Money For Nothing Leaves Stockbroker in Dire Straits With FINRA

May 9, 2018

Money for Nothing. Take the Money and Run. Catchy tunes. You get them in your head and they stay there. Sort of like today's Blog in which we watch a stockbroker push the plunger on his career -- even if only for a few months -- because of a measly $555. Maybe this respondent sort of confused a "sweep account" with his "business development account" and figured that he should sweep the year-end remaining balance from his firm into his own pockets? I mean, okay, we all have been tempted by such an impulse from time to time. On the other hand, most of us avoid that temptation. Most of us distinguish between that's mine, that's theirs, and, geez, if I get caught this could end in disaster. How's that lyric go?   Money for nothing and . . . oops, I don't think the rest of that lyric is still politically correct. How's that other song go? Oh yeah: Bill Mack is a FINRA detective. You know he knows just exactly what the facts is. He ain't gonna let those two escape justice. 

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, Joshua Thomas Crossman submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Joshua Thomas Crossman, Respondent (AWC 2017053816101, May 3, 2018).

The AWC asserts that Crossman entered the industry in 1995, and through October 2015, he was employed by and registered with 7 different FINRA member firms. The AWC asserts that in October 2015, Crossman became associated with FINRA member firm Merrill Lynch, Pierce, Fenner & Smith, Inc.  The AWC asserts that Crossman has "no prior disciplinary history in the securities industry."

Business Development Account

The AWC asserts that Merrill Lynch funds a business development account ("BDA") in order to reimburse business expenses incurred by eligible registered representatives. For calendar year 2016, Merrill Lynch apparently required that the year's BDA funds be used (or forfeited) by December 31, 2016, and expense reports be submitted for review by January 3, 2017. Consistent with the firm's policy, the AWC alleges that on December 30, 2016, Merrill Lynch notified Crossman that:
  • he had approximately $555 remaining in his BDA, 
  • any unused funds would be forfeited, and 
  • expense reports for BDA funds had to be submitted by January 3, 2017.
Money for Nothing

On January 3, 2017, Crossman allegedly instructed his assistant to submit an expense report seeking about a $524 BDA reimbursement for mileage and dinner expenses. Crossman represented that these expenses were incurred during two meetings and a dinner with prospective clients. Thereafter, the AWC asserts that:

Subsequently, Crossman admitted to the Firm that the meetings and dinner did not take place and that he submitted the false expense report to avoid forfeiting the unused funds in his BDA. As a result, the Firm rejected Crossman's January 2017 expense report and, therefore, no funds were disbursed to him.

Online FINRA BrokerCheck records as of May 9, 2018, disclose that Merrill Lynch "discharged" Crossman on March 6, 2017, based upon allegations that:

Conduct involving submission of an inaccurate business expense reimbursement report

Took the Money and Ran

FINRA alleged that Crossman made intentionally false statements to Merrill Lynch through his submission of the January 2017 expense report in an attempt to obtain an unjustified reimbursement for expenses that had not been incurred, in violation of FINRA Rule 2010. In accordance with the terms of the AWC, FINRA imposed upon Crossman a $10,000 fine and a six-month suspension from association with any FINRA-regulated broker-dealer in any capacity.

Bill Singer's Comment

These bogus business expense settlements seem to come to a fork in the road in terms of sanctions with some ending in bars and others with suspensions. Crossman should deem himself lucky that he detoured into a mere suspension.  An aspect of the fact pattern that may have prompted FINRA to accept something less than a bar was that Merrill Lynch rejected Crossman's attempted reimbursement, and, as such, no payment was made and, accordingly, no conversion took place. 

One annoying thing about this AWC is its failure to disclose when or why Crossman informed Merrill Lynch as to his submission of a false reimbursement request. We do not know if his confession, as it were, was prompted by his awareness of an in-house investigation or merely the result of Crossman's guilty conscience.

Also read:  Merrill Lynch Employee Fined And Suspended For Business Meals By FINRA ( Blog, November 14, 2017 )