April 11, 2022
In today's blog we are left wondering. FINRA makes an exceptionally strong regulatory case against a former Morgan Stanley registered representative, who is charged with multiple violations. All in all, it's not a pretty picture that FINRA paints. It's the strength of FINRA's case that may raise an eyebrow or two when you learn that the rep was not barred from the industry. Of course a 20-month suspension isn't a light slap on the wrist. Still -- you read the allegations and see what you think.
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, Robert David, Jr. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Robert David, Jr. was first registered in 2006, and by 2009, he was registered with FINRA member firm Morgan Stanley.
In the Matter of Robert David, Jr., Respondent (FINRA AWC 2019062180701)
8 Account Profiles Falsified
The AWC alleges that between December 2012 and September 2018, David increased the net worth ("NW") and liquid net worth ("LNW") information of eight customers and altered the risk tolerance for one customer in
order to circumvent Morgan Stanley's solicitation restrictions and concentration limits for noninvestment grade, fixed-income securities. By falsifying the cited information, David made the
customers eligible for purchases of non-investment grade, fixed-income securities, for
which they would have otherwise been ineligible under the firm's procedures.
The AWC alleged that in altering the customers' information, David violated FINRA Rule 2010. Further, the cited falsifications had the follow-on effect of causing Morgan Stanley's books and record to be rendered inaccurate in violation of FINRA Rules 4511 and 2010
The AWC alleges that between February 2015 and January 2019, David recommended that three of his
customers invest substantial portions of their assets in non-investment grade, fixed-income securities. As a result of his cited recommendations, the AWC alleged that in violation of FINRA Rules 2111 and 2010, David
unsuitably overconcentrated his customers in these securities as follows:
- Customer A had a moderate risk tolerance, a primary investment objective of
capital appreciation, and a LNW of $800,000. David inaccurately changed
Customer A's LNW in the firm's systems to $1.1 million in December 2012 and
$2.5 million in December 2016. Between February 2015 and January 2019, David
made unsuitable recommendations of non-investment grade, fixed-income
securities in Customer A's account, causing Customer A to have between 43.80
and 63.15 percent of his LNW concentrated in non-investment grade, fixed-income securities.
- Customer B, a retired couple in their 70s, had a moderate risk tolerance, a primary
investment objective of income, and a LNW of $2.3 million. David inaccurately
changed Customer B's LNW in the firm's systems to $10 million in December
2016 and $15 million in April 2017. Between December 2016 and January 2019,
David made unsuitable recommendations of non-investment grade, fixed-income
securities in Customer B's joint account, causing Customer B to have between
32.72 and 47.78 percent of their LNW concentrated in non-investment grade,
- Customer C had a moderate risk tolerance, a primary investment objective of
capital appreciation, and a LNW of $750,000. David inaccurately changed
Customer C's LNW in the firm's systems to $2 million in April 2013, $3.5
million in June 2015, and $5 million in June 2018. Between May 2015 and
September 2018, David made unsuitable recommendations of non-investment
grade, fixed-income securities in Customer C's account, causing Customer C to
have between 56.51 and 71.18 percent of his LNW concentrated in noninvestment grade, fixed-income securities.
at Page 3 of the David AWC
The AWC alleged that between January 2015 and February 2019, David exercised discretion to effect 538
trades in the accounts of eight customers notwithstanding that none of the customers had provided prior written
authorization for David to exercise discretion, and Morgan Stanley did not accept any of the customers' accounts as discretionary. Therefore, David violated NASD Rule 2510(b)
and FINRA Rule 2010.
Online FINRA BrokerCheck disclosures as of April 11, 2022 alleged that on March 5, 2019, "MSSB" discharged David based upon:
Allegations related to registered representative entering inaccurate client profile
information relative to bond-related transactions and concerns that some of those
transactions were not confirmed immediately beforehand.
In accordance with the terms of the AWC, FINRA imposed upon David a $15,000 fine and a 20-month suspension with any FINRA member in all capacities.
Bill Singer's Comment
Compliments to FINRA on a patient, methodical AWC, which sets out the underlying misconduct with clarity. Nice job!
I can't quite reconcile the alleged misconduct cited in the David AWC with the absence of the imposition of a Bar rather than a 20-month suspension. I do recognize that the cited misconduct was largely concluded in 2018 -- some four years ago. To that extent, the case is sanctioning some relatively old misconduct; however, the delayed justice may also be engendered, even if only in part, by the ensuing Covid pandemic. Similarly, I note that David was terminated by his employer over three years ago.
On the other hand, online FINRA BrokerCheck disclosures as of April 11, 2022 disclose under the heading "Customer Dispute - Settled" four items involving settlements in:
- 2020: $60,000, $35,000, and $200,000; and
- 2021: $85,000.
David is disclosed not having contributed to the above settlements.
Additionally, online FINRA BrokerCheck disclosures as of April 11, 2022 disclose under the heading "Customer Dispute - Closed-No Action/Withdrawn/Dismissed/Denied" an unauthorized-trading complaint seeking $800,000 in alleged damages and closed without any action in 2019.
For me, the scales are still swaying up and down when I ponder the absence of a Bar. Could be that the suspension was the byproduct of intense settlement negotiations. Could be that FINRA deemed the multi-month suspension a reasonable compromise in light of facts that did not make their way into the AWC. Whatever the explanation, David should consider himself lucky that his lawyer negotiated a resolution that did not bang him out of the business.