All Along the Watchtower FINRA Defends Against the Invading Notaries

June 15, 2021

Some say that FINRA stands all along the watchtower and protects the investing public from the oncoming hordes of Wall Street. Some say that FINRA is perched atop the castle walls, enjoying a smoke of a dubious substance, sippin' a glass of wine, and mesmerized by the sunset. Others say that FINRA had some other regulator punch in for them and blew off the whole standing on the bulwarks thing. In any event, today's blog features yet another example of FINRA discharging its role as the protector of the realm. We don't have raging hordes threatening to storm the castle. No, today's attackers are from the fearsome tribe of the Notaries. And as the joker said to the thief, there's too much confusion and I can't get no relief.

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, Michael Joseph Riccio submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Michael Joseph Riccio, Respondent (AWC 020065607801, June 11, 2021)

The AWC asserts that Riccio was first registered in 1995 with LPL Financial LLC, where he remained until June 2020. The AWC states that Riccio "does not have any relevant disciplinary history."


By way of dramatic foreshadowing, let's go to the FINRA Rulebook:

FINRA Rule 3270: Outside Business Activities of Registered Persons

No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Passive investments and activities subject to the requirements of Rule 3280 shall be exempted from this requirement.

*** Supplementary Material: ***

.01 Obligations of Member Receiving Notice. Upon receipt of a written notice under Rule 3270, a member shall consider whether the proposed activity will: (1) interfere with or otherwise compromise the registered person's responsibilities to the member and/or the member's customers or (2) be viewed by customers or the public as part of the member's business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered. Based on the member's review of such factors, the member must evaluate the advisability of imposing specific conditions or limitations on a registered person's outside business activity, including where circumstances warrant, prohibiting the activity. A member also must evaluate the proposed activity to determine whether the activity properly is characterized as an outside business activity or whether it should be treated as an outside securities activity subject to the requirements of Rule 3280. A member must keep a record of its compliance with these obligations with respect to each written notice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1).

Okay, so . . . as far as FINRA's rules go, its outside business activities ("OBA") rule ain't all that complicated. A registered person can't hold the proscribed titles. A registered person can't be compensated or have the reasonable expectation of compensation attendant to "any business activity outside the scope." If the registered person wants to hold the proscribed titles or accept compensation from an OBA then prior written notice must be submitted to the member firm.

18 Months of Notarizations

What did Riccio do to invoke FINRA's ire?  The sum and substance of his alleged misconduct is set forth in the AWC in such short order that I will let it speak for itself in full:

From January 2018 through June 2019, while registered through LPL, Riccio was a notary public and provided notary services to firm customers. During that same time period, Riccio also provided notary and Medicaid application preparation services to the mother of a former customer and received approximately $3,600 in compensation for those services. LPL's written supervisory procedures required registered representatives to provide written disclosure of all outside business activities and receive written approval from the firm. Riccio did not provide written notice to LPL seeking approval of his notary or Medicaid application preparation services as outside business activities. Additionally, Riccio provided a false and misleading compliance attestation to LPL because he did not disclose his notary services as an outside business activity.1
= = = = =
Footnote 1: Riccio's false attestation was submitted prior to his performing Medicaid application preparation services.


In accordance with the terms of the AWC, FINRA imposed upon Riccio a $5,000 fine and a two-month suspension from associating with any FINRA member in all capacities. 

Bill Singer's Comment

As I look at my calendar, I note that today is June 15, 2021. As I look at the AWC, I see that FINRA has gone after Riccio for misconduct that allegedly occurred from January 2018 through June 2019. Okay, I will give FINRA the fact that the alleged misconduct transpired over a somewhat lengthy period of about 18 months. On the other hand, the last cited date of misconduct, June 2019, is now two years old.  

It's tough to get all worked up and in a lather about two-year-old notarizations, no?

When I dissect the horrors for which Riccio stands accused, it seems that over 18 months he provided to the mother of a former customer both "notary and Medicaid application preparation services" for which he reaped the munificent sum of $3,600, which if we divide by each of those 18 months, and I will do that math for you, it breaks down to $200 a month, or, taking things even further, over the course of a 20-business-days month, that's $10 a day. Assuming that Riccio charged, say, $2 a notarization, that's five notarizations a day for 18 months for the customer's mother -- but we also have to factor in the Medicaid services, which, okay, I'm drawing the line at that. You go figure out the fair, daily rate for Medicaid services. I'm a high-priced lawyer. I got better things to do with my valuable time.

Apparently having far too much of that valuable time on my hand, I looked up how New York State characterizes a Notary, and this is what I found at :

Notaries Public are "commissioned" (i.e., licensed) by the Secretary of State. Notarial functions include:
  • administering oaths and affirmations;
  • taking affidavits and depositions;
  • receiving and certifying acknowledgments or proof of such written instruments as deeds, mortgages and powers of attorney; and;
  • demanding acceptance or payment of foreign and inland bills of exchange, promissory notes and obligations in writing, and protesting the same for non-payment
Many banks, law offices and other institutions which deal in financial or real property transactions employ individuals who are commissioned as Notaries Public. It is the responsibility of licensees to understand the Notary Public Law.

Term is commission is four years

I dunno -- waddya think? Ya think that administering oaths and affirmations is a "business activity outside the scope"? I'm not arguing that Riccio was not compensated -- he was to the tune of $10 a day for 18 months, so, FINRA gets that checkmark in its box. But was he engaged in an OBA? 

Perhaps Riccio could have argued that when he provided notarial services that such were done within the scope of his employment? Maybe he could have shown the diligent folks at FINRA the New York State published material that "many banks, law offices and other institutions which deal in financial or real property transactions" find it helpful that they have employees able to notarize documents. Maybe his bosses at LPL saw him pull out his Notary Stamp from time to time and notarize signatures for the firm's customers, and, gee, maybe he could have argued that what he did was not surreptitious but well known in the office -- or maybe that's not true. Finally, is holding a Notary Commission per state law the same as engaging in a business activity or is serving as a Notary Public a public service (not a business activity) albeit a public service that comes with a modest fee as set forth in a state statute.

I accept the fact that Riccio entered into the AWC and agreed to accept the findings and sanctions. I accept the fact that I don't know what I don't know. As such, if Riccio was okay signing off on this nonsense, so be it.

On the other hand: Seriously? 

This is the crapola that takes up FINRA's time? A two-year-old matter involving the horrendous misconduct of notarizing documents for a customer's mother?  I mean, you know, sure, if the mother complained about being over-charged then that's one thing. But there's no mention of such a complaint in the AWC, and, as such, we can't make that inference. The AWC does assert that the matter originated from LPL's Form U5 termination of Riccio, but nothing made its way onto FINRA's online BrokerCheck records about the specifics of the U5 and the AWC says nothing further, so, again, who the hell knows, right?

When all is said and done, FINRA fined Riccio $5,000 for providing compensated Notary services. If the customer didn't complain about being overcharged, then a $5,000 fine seems a bit over the top given the AWC's fairly insipid allegations. Similarly, on top of that whopping financial penalty, FINRA added a two-month suspension. Imagine if some humongous financial services firm that comprises a FINRA brokerage firm and a bank knowingly opened bogus accounts that targeted elderly clients. Ya think that FINRA would fine the firm's CEO and then suspend that person for good measure?

But, uh, but you and I, we've been through that
And this is not our fate
So let us stop talkin' falsely now
The hour's getting late, hey

See the Blog "FINRA Rule 3270" Archive