Sometimes you just have to shake your head. Human beings have an amazing capacity for getting themselves embroiled in all sorts of nonsense, then doing whatever it takes to make matters worse, and then, when all else fails, blame everyone else for their predicament. A recent FINRA OHO Panel Decision displays human folly in all its dubious glory.
Nancy Kimball Mellon entered the securities industry in 1983, and by August 2012, she was registered with FINRA member firm Wells Fargo Clearing Services, LLC, where she remained until her December 7, 2016, termination.
In 2016, Wells Fargo operated the Concur system, which allowed employees to submit out-of-pocket paid business expenses for direct company reimbursement. Also, Wells Fargo maintained the Financial Advisor Expense Management System ("FAEMS"), which utilized a reimbursement process that used a flexible spending account funded by an employee's pre-tax dollars from their compensation (on a calendar year basis, unspent FAEMS funds were forfeited). Mellon had arranged for Wells Fargo to deduct $20,000 per year/ $1,667 per month in pre-tax dollars to fund her FAEMS account.
Friend and Customer "RL"
A friend and Wells Fargo customer of Mellon's ("RL") served on the Board of Directors of the Outback Bowl, which was held annually in Tampa, Florida. RL suggested that Mellon might want to attend the college football game because it could prove to be a good opportunity to generate new customers. In furtherance of that idea, Mellon agreed to pay $3,800 for an Outback Bowl VIP Club Membership, which included tickets for the New Year's Day 2016 game plus admission to various promotional/networking events. When it came to coughing up the $3,800, Mellon told the Outback Bowl's Director of Sales that [Ed: footnotes omitted]:
wanted to pay for the membership with a check in 2016 because she had exhausted her 2015
marketing budget. Mellon gave the Director of Sales her credit card information to secure her
membership. However, because Mellon did not have an existing relationship with the Outback
Bowl, the Outback Bowl also asked RL to personally guarantee Mellon's payment, and RL did . . .
Page 3 of the OHO Decision
January 6, 2016 Invoice: $3,800
On January 1, 2016, Mellon showed up at the game with family, current customers, and some prospects. All of which resulted in January 6, 2016, invoice emailed to Mellon for $3,800 "payable on receipt." On that same day, Mellon told the Bowl's Director of Sales that she was awaiting Wells Fargo's funding of her expense account. Thereafter, the following events occurred:
[O]n January 27, the Director of Sales asked Mellon if a check was on the way, noting
that the Outback Bowl was about to close its books for 2015. Mellon told him he would get a
check shortly but said he had earlier agreed to hold off depositing it until late February. The
Director of Sales disputed that he had agreed to hold onto the check, saying that the Outback
Bowl deposits checks soon after it receives them. Additionally, Mellon complained to him that
she was disappointed by the business networking opportunities at the game because she had met
no one at the event. . . .
Page 4 of the OHO Decision
January 27, 2016, FAEMS Submission
Despite not having paid the Outback Bowl invoice, on January 27, 2016, Mellon directed her assistant Mace Maraman, Jr. to submit a $3,800 FAEMS expense, and the filed report included a photocopy of a check dated January 2, 2016, for that amount and drawn on a Bank of Tampa joint account owned by Mellon and her husband. Mellon knew at the time of the submission of the FAEMS report that she had not, in fact, sent the January 2nd check to the Bowl (Maraman purportedly was unaware of the subterfuge). In the absence of an image of the reverse of the check with the endorsement information, FAEMS rejected the expense report.
March 18, 2016, $3,800 Check to Outback Bowl
On March 17, 2016, RL emailed Mellon that she was "taking real heat" from the Bowl about the unpaid invoice. In response, Mellon informed her friend/customer that she had mailed a check to the Bowl in "early March." As it turned out, Mellon's joint account had been overdrawn for about two months when this latest exchange was going on -- nonetheless, on March 18th, Mellon mailed a $3,800 check to the Bowl, which was received on March 23rd and deposited on March 31st.
April 4, 2016, Concur Submission
On April 4, 2016, Mellon instructed Maraman to use a copy of the March 18th check as supporting documentation for a Concur reimbursement expense. All well and fine but for the fact that on April 4th, that $3,800 check came bouncing back for insufficient funds. When the Bowl informed Mellon on April 5th that the check has not cleared, her response was "Weird. Will see what [the bank] has done."
April 18, 2016, FAEMS Submission
On April 17, 2016, Mellon's branch manager Tom Stuhlsatz informed her that he had authorized a $500 quarterly out-of-pocket marketing budget, and she should re-submit the Outback Bowl expense report and charge $1,000 of the $3,800 expense to Concur for the first two quarters of 2016. In response, on April 18th [Ed: footnotes omitted]:
[M]ellon instructed Maraman to submit $1,000 in expenses to
Concur and the remaining $2,800 to her FAEMS account, as Stuhlsatz had directed. Maraman
did so and included copies of the front and back of the $3,800 check with both expense reports. Mellon approved her $2,800 expense submission a few minutes after Maraman entered it into
FAEMS. Mellon never told Maraman, or anyone else at Wells Fargo, that her check to the
Outback Bowl had bounced.
Stuhlsatz approved payment of the expenses on April 20. Wells Fargo transferred $1,000 to Mellon's joint account from the Concur system on April 21. The Firm also transferred $2,800 from Mellon's FAEMS account to the joint account between April 25 and
June 3. Mellon was thus "reimbursed" $3,800 for expenses she had not actually paid.
Pages 6-7 of the OHO Decision
July 5, 2016, Concur Submission
Some folks just don't know when to stop. In Mellon's case, on July 5, 2016, she instructed Maraman to submit to Concur another $500 marketing expense for her third quarter of coverage and to charge that off against the $3,800 Outback Bowl check, which still had not been honored for payment. Notwithstanding, Stuhlsatz approved the reimbursement and $500 was transferred to Mellon's joint account on July 7th. According to Mellon, this $500 Concur reimbursement was made in error because [Ed: footnotes omitted]:
[S]he "may not have been aware of the ... full allocation of the expense, that the
[$3,800] expense had been eaten up." Mellon said Maraman was responsible for tracking all
her expenses because "he held them in queue" and therefore was the one responsible for
knowing whether the $3,800 expense already had been submitted and paid by Wells Fargo. When Mellon asked Maraman to submit the $500 expense report, she knew that her check had
Including the payment of $500 in July 2016, Wells Fargo transferred $4,300 to Mellon
for the expenses she claimed to have incurred for attending the Outback Bowl.
Page 7 of the OHO Decision
RL Dunned for $3,800
While all of these reimbursement machinations are gong on between Mellon and Wells Fargo, RL is still fending off demands from the Outback Bowl that she pony up her friend's unpaid $3,800. After some back-and-forth between Rl and Mellon, which, frankly, was largely deflection by the stockbroker, the point of exasperation was reached [Ed: footnotes omitted]:
In mid-July 2016, the Outback Bowl charged RL's credit card $3,800. RL emailed
Mellon that the Director of Sales's job "was on the line" as a result of the missing payment and
that RL's relationship with the Outback Bowl had suffered "irreparable harm." In her email, RL
also stated, "I should not have been placed in this position." RL warned Mellon that if she did
not pay her within two weeks she would have to take legal action.
Within minutes, Mellon responded to RL's email. She told RL to stop using her Firm
email address to communicate with her because the Outback Bowl expense "ha[d] nothing to do
with work" and Wells Fargo "did not provide [her] any support or marketing funds." Mellon
added, "I have enough on my plate .... I will do what I can when I can." Mellon never told RL
that Wells Fargo had already paid her $4,300 for the Outback Bowl expense reports.
On August 2, 2016, RL filed a civil complaint against Mellon in Hillsborough County,
Florida, seeking repayment of the $3,800 that she had paid to the Outback Bowl on Mellon's
Page 8 of the OHO Decision
December 7, 2016: Wells Fargo Terminates Mellon
Likely in response to RL's lawsuit, Wells Fargo investigated the underlying allegations and by October 2016, the firm concluded that Mellon had been gaming the reimbursement system and had submitted false expense reports. Wells Fargo terminated Mellon on December 7, 2016, and submitted a Uniform Termination Notice for Securities Industry
Registration ("Form U5") alleging that she had "submitted expenses for
reimbursement that were either not business related or not paid by [Mellon]."
December 16, 2016: Mellon Pays Outback Bowl
On December 16, 2016, Mellon paid via credit card the Outback Bowl's $3,800 invoice; however, she has not yet repaid the extra $500 she obtained from Wells Fargo.
January 2018: FINRA Investigates
In January 2018, during its investigation of her termination and the underlying allegations, FINRA sent Mellon a FINRA Rule 8210 demand for information about the Outback Bowl expense reports. In part, the demands sought supporting bank account statements, cancelled checks, and wire transfers. Also, FINRA demanded a list of checking and savings accounts she had an interest in from January 1 to October 31, 2016, and for her to provide supporting documentation of same.
Upon receipt of FINRA's 8210 demands, Mellon [Ed: footnotes omitted]:
[M]ellon told the bank, "I need your
help. Either a letter deny[ing] the documents or the docs." In a subsequent email later in the day, she asked, "Wouldn't it be illegal for [FINRA] to demand [the information] since it is a
joint account and [my husband] would not want our laundry aired? [W]ould not that be an
appropriate answer by Bank?"
Mellon responded to FINRA's Rule 8210 request by email on January 12, 2018. She
provided a copy of the receipt from the Outback Bowl confirming her payment of $3,800 by credit card in December 2016, but she did not provide copies of monthly bank statements, an explanation of the steps she took to try to get the statements, or correspondence she had with the Bank of Tampa. Rather, Mellon told FINRA that because she did not use a check to pay the Outback Bowl, "the banking document requests seem a bit broad of scope." The bank statements were unavailable, Mellon said in her email, because "[she] no longer [had] online access, nor ... copies of statements." Mellon provided no evidence of her efforts to obtain the documents FINRA requested, even though the staff had given her instructions to do so.
Pages 11-12 of the OHO Decision
By January 18, 2018, FINRA Staff had apparently become exasperated with Mellon's failure to fully and timely respond to document demands. Staff asserted that, in part, the banking records were requested in order to demonstrate whether Wells Fargo had transferred a total of $4,300 in reimbursement, and the transactional history of Mellon's $3,800 check. Mellon apparently decided that she had produced all that she could or would, and conveyed that to the regulator. As such, FINRA Staff [Ed: footnotes omitted]:
asked the Bank of Tampa to provide a letter stating
whether it would provide Mellon copies of statements for the joint account and detailing
communications it had with her about obtaining account statements. The same day, the bank's
commercial banking officer wrote to FINRA that the bank would provide either account holder
of the joint account with copies of bank statements and canceled checks. Therefore, according to
the bank, if Mellon asked for "any documentation" about her accounts, it "would provide her
with any/all information requested." It added that the bank "ha[d] not received any requests for
account information" from Mellon. The commercial banking officer wrote that Mellon wanted
a letter from the bank stating that it could not produce the statements FINRA requested. In
response, according to the bank's letter, the commercial banking officer told Mellon that she
should consult an attorney.
Page 13 of the OHO Decision
On November 9, 2018, FINRA filed a Complaint against Mellon alleging Conversion in violation of FINRA Rule 2010; False Expense Reports in violation of FINRA Rule 2010; Causing False Books and Records of the Firm in violation of FINRA Rules 4511 and 2010; and Providing False Information in Response to FINRA Rule 8210 Requests in violation of FINRA Rules 8210 and 2010. FINRA Department of Enforcement, Complainant, v. Nancy Kimball Mellon, Respondent (FINRA Complaint, Disc. Proc. No. 2017052760001 / November 9, 2018)
As to the Conversion count, Mellon largely argued that [Ed: footnotes omitted]:
[B]ecause she had incurred
other business expenses, which offset the amount she was reimbursed for the Outback Bowl, she
did not receive more than she was entitled to. The other business expenses, she claims, exceeded
the amount of her $20,000 FAEMS account and the $2,000 branch allowance. She also argues that money from the FAEMS account actually belonged to her because it was funded with
contributions from her Wells Fargo compensation. However, an employee forfeits unused
FAEMS funds at the end of the year. Even if the Panel were to credit this argument, Mellon also
obtained $1,500 of the $4,300 that Wells Fargo paid her from the Concur system, which was
funded directly by the branch, not Mellon's compensation. And even if Mellon incurred other
reimbursable expenses, she submitted false reimbursement requests for an expense she did not
incur, and she obtained money to which she was not entitled.
Mellon also argues that she made an "administrative error" involving an "over allocation
of an expense," which "clearly should have been allowed to be corrected internally," and that
she did not act with intent. The Panel disagrees. Mellon acted intentionally when she submitted
each of the expense reports. There is no evidence that the reimbursements resulted from the
"mis-allocation of expenses" or "administrative errors" caused by Concur, FAEMS, Maraman,
or anyone else at Wells Fargo. Mellon made a deliberate decision to deceive Wells Fargo. She
knowingly submitted an expense report in January 2016 using a check she had not sent to the
Outback Bowl. She again acted deliberately when she submitted two separate expense reports in
April 2016-one to Concur (for $1,000) and one to FAEMS (for $2,800)-even though she
knew that her check to the Outback Bowl had bounced. She acted intentionally in July 2016
when she asked Maraman to allocate the $500 quarterly branch allowance to the Outback Bowl,
an expense she knew she had not paid.
The Panel also rejects Mellon's argument that the Firm was intent on getting rid of her,
which created an environment of "ill will and toxicity" that prevented her from fixing the
expense report "errors." Based on the evidence presented at the hearing, Wells Fargo was
engaged in appropriate supervision of Mellon. In any event, any possible friction between
Mellon and Wells Fargo does not excuse her deliberately submitting false expense reports.
Pages 13 - 14 of the OHO Decision
OHO Panel Findings
Accordingly, the OHO Panel found that Mellon had converted $4,300 from Wells Fargo in violation of FINRA Rule 2010. Further, the OHO Panel also found that Mellon knew that her four expense reports were false because she had not paid the Outback Bowl and her $3,800 check was returned for insufficient funds. The net result of her conduct was to cause Well Fargo to maintain inaccurate books and records in violation of FINRA Rules 4511 and 2010. Finally, the Panel found that Mellon knew that her requested bank records would show that the joint account had not paid the $3,800 Outback Bowl expense before Wells Fargo reimbursed her for $4,300 is submitted expenses -- and, further, that she knew that the Bank of Tampa was prepared to produce the requested statements.
On July 11, 2019, a Hearing Panel Decision by FINRA's Office of Hearing Officers found Mellon guilty on all counts. The OHO Panel imposed two separate bars from associating with any member firm in any capacity for conversion and the submission of false expense reports causing the firm's inaccurate books and records; and a Majority of the Panel imposed a third bar for the provision of false information. Mellon was ordered her to pay $4,613.94 in hearing costs. FINRA Department of Enforcement, Complainant, v. Nancy Kimball Mellon, Respondent (FINRA Hearing Panel Decision, Disc. Proc. No. 2017052760001 / July 11, 2019) http://www.finra.org/sites/default/files/fda_documents
The OHO Panel took a very dim view of Mellon's conduct [Ed: Footnotes omitted]:
No mitigating circumstances exist that would warrant any sanction less than a bar.
Instead, the Panel is troubled by many aggravating factors. Mellon repeatedly tried to conceal her
actions from Wells Fargo. She also caused RL to pay the Outback Bowl even though Mellon had
already been reimbursed by Wells Fargo. Mellon submitted four false expense reports over a
period of six months. She has not acknowledged her misconduct, choosing instead to blame
others, including her assistant, for supposed administrative failings. She downplays her
actions, noting that the "amount of the error is not one that changed [her] life style." Mellon
construes the problem as a clerical error that could easily have been rectified by re-allocating the
expenses had the negative atmosphere in the office not prevented her from approaching her
superiors. The Panel rejects her arguments and determines that Mellon acted deliberately.
Page 19 of the OHO Decision
As to the Minority Panelist's dissent from the Majority's imposition of a Bar upon Mellon for causing Wells Fargo to maintain inaccurate books and records, the Decision offers this explanation:
[T]he Panel member finds it mitigating that Mellon ultimately
gave FINRA staff her written permission to obtain the requested records from the Bank of Tampa. Therefore, the
more appropriate sanction, the dissenting Panelist finds, is the one the Guidelines provide for a failure to respond in
a timely manner to requests for information. For failing to respond in a timely manner, the Guidelines tell
adjudicators to consider a fine between $2,500 and $39,000 and to suspend an individual in any or all capacities for
up to two years. Guidelines at 33. After considering all the circumstances, the dissenting Panelist finds it
appropriately remedial to impose a sanction at the lower end of the ranges suggested by the Guidelines: a $2,500
fine and a six-month suspension from associating with any member firm in any capacity.
Footnote 146 of the OHO Decision
Bill Singer's Comment
Compliments to FINRA on this OHO Panel Decision. It is an impressive and patient exposition of an extensive fact pattern, and the panelists' rationale is presented with clarity.
One parting shot (so to speak), the 2016 Outback Bowl was a contest between the 13th ranked Northwestern Wildcats (10-2 Big Ten season) and the 23rd ranked Tennessee Volunteers (8-4 SEC season). I mean, seriously, someone would pay $3,800 to watch a 13th ranked team play a 23rd ranked team? Worse, the final score of that snoozer was 45 - 6.