February 16, 2022
Lately, FINRA sure as hell seems fascinated with Morgan Stanley's joint production agreements. Morgan Stanley uncovered some questionable conduct and FINRA was well within its rights to impose fines and suspension. Regardless, why is this stuff just popping up now when the underlying misconduct occurred a few years ago? A word to the wise, if you're altering production codes for whatever reason when you're entering trades, the practice is now on FINRA's radar.
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, Jason Robert Stannard submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Jason Robert Stannard was first registered in 2006, and by June 1, 2009, he was registered with FINRA member firm Morgan Stanley. In the Matter of Jason Robert Stannard, Respondent (FINRA AWC 2019061720801)
Joint Production Agreement
The AWC alleges that in July 2013, Respondent Stannard entered into a joint production agreement whereby "he agreed to service certain customer accounts, including executing trades for those accounts, under a joint representative code (also known as a joint production number) that he shared with two team members and a retired representative, who was a relative of Stannard." Said Agreement provided for the apportioning of the percentages of commissions among parties but the precise terms are not set forth in the AWC.
In pertinent part, the AWC alleges that:
From October 2017 through July 2018, Stannard placed a total of 136 trades in accounts
that were covered by the agreement using his own personal representative code.
Specifically, although the firm's system correctly prepopulated the trades with the
applicable joint representative code, Stannard changed the code for the 136 trades to his
personal representative code. Prior to Stannard changing the code on the trades, the
retired representative agreed that Stannard could do so. Stannard also discussed changing
the representative code with the two team members and he believed they also agreed that
Stannard could do so, but Stannard was mistaken. The firm's trade confirmations for the
136 trades inaccurately reflected Stannard's personal representative code.
During the roughly ten months at issue, when Stannard entered trades in order to receive production credit, Morgan Stanley's trading interface apparently prepopulated the ticket with the joint representative code. The AWC alleges that Stannard over-rode the default joint code for 136 trades to reflect his "personal representative code." As to the impact of Stannard's alterations of the code, the AWC explains in pertinent part that:
Stannard's actions resulted in his receiving higher commissions from the 136 trades than
what he was entitled to receive pursuant to the agreement. In late 2018, Stannard became
aware that the two team members had concerns about his changing the representative
code on the trades at issue, and he offered to reimburse them for the higher commissions
he received. Before Stannard was discharged from the firm, the firm credited the two
team members with a higher commission percentage for trades placed using the joint
representative code (and reduced the commissions earned by Stannard for those trades) to
reimburse the two members for the commissions they did not receive as a result of
Stannard's changing the representative code on the 136 trades. The retired representative
refused to accept reimbursement from the firm.
A Matter of Reimbursement
As the AWC explains, Stannard offered to reimburse the two active team members pursuant to the higher commissions he had received via his alteration of the joint code. Oddly, we're sort of left hanging at the point in time when Stannard makes his proposal to reimburse because when the AWC picks up the timeline, we learn that Morgan Stanley reimbursed to two team members "with a higher commission percentage for trades placed using the joint representative code." For reasons not explained in the AWC, the two teams members apparently declined Stannard's offer of reimbursement but, notwithstanding, Morgan Stanley stepped into the vacuum and made things right. How did Morgan Stanley learn about the very vacuum into which it supposedly stepped? Ahhh, that tidbit isn't explained in the AWC. Morgan Stanley's righting of wrongs did not come solely out of the firm's pockets but seems to have been offset by the reduction of Stannard's commissions on the underlying trades, which seems fair. Apparently, the fourth team member, the retired rep (Stannard's relative), refused to accept the firm's proposed reimbursement. FINRA alleges that Stannard's conduct caused Morgan Stanley to maintain inaccurate trade confirmations in violation of FINRA Rules 4511 and 2010.
Online FINRA BrokerCheck disclosures as of February 15, 2022, disclose that "MSWM" "discharged" Stannard on January 28, 2019, based upon:
Allegations related to registered representative's allocation of revenue to an individual production number rather than a joint production number.
In accordance with the terms of the AWC, FINRA imposed upon Stannard a $2,500 fine and 10-business-day suspension from associating with any FINRA member in all capacities.
Bill Singer's Comment
Yes, I understand that Foster reimbursed Morgan Stanley in the amount of $21,831 but it would be nice if the AWC specified the exact amount of "additional" commissions that FINRA had independently calculated. And let me be VERY clear as to my point here, Foster would have been entitled to earn some commissions on the 150 trades via his portion of the joint production agreement. . .
In the Stannard AWC it's still odd that FINRA again fails to inform us of the dollar amounts of the commissions at issue. Also, what the hell took FINRA so long to settle the case? Morgan Stanley had discharged Stannard in January 2019 -- what about the joint production number shenanigans required over three years of investigation and negotiation by FINRA?
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