Merrill Lynch Employee Fined and Suspended for Business Meals by FINRA

November 14, 2017

Here we go again. FINRA, that staunch protector of Wall Street's honor and integrity, has fined and suspended an individual for submitting multiple bogus business meal expenses for reimbursement. Horror of horrors! When will this misconduct stop? When will Wall Street emerge from the shadows of such deception and fraud? Thankfully, we can all sleep better at night knowing that the securities industry's self-regulator is scrutinizing meal receipts, checking out the size of tips, and making sure that no one is ordering the truffles with that $75 supplement. Blog's publisher Bill Singer wonders why these FINRA business expense cases seem to involve a low-level sales assistant or stockbroker but, you know, never quite seem to address expense abuses in the C-Suite.

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, Sandy Galuppo submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Sandy Galuppo, Respondent (AWC 2015048118501, November 8, 2017). 

The AWC asserts that Galuppo was first registered in 1995 with FINRA member firm Merrill Lynch, Pierce, Fenner & Smith Inc. 

Business Expense Reimbursement

During the relevant period from 2012 to 2015, Galuppo was a Merrill Lynch's Private Executive Services team managing director. The AWC asserts that Galuppo traveled extensively, often meeting and dining with clients, prospective clients, business colleagues, and  team members. Accordingly, Galuppo purportedly incurred business expenses, which pursuant to firm policy were reimbursable through a:

  • corporate expense account funded by the firm, or 
  • business development account  funded largely by Galuppo's pre-tax earnings. 
When seeking reimbursement of those expenses from the firm, Galuppo was required to submit his receipts along with an expense report documenting in part the business purpose of the expenses and, where  relevant, other persons involved or present.  Merrill Lynch's policies allegedly proscribed the types and amounts of expenses that could be charged against these accounts.  Merrill Lynch allegedly permitted Galuppo to use his personal credit card to charge business expenses. 

During the relevant period, Galuppo allegedly submitted over 600 expense reimbursement requests. The AWC asserts that Galuppo's practice was to provide his receipts to subordinates, who would then prepare and submit the requisite expense report on his behalf.  In furtherance of his practice, Galuppo often provided his subordinates with numerous receipts at the same time. The AWC alleges that:

[O]n some occasions he provided information that he knew or was reckless in not knowing was inaccurate. Galuppo's expense reimbursement requests sometimes described meals with his team members as meals with clients, or personal meals as business meals. In other instances Galuppo also provided his subordinates inaccurate information about the reported attendees at meals. For example, Galuppo submitted an April 18, 2015 expense for $430 that was identified as a client meal with a client representative in attendance, when in fact only Galuppo and another Merrill Lynch employee were present. 

The AWC asserts that Galuppo had submitted about 82 expenses that were presented primarily as business-related meals but, in fact, "contained inaccurate information." As a result, the AWC alleges that he improperly caused non-reimbursable expenses to be charged against his expense accounts. 

FINRA's online BrokerCheck records disclose as of November 14, 2017, under the heading "Employment Separation After Allegations" that Merrill Lynch discharged Galuppo on October 3, 2016, based upon allegations of:

Conduct including improper submission of personal expenses for reimbursement, resulting in management's loss of confidence.

FINRA deemed Galuppo's non-compliance with Merrill Lynch's business-expense reimbursement policies to constitute a improper use of the the firm's funds in violation of FINRA Rule 2010.  In accordance with the terms of the AWC, FINRA imposed upon Galuppo a $10,000 fine and a one-year suspension in all capacities.  

Bill Singer's Comment

I am not ambivalent about FINRA's "business expenses" cases because the underlying conduct is generally clear-cut fraud and I fully understand why an employer would fire such an employee and, further, why a Wall Street regulator would view such dishonesty as raising troubling questions about the fitness of such an individual to remain in the industry. I hope that clarifies my feelings about this underlying issue.

On the other hand, there is an over-ripe stench of hypocrisy emanating from FINRA when it steps out onto the stage in high dudgeon and punishes associated persons who cheat on their reimbursable expenses. The self-regulatory-organization comes off, at times, as little more than a cheesy collections agent for its large member firms. Why do I say that? For one thing, FINRA looks askance when those in the C-Suites of its large member firms engage in the same or similar acts of business-expense misconduct. Consequently, I am forced to hold my nose when commenting on cases such as Galuppo's. 

If FINRA wants to have at the Galuppos of Wall Street and their pricey steak dinners with phantom clients, then FINRA also needs to ask questions about the propriety of private jets and deluxe sky-boxes and Super Bowl parties and strip clubs and all the rest of the crap that masquerades as the appropriate use of public shareholders' funds. Then again, one shlub's extravagance is another's networking opportunity. For some folks, you just have to book a suite at the Four Seasons . For others, try to get a large table at the Olive GardenTo illustrate my unflattering view of FINRA's seamy role as a collection agent for its big boys, recall this episode: 

Merrill Lynch CEO Thain Spent $1.22 Million On Office (, January 22, 2009 / updated August 5, 2010)

When John Thain became Merrill Lynch's CEO in early 2008, he hired Michael S. Smith Design to revamp his office suite, spending approximately $1.22 million according to documents.

. . .

The following is a list of the items in his suite:

  • Area Rug $87,784
  • Mahogany Pedestal Table $25,713
  • 19th Century Credenza $68,179
  • Pendant Light Furniture $19,751
  • 4 Pairs of Curtains $28,091
  • Pair of Guest Chairs $87,784
  • George IV Chair $18,468
  • 6 Wall Sconces $2,741
  • Parchment Waste Can $1,405
  • Roman Shade Fabric $10,967
  • Roman Shades $7,315
  • Coffee Table $5,852
  • Commode on Legs $35,115

. . .

Thain was appointed as Merrill's CEO as the firm suffered massive losses from investments tied to the depressed real estate market under his predecessor Stan O'Neal, who was ousted in late 2007.

Those losses continued through 2008, forcing Thain and his management team to sell the brokerage firm to Bank of America in mid September or face near certain liquidation as investors fearing further losses began pulling lines of credit and other financing.

So . . . someone, anyone, please send me the link to any FINRA AWC involving John Thain's business expenses. Show me something from Merrill Lynch that says that management had lost confidence in him as a result of his expenditures. Yeah, sure, I've heard it all. Merrill Lynch knew and approved of the office-renovation expenses. Thain paid back the disputed charges. Please, don't ask me to give Thain a regulatory pass because he ultimately repaid all or part of those lavish office expenses. If you feel that such an after-the-fact expression of contrition is enough to avoid FINRA charges, then offer all associated persons caught misusing business expenses the same opportunity to write out a check and avoid a regulatory history.

And folks wonder why I describe FINRA as little more than the lap-dog of its large member firms? 

READ the "Business Expenses" Archive