Self regulation sprints along

at the speed of a turtle

Recently, the Financial Industry Regulatory Authority ("FINRA") entered into a settlement with its member firm Ameriprise Financial Services, Inc. ("Ameriprise") pursuant to a Letter Of Acceptance, Waiver And Consent ("AWC") (AWC 2008013648002, April 4, 2011)

SIDE BAR: An AWC is entered into for the purpose settling alleged rule violations on the condition that FINRA will not bring any future actions alleging violations based on the same factual findings against the settling party. Further, without admitting or denying the findings, the settling party accepts and consents prior to a hearing and without an adjudication of any issue of law or fact to the entry of the specified findings by FINRA. This article presents findings and facts subject to the understandings noted in this paragraph.

The Collins Forgeries: 2003 to 2007

According to  FINRA, from January 2003 through October 2007, William Ray Collins, Jr., a broker registered with Ameriprise, forged signatures of ten customers on 34 documents that he submitted to Ameriprise for processing. Among the documents that contained said forgeries were:

• cash distribution forms,
• mutual fund redemption forms,
• financial advisory service agreements,
• authorizations for release of health of information,
• variable life insurance illustrations,
• life and disability income insurance applications, and
• bank authorization forms.

In addition, in order to avoid customer complaints, in May 2005, Collins agreed to pay certain fees for two customers without alerting Ameriprise.

According to the recitation in an AWC that Collins entered into with FINRA:

[W]ithout admitting or denying the findings, . . .Collins failed to disclose a variable annuity service fee in his discussion with customers and, when the customers inquired about the fee, Collins told them that the fee was an error; and to avoid further inquiries he used his own funds to pay the fee without informing the firm or the customers. The findings also stated that Collins accomplished his payment of the fees when he executed money orders on the customers' behalf, forged the customers' signatures on the money orders and submitted the money orders to the firm to pay the variable annuity fees that he had not disclosed to the customers.
(AWC No. 2008013648001. July 2010; reported in September 2010 Disciplinary and Other FINRA Actions):

In consideration of the above settlement, Collins was barred from associating with any FINRA member firm.

2005: Ameriprise Alerted

In December 2005, about two years after Collins's forgeries began, an Ameriprise surveillance analyst first became aware of this misconduct; however, the analyst failed to timely follow up with an investigation and Ameriprise's
supervisory system did not ensure that a timely investigation was conducted.

SIDE BAR: In January 2003, Collins begins to forge customer documents but Ameriprise did not become aware of this possibility until December 2005, nearly three years into the surreptitious behavior began.  Unexplained is why the Ameriprise analyst who got wind of this problem failed to initiate the necessary investigation, and why Ameriprise's supervisory protocols did not ensure that once noted, the matter would be monitored. 

Better Late Than Never

In March 2008, Ameriprise  implemented a new set of procedures for its surveillance department.  As a result of this new protocol, Ameriprise discovered that the investigation of Collins had not been completed.  In April 2008, Ameriprise belatedly found evidence of repeated forgeries by Collins and terminated his employment.

SIDE BAR: We are now more than five years from the date that Collins started to forge documents and slightly about 2 1/2 years from when Ameriprise's analyst noted the misconduct.  At this late date, Ameriprise reassigned the matter to other surveillance personnel and shortly thereafter fires Collins.  It's great that Collins was caught, but I hope no one handed out medals to anyone at Ameriprise for this bungled compliance effort.

FINRA Steps In

Sometime in 2008, FINRA investigated the Collins matter and determined that Ameriprise failed to establish, maintain and enforce a supervisory system that was reasonably designed to detect and prevent misconduct by one of its brokers, in violation of NASD Conduct Rules 3010: Supervision and 2110: Standards of Commercial Honor and Principles of Trade.

In settling FINRA's charges, Ameriprise consented in 2011 to the imposition of the following sanctions:
1. A censure; and
2. A fine of $50,000.
(AWC 2008013648002, April 4, 2011)

Bill Singer's Comment

Here, in a nutshell, is all that is wrong with Wall Street's self-regulatory system.

Better Late Than Never?

Some 8 1/2 years ago, starting in January 2003, registered person Collins begins forging customer documents and continues to engage in such misconduct until October 2007, a tad shy of five years.  Ameriprise detects Collins's forgeries in December 2005; unfortunately, having caught on to the misconduct, Ameriprise sort of let it fall behind the desk, where it got lodged in front of the radiator, and somehow remained hidden for some 28 months.  Okay, so maybe there's a bit of fanciful speculation in that regard but, hey, the point is that the investigation just got  inexplicably sidelined.

In March 2008, perhaps after some furniture got moved around, Ameriprise once again stumbled upon Collins and his penmanship:  five years after his first forgery and over two years after an Ameriprise analyst had initially uncovered the violations.  Frankly, I'm not sure that "better late than never" should be the aspirational motto of Wall Street's in-house compliance professionals.

The FINRA Turtle

Which leave us with yet another puzzling calendar, that of FINRA - Wall Street's much vaunted self-regulatory organization ("SRO").

After Ameriprise tripped over its own feet and belatedly fired Collins in April 2008, why the hell did it take more than three years for FINRA to settle charges with that firm?  I mean, seriously, FINRA barred Collins in July 2010 - now, nearly a year after that, the SRO is only just getting around to settling with Ameriprise? What was going on at FINRA since 2008?  Did FINRA also drop the ball?  Did the SRO also misplace a file?

Parting Shot

Finally, ummm, lemme try to put this tactfully (which ain't my strong suit).  After all these starts, stops, misses, and screw-ups, Ameriprise's regulatory bill is a Censure and $50,000?  As if, what?  A small FINRA member firm would get off so light?

Truly, if this is the best of Wall Street's self-regulation - with all its miscues, delays, and softball sanctions - then it's all too little, too late.