In approximately October 2012, Brendza entered into an agreement through which 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 a representative who was planning on retiring in several years (Representative 1) and an active representative who was part of Brendza's team and who is an immediate family member of Brendza (Representative 2). The agreement set forth what percentages of the commissions each representative would earn on trades placed using the applicable joint representative code. In February 2014, the parties amended the agreement in writing to provide Brendza and Representative 2 with higher percentages of commissions earned for trades placed using the joint representative code than what was set forth the original agreement.From March 2015 through February 2018, Brendza placed 380 trades in accounts that were covered by the amended agreement using a representative code other than the one he should have used pursuant to the amended agreement.2 Specifically, although the firm's system correctly prepopulated the trades with the applicable joint representative code, Brendza changed the code for the trades to a different joint representative code that he shared only with Representative 2. As a result of Brendza's actions, Brendza and Representative 2 received higher commissions from the 380 trades than what they were entitled to receive pursuant to the amended agreement with Representative 1.Brendza did not ask Representative 1 whether he could change the code on the 380 trades at issue and did not otherwise indicate to him that he was doing so. Brendza mistakenly believed that Representative 1 had agreed that he could change the representative code so that Brendza and Representative 2 would receive even higher percentages of commissions than what was set forth in the amended agreement. In fact, Representative 1 had not agreed that Brendza could change the representative code. The firm's trade confirmations for the 380 trades inaccurately reflected the representative code that Brendza shared with Representative 2 alone.In September 2018, Morgan Stanley paid restitution to Representative 1. Brendza, together with Representative 2, reimbursed the firm a total of approximately $275,000, which Is the approximate amount of additional commissions that they received from the 1,147 trades as a result of Brendza and Representative 2 falsifying the representative code on the trades.= = =Footnote 2: Representative 2 separately placed 762 trades in accounts that were covered by the amended agreement using a representative code other than the one he should have used pursuant to the amended agreement.
Again, that above-quoted sentence was not my wording but that of FINRA. Accordingly, the self-regulator is asserting that the full weight of FINRA Rule 2010 should be invoked and brought down upon Brendza's shoulders because . . . because . . . he mistakenly believed that the code changes at issue had been used subject to the consent of Representative 1. Further, FINRA resorted to regulatory sanctions despite the fact that Representative 1 was fully reimbursed -- ultimately out of the pockets of Brendza and Representative 2. Finally, the alleged misconduct occurred during 2015 through 2018, which, is about four to seven years ago.Brendza mistakenly believed that Representative 1 had agreed that he could change the representative code so that Brendza and Representative 2 would receive even higher percentages of commissions than what was set forth in the amended agreement.
As BrokeAndBroker.com readers know, I have long criticized FINRA's facile usage of Rule 2010: As in when the regulator doesn't like something and, geez, it's not actually a violation that, well, you know, fits into any specific Rule on our books, but, okay, we do have that catch-all Rule 2010, and, hey, why not stretch Rule 2010 to cover this alleged misconduct? In the case of Respondent Brendza, stretch away indeed!FINRA Rule 2010: Standards of Commercial Honor and Principles of TradeA member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.