April 18, 2017
Under consideration in today's BrokeAndBroker.com Blog is what some may view as a case of "no good deed goes unpunished" or "the road to Hell is paved with good intentions." On the other hand, some readers may be less charitable and have concerns about what may strike them as an inappropriate relationship between an advisor and one of his clients. As with many things in life, different folks will likely have different opinions about the same set of facts. The important exercise in this regulatory settlement is for industry participants to spot the compliance and regulatory lapses and to come away with some ideas as to how to avoid such problems. If nothing else, advisors should carefully consider the merits of their accepting Powers of Attorney or acting as Health Surrogates for clients who are in nursing homes.
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, John Patrick Wheeler submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of John Patrick Wheeler, Respondent (AWC 2015046273701, April 11, 2017).
In pertinent part under the "Background" section of the AWC, we are informed that:
Wheeler entered the securities industry in 1982 as a registered representative (''RR") trainee with a FINRA-regulated broker dealer, and remained there until July 1988 when he joined Raymond James Financial Services, Inc. ("Raymond James" or the "Firm"), also a FINRA regulated broker-dealer, as a RR. Respondent, an independent contractor with the Firm, conducted business under the "doing business as" name, Wheeler Wealth Management. In or about September 1989, the location became a branch office and Office of Supervisory Jurisdiction of the Firm and Respondent became its branch office manager ("BOM"). From in or about 2001 through 2006, Wheeler Wealth Management was registered with the State of Florida and/or the Securities & Exchange Commission (''SEC") as a registered investment advisor. In January 2009, Respondent became registered with Raymond James Financial Services Advisors, Inc., a non-FINRA regulated investment advisory firm and an affiliate of Raymond James.
SIDE BAR: The online Investment Adviser Representative Public Disclosure Report as of April 18, 2017, discloses that Wheeler is not currently registered as an Investment Adviser Representative and under the heading "REGISTRATION HISTORY" that Wheeler was previously registered as follows:
Wheeler Wealth Management, Inc. 12/07/1989 - 12/31/2006
Raymond James Financial Services 09/14/2006 - 10/10/2009
Raymond James Financial Services Advisors, Inc. 01/02/2009 - 07/21/2015
The AWC asserts that sometime in July 2004 and running through April 2014, Wheeler was compensated for:
for a Raymond James customer identified in the settlement document only as Customer RE.
- serving as a Durable Power of Attorney;
- serving as a Health Surrogate; and
- paying the bills on a regular basis
In a desire to be meticulous about the recitation of the facts and allegations pertaining to the relationship between Wheeler and Customer RE, let me offer this verbatim discussion in the AWC:
Beginning in July 2004, Respondent was appointed as Customer RE's POA and as her Health Surrogate. Respondent remained Customer RE's POA and Health Surrogate until her death in April 2014. Since 2004, Respondent assisted Customer RE in paying her bills and participated in client health care coordination with personnel of her assisted living facility and later, her nursing home. Beginning in or about 2009, Customer RE granted to Respondent check writing authority over her checking account and provided him with the checkbook for that checking account.
In the course of the ten-year period between 2004 and 2014, Respondent prepared invoices to Customer RE through which he sought and received payment for the services he provided to her. A check register for Customer RE's checking account for dates October 2011 through March 31, 2014 revealed a total of 56 checks written by Respondent in payment of Customer RE's bills, including to the nursing home where she resided, various doctors and clinics, the telephone company and himself or Wheeler Wealth Management. From October 2011 through March 31, 2014, Respondent received about $7,300 in payments for services rendered from Customer RE through seven checks he wrote against her checking account.
FINRA deemed the services provided to RE by Wheeler to constitute "outside business activities" ("OBA") and because Wheeler allegedly failed to disclose the cited OBA, he was deemed to have violated NASD Rules 2020 and 2110 (through December 14, 2010); and, thereafter, FINRA Rules 3270 and 2010.
Raymond James' POA Policy
The AWC further asserts that starting around 2007, Raymond James' written policies and procedures prohibited its advisors from:
becoming involved in outside activities that involve taking custody or authority over funds or property of others, including where signatory authority over an individual's funds or securities exists.
The AWC asserts that Raymond James pointedly characterized "serving as a power of attorney" (whether compensated or not) as an OBA requiring disclosure. Further, the AWC asserts that:
Beginning in 2013, financial advisors were prohibited from acting as a power of attorney for a non-related client unless specific approval is first obtained from an executive officer of the Firm.
During Wheeler's decade long service as POA, the AWC asserts that he was required to have obtained his firm's pre-approval and he was obligated to disclose said OBA. As a result of his failure to obtain prior approval of and to disclose his OBA, FINRA deemed Wheeler's conduct to constitute violations of NASD Rule 2110 (through December 14, 2008) and, thereafter of FINRA Rule 2010.
Custodian of Funds
The AWC further asserts that from about 2009 through April 2014, Wheeler served as the personal custodian of all fund in RE's checking account that was in violation of Raymond James' written policies and procedures. Moreover, the AWC asserts that Wheeler never sought or received written authorization from a firm officer to serve as custodian of said funds, in violation of FINRA Rule 2010.
The AWC alleges that during the relevant times, Raymond James required its BOMs to answer questions posed during an Annual Compliance Interview by a Compliance Department principal. Said questions were purportedly documented in the firm's Branch Manager Annual Compliance Interview (the "Questionnaire").
For 2007 through 2012, the Questionnaire allegedly asked about whether a BOM was "serving, acting, or named as a trustee, executor, beneficiary, power-of-attorney, personal representative, or any other control position for another individual or entity (RJFS client or not)?" As set forth in the AWC;
[I]n response to this question on the Questionnaires for years 2007, 2008 and 2010, Respondent falsely answered, "No." Respondent answered "yes" to this question in the Questionnaires for years 2009,2011 and 2012 and, while listing details of other trustee-related activities in which he was involved, Respondent omitted any reference to his role as a POA and Health Surrogate for Customer RE and to the control position he had over Customer RE's funds by virtue of having check writing authority on her checking account and physical possession of her check book.
The AWC viewed Wheeler's above statements as constituting misrepresentations to his firm over six years and constituted violations of NASD Rule 2010 (through December 14, 2008) and, thereafter, FINRA Rule 2010.
Compliance Department Emails
Finally, the AWC alleges that around February 2015, a Raymond James Compliance employee communicated with Wheeler about the services being provided to Customer RE. In a February 17, 2015, email to Wheeler, the Compliance staffer wrote:
Did/do you have possession of [Customer RE's] checkbook?
Are you control [sic] and/or possession of any other checkbooks for [Customer RE]?
By email reply dated February 20, 2015, Wheeler purportedly answered:
I never had possession of her checkbook.
I did not have control or possession of any of her checkbooks.
The AWC asserts that after receipt of Wheeler's February 20, 2015 email reply, the Compliance staffer sent another email in which it was noted that Wheeler had not yet replied to another question posed in the February 17, 2015 email:
Have you ever written any other checks from [Customer RE's] [checking] account either for her benefit (i.e. nursing care, doctors, prescriptions, etc.) or that went directly or indirectly to you or any entity that you control."
By email reply dated February 22, 2015, Wheeler purportedly informs the compliance staffer that:
No. I have not.
FINRA deemed the above-cited email misrepresentations by Wheeler as constituting violations of FINRA rule 2010.
The AWC asserts that:
On July 21, 2015, the Firm filed a Uniform Termination Notice for Securities Industry Registration ("Form U5") reporting Wheeler's June 22, 2015 termination for "acting as a health care surrogate" and "durable POA," and taking "check writing authority for a non-family member client's account in violation of Firm policy." Wheeler remained registered with both Raymond James and Raymond James Financial Advisors, Inc. until his termination on June 22, 2015.
In accordance with the terms of the AWC, FINRA imposed upon Wheeler a $20,000 fine and a six-month-suspension from association with any FINRA member broker-dealer in any capacity.
Bill Singer's Comment
All in all, a strong FINRA AWC with a commendable effort to explain the underlying issues. That being said, I take issue with the AWC's failure to more fully provide the context of Wheeler's relationship with Customer RE. Among the issues that I would have like to have seen touched upon were the customer's age and medical condition, whether she or her Estate complained about the nature of Wheeler's services and/or the amount of fees charged, and whether there was any settlement by Wheeler and/or Raymond James of such possible complaints.
Online FINRA BrokerCheck records as of April 18, 2017, disclose that Raymond James "Discharged" Wheeler on June 22, 2015 based upon allegations that:
Although the AWC's version of the circumstances attendant to Wheeler's June 22nd discharge largely match up with those disclosed on BrokerCheck, there is a disclosure on BrokerCheck that Wheeler had allegedly written "a check to himself after the client died," but that allegation is not reiterated in the AWC. An odd omission or comission depending upon what was determined to have actually transpired in the ensuing two years since Wheeler's termination.
FA WAS TERMINATED WHEN THE FIRM DISCOVERED THAT HE WAS ACTING AS A HEALTH CARE SURROGATE, A DURABLE POA AND TOOK CHECK WRITING AUTHORITY FOR A NON-FAMILY MEMBER CLIENT'S ACCOUNT IN VIOLATION OF FIRM POLICY. FA USED HIS CHECK WRITING AUTHORITY TO PAY HIMSELF A FEE FOR SERVICES RELATED TO BEING A HEALTH CARE SURROGATE AND A DURABLE POWER OF ATTORNEY, INCLUDING WRITING A CHECK TO HIMSELF AFTER THE CLIENT DIED.
In fairness to Wheeler, the AWC does not present a particularly horrific picture of his relationship with Customer RE. For the last five or so years of Customer RE's life, Wheeler had check-writing authority and possession of her checkbook. The AWC makes it clear that for the ten-years at issue, Wheeler prepared invoices documenting the services for which he sought payment. During the 29 months from October 2011 through March 31, 2014, Wheeler wrote 56 checks or about 2 per month. Of those 56 checks, the AWC alleges that 7 reflected payments to Wheeler for services purportedly rendered -- in the gross amount of $7,300, or about $1,043 per check.
I suspect that the relatively light fine and suspension imposed by FINRA reflect the regulator's sensibilities to the realities of the relationship between Wheeler and Customer RE. Notwithstanding, I think a tad more "color" is needed so that we better appreciate the arms-length (or not) nature of the transactions. Regardless, compliments to FINRA for a strong presentation.