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Oops I Did It Again Is No Defense In Second FINRA AWC
September 9, 2019
You got your suspension of disbelief. You got your FINRA suspension. For the FINRA suspension to have meaning and for it to actually work, the subject registered representative has to really, really believe that when Wall Street's self-regulatory-organization says that you're suspended, well, you know, the regulator means it. For that to work, the rep has to suspend his disbelief that FINRA is actually able to monitor his daily activities during the term of suspension, and, further, that the regulator may do anything about any misconduct during said period of suspension. Sadly, some folks don't quite buy into the suspension of disbelief as a working component of the whole Wall Street regulatory scheme of suspensions.
2017 FINRA AWC
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, Daniel W. Staudacher, submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Daniel W. Staudacher, Respondent (FINRA AWC 2016048603001 / January 12, 2017) (the "2017 AWC")
https://www.finra.org/sites/default/files/fda_documents/
2016048603001_FDA_DM932748%20%282019-1563184160070%29.pdf
The AWC asserts that Staudacher was first registered in 1997 with FINRA member firm PFS Investments Inc. Further, the AWC asserts that "Staudacher has no prior relevant disciplinary history."
Unauthorized Trading
As set forth in part in the 2017 AWC:
During the period from August 2015 to September 2015 Staudacher, while associated with PFS, executed four unauthorized transactions in customer AK's account, and a total of four unauthorized transactions in two of customer YW's accounts. Specifically, on August 24, 2015, a date on which the Dow Jones Industrial Average suffered its largest intraday point drop of more than 1000 points, Staudacher sold three of AK's five equity mutual funds and used the proceeds to purchased shares of a bond fund. Staudacher contacted AK on the evening of the transactions to advise her of his trading activity in her account. Due to continued volatility in the equity market, on September 24,2015. Staudacher sold the remaining two equity mutual funds in AK's account and purchased additional shares ofthe bond fund. Staudacher did not contact AK and obtain her authorization prior to executing any of the above-described transactions in her account. After AK complained, PFS reversed the transactions in her account and made her whole.With respect to customer YW, on August 24,2015 Staudacher sold half of the equity mutual fund positions in both her individual account and her IRA account, and used the proceeds to purchase shares of a bond fund in both accounts. Staudacher contacted YW on the evening ofthe transactions to advise her of his trading activity in her accounts. Staudacher did not contact YW prior to executing the transactions in her accounts. After YW complained, PFS reversed the transactions in her accounts and made her whole.PFS imposed a total of $10,000 in monetary sanctions on Staudacher as a result of his unauthorized trading in the customers' accounts.
Text Messages
In addition to Staudacher's alleged unauthorized transactions as cited above, the 2017 AWC further asserted that:
During the three-day period from August 25, 2015 to August 27, 2015, Staudacher utilized text messaging to communicate with customers AK and YW regarding activity in their securities accounts. During the relevant time period, the customers were traveling in area where they had limited cellphone coverage and were having difficulty communicating by phone. Customers AK and YW each initiated the text message communications with Staudacher. He subsequently sent a series of securities-related text messages to AK and YW regarding their securities accounts. These electronic communications were not captured, reviewed or retained by PFS, which, pursuant to its WSPs, prohibited the use of text messaging to conduct securities business with customers.
2017 FINRA Sanctions
FINRA deemed Staudacher's alleged unauthorized trades and his alleged use of improper text messaging as constituting violations of FINRA Rule 2010, and, in accordance with the terms of the AWC, FINRA imposed upon Staudacher a $5,000 fine and a one-month suspension from association with any FINRA member firm in any capacity. The 2017 AWC discloses that Staudacher was represented by legal counsel.
2019 FINRA AWC
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, Daniel W. Staudacher, submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Daniel W. Staudacher, Respondent (FINRA AWC 2017053574801 / September 5, 2019) (the '2019 FINRA AWC:) https://www.finra.org/sites/default/files/fda_documents/2017053574801
%20Daniel%20W.%20Staudacher%20CRD%202878221%20AWC%20sl.pdf
Under the 2019 AWC's heading of "Relevant Disciplinary History" is the following:
In January 2017, Staudacher entered into an AWC in which he consented to a one-month suspension and $5000 fine for violating FINRA Rule 2010 by making unauthorized transactions and engaging in unapproved securities-related communications with customers in violation of Firm policy.
What Part of "Suspension" Ain't You Gettin'?
[O]n February 6, 2017, the first day of his FINRA suspension, Staudacher accessed the Firm's electronic systems and submitted an application for a new securities account held jointly by two customers. That same day, Staudacher evidenced his review of two new 529 plan applications in his capacity as the assigned registered representative by logging into the Firm's systems and marking the applications as approved. Also on February 6, 2017, Staudacher submitted to the Firm's transfer agent a Letter of Instruction from a customer, dated the same day, requesting a transfer from a third-party 401K plan and attaching a check from the customer in the amount of $162,204.On February 7, 2017, the second day of his suspension, Staudacher facilitated redemption requests made by two different Firm customers. At the time, another registered representative of the Firm was designated to service the accounts of Staudacher's customers due to Staudacher's suspension. Rather than directing the two customers to contact the designated registered representative, Staudacher prepared forms used to make redemption requests for each customer and faxed the completed forms and redemption instructions to the designated registered representative.
In addition to deeming his above-cited conduct as violating the terms of his one-month suspension and FINRA Rule 2010, FINRA also alleged that Staudacher violated Rule 2010 and Article III, Section 3(b) of FINRA's By-Laws when he engaged in associated person activities despite his one-month statutory disqualification via his suspension. Further, FINRA deemed that Staudacher had again violated FINRA Rule 2010 when:
Prior to submission of new securities account applications, the Firm required customers to review and provide electronic signatures on the completed forms by entering the last four digits of their social security numbers. From February 3, 2017 through February 6, 2017, to accommodate his clients, Staudacher electronically affixed customers' signatures on four new securities account applications by entering the last four digits of the customers' social security numbers on the applications.
FINRA Sanctions (Round 2)
In accordance with the terms of the 2019 AWC, FINRA fined Staudacher $10,000 and imposed upon him a two-month suspension from association with any FINRA member in any capacity.
Bill Singer's Comment
I dunno about you but, wow, I was sure as hell surprised to see that Staudacher was not suspended for at least a year or even barred. Frankly, I had expected to see FINRA throw the book at him. All of which forces me to wonder whether the AWC overstated the extent and severity of Staudacher's 2017 conduct during his suspension -- you know, as part of a somewhat cynical effort by FINRA to make the underlying misconduct appear far worse than it was. In the alternative, Staudacher's violations may indeed be as serious as the 2019 FINRA AWC sets forth, in which case, I can't quite figure out why there was only a two-month suspension.
By way of context and background, online FINRA BrokerCheck records as of September 9, 2019, disclose under the heading "Customer Dispute - Settled" that on December 15, 2015, a customer filed a complaint with PFS Investments alleging:
CUSTOMER ALLEGES THAT UNAUTHORIZED TRANSACTIONS WERE MADE IN HER ACCOUNTS ON AUGUST 24, 2015
The customer complaint was settled on January 15, 2016, for $6,605.33, of which Staudacher contributed $3,910.42. Staudacher's "Broker Statement" on BrokerCheck asserts that:
BrokerCheck records disclose under the heading "Judgement/Lien" six events involving what appear to be tax liens/judgments filed by the Internal Revenue Service from 2011 to 2018. The amounts cited run from $5,638.56 to $186,000.I HAD PRIOR DISCUSSION WITH THE CUSTOMER AND UNDERSTOOD THAT I WAS AUTHORIZED TO MAKE THE TRADES AT ISSUE.