A Business Meal That Wasn't. A Job That's No Longer. A FINRA Regulatory Settlement That Hurts

January 7, 2021

You didn't get the bonus you wanted. You didn't get the raise you wanted. You didn't spend all of that 2% worth of annual T&E you were allocated. In your mind, you were owed. In your mind, someone was gonna pay. Then you came up with that brilliant idea about taking your spouse out for dinner at the really, really expensive restaurant. And you would pay for it on the corporate credit card. And you would tell those idiots in Accounting that it was a business meal with a client. Like who the hell is ever gonna know, right? Umm, not so right. In today's blog we come across the unfortunate case of a corporate officer who gamed his firm's business expense reimbursement system. If I'm writing about it, you should assume that the gambit didn't exactly work out.

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, Timothy Ryan Deegan submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of  Timothy Ryan Deegan, Respondent (FINRA AWC 2019063221801)

The AWC asserts that Timothy Ryan Deegan  entered the industry in 1995 with Daiwa Capital markets America, Inc. ("DCMA"), and in 2011 he became registered with that firm. The AWC asserts that Deegan "does not have any relevant disciplinary history." 

The AWC asserts that Deegan served as DCMA's Chief Risk Officer, and, in furtherance of said role, he was issued a corporate credit card for business expenses, which were subject to reimbursement according to firm policies, which, in part required that:

[W]hen submitting a request for reimbursement of an expense, an employee identify the business reason for the expense and the names, business affiliations, titles and such other information about the attendees sufficient to establish their business relationship. The firm also prohibited attendees from approving their subordinates' expense reports.

The AWC alleges that from July 2018 to April 2019, Deegan submitted nine meal reimbursement requests totaling $1,276.23. As alleged in part in the AWC:

[D]eegan described the expenses as meals with clients, even though in all or most instances no clients were present. For example, in February 2019, Deegan sought and obtained reimbursement of $253.39 for lunch with his co-workers at a restaurant, describing it incorrectly as a meeting with a client, even though no clients were present.

Additionally, from November 2016 to December 2017, Deegan allegedly approved seven reimbursement requests totaling $1,317.52 for another DMCA employee. The AWC alleges that:

[D]eegan knew that clients were not in attendance at these events and that, as an attendee, he was not permitted to approve the expense. On one other occasion, Deegan instructed a separate firm employee to remove Deegan's name from the list of attendees on a reimbursement request, so that Deegan could approve it.

Online FINRA BrokerCheck disclosures as of January 7, 2021, disclose that DMCA "discharged" Deegan on June 5, 2019, based upon allegations that:

Expense report inaccuracies: the listed attendees and stated business purposes for events were incorrect.

An additional "Firm Statement" on BrokerCheck states:

Failure to comply with internal policies, including those related to business expense reports. The policies were not related to credit or market risk management.

In accordance with the terms of the AWC, FINRA imposed upon Deegan a $10,000 fine and a one-year suspension from associating with any FINRA member in any capacity.

Bill Singer's Comment

So many of FINRA's "business expenses" cases look idiotic in hindsight, and Deegan is no exception. Often, we come across an executive or manager who's padding his expenses. In such cases, the amounts gamed in the reimbursement system are piddling, and we often find ourselves laughing at the silliness of the undertaking. Of course, we then have to consider that the silliness cost someone their job, damaged their reputation, and may have cost them a career. Always ask yourself if that steak dinner with the shrimp cocktail and the blue cheese dressing on the salad and the home fries with creamed spinach and the cheesecake and the martini and that bottle of wine you always wanted but couldn't afford was worth the career that you built over two decades. Yeah, I know and I hear it all the time, you're working for a bunch of cheap bastards and they screwed you on your bonus and you didn't get the full raise that you are entitled to. Oh -- you didn't think I knew about all of that? Goes to show you, you're not the only one.

For some penny-pinching companies, there is no value in team building. There is no value in having a manager take a subordinate out for lunch. There is no value in paying for a round of drinks on a Friday in order to build camaraderie. In fairness to those companies, such expenses may not always be justified as a "business" expense, That's what Accounting says. The IRS won't allow it. Be that as it may, you work subject to the policies of your employer. You don't like the cheapskates -- quit. The alternative is not to dig your hands into your firm's pockets and try to even the score.

In the end, Deegan lost his job over less than $3,000 in disputed expense, of which about only half that value were his personal fudged reimbursements. To blow up a career as a Chief Risk Officer over a few hundred dollars in meals doesn't seem like a smart move. I'm sure that, in retrospect, Deegan wishes that he had ordered a chicken salad sandwich to go.

Visit the BrokeAndBroker.com Blog "Business Expenses" Archive at http://www.brokeandbroker.com/index.php?a=topic&topic=business-expenses