth management business conducted by JPMorgan Chase & Co. and certain subsidiaries. J.P. Morgan Securities offers investment products, services, Clearing and Custody through J.P. Morgan Securities LLC, a member of FINRA and SIPC. Bank products and services are offered by JPMorgan Chase Bank, N.A. and its bank affiliates.
Bank products and services are offered through JPMorgan Chase Bank, N.A. and its affiliates. Securities are offered by J.P. Morgan Securities LLC and Clearing and Custody by J.P. Morgan Clearing Corp., both are members of FINRA and SIPC. J.P. Morgan Securities LLC and J.P. Morgan Clearing Corp are affiliates of JPMorgan Chase Bank, N.A.
Today, the largest financial institution in the country stands charged with two criminal offenses. Institutions, not just individuals, have an obligation to follow the law and to police themselves. They must exercise due care not only with their own money but with other people's money also. In this case, JPMorgan connected the dots when it mattered to its own profit, but was not so diligent otherwise. Fortunately, with today's resolution, the bank has accepted responsibility and agreed to continue reforming its anti-money laundering practices. Most importantly, the victims of Bernie Madoff's epic fraud are $1.7 billion closer to being made whole.Manhattan U.S. Attorney And FBI Assistant Director-In-Charge Announce Filing Of Criminal Charges Against And Deferred Prosecution Agreement With JPMorgan Chase Bank, N.A., In Connection With Bernard L. Madoff's Multi-Billion Dollar Ponzi Scheme / JPMorgan Criminally Charged With Two Violations Of The Bank Secrecy Act / Charges to Be Deferred for Two Years Under an Agreement Requiring JPMorgan to Admit to Its Conduct; Pay $1.7 Billion to Victims of Madoff's Fraud; and to Reform Its Anti-Money Laundering Policies / $1.7 Billion Payment by JPMorgan is the Largest Ever Bank Forfeiture and Department of Justice Penalty for a Bank Secrecy Act Violation (United States Attorney/Department of Justice Press Release, January 7, 2014). How did Bharara put it? Oh, yes, "JPMorgan connected the dots when it mattered to its own profit, but was not so diligent otherwise." Seems a potent admonition today as well -- and one that FINRA would do well to take due note of. By the way, having shown such diligence in going after Mr. Olsen, just what action did FINRA take against J.P. Morgan Securities for the transgressions of its parent (should we dare name the name here?). Oh, yeah, I forgot, in 2016, FINRA named JP Morgan Chase & Co.'s Stephen M. Cutler to its Board of Governors. Also READ: FINRA's JP Morgan Challenge: Will The Self Regulator End Its Hypocrisy? (BrokeAndBroker.com Blog, January 24, 2017)