Compel FINRA arbitration by non-customer

Broker Didn’t Know His Client Died

A Wells Fargo broker who traded a client’s account after he died was fired and sanctioned by FINRA.

According to FINRA, the broker was terminated from Wells Fargo “after internal review revealed that advisor entered stop loss orders in account of deceased customer, per prior discussion, not knowing client was deceased.”

FINRA Rule 2010

FINRA found that doing so violates FINRA Rule 2010, requires associated persons, in the conduct of business, to “observe high standards of commercial honor and just and equitable principles of trade.” 

Of course, unauthorized trading is a serious violation, and one which merits investigation and when proven, significant sanctions. However, in this case, according to the consent order, the broker was placing stop loss orders, in a managed account.

Unauthorized Stop Loss Orders

A stop-loss is designed to limit an investor’s loss on a security position that makes an unfavorable move. Once the stock’s price hits the set price, the order converts to a market order. Stop loss orders are accepted and widely used orders.

So, there is no financial motivation for the broker, and the only reason he would be doing this is to protect his customer’s positions.

Falsifing Firm Records

Making matters worse, FINRA also found that on April 8, 2019, he entered a note in the firm’s electronic customer note system falsely indicating that he had spoken with the customer in connection with the stop loss orders. This was not possible as the customer had died in March. On May 15, 2019, after learning of the customer’s death, he edited the original note to inaccurately state that his conversation had occurred in January 2019. Therefore, he violated FINRA Rules 2010 and 4511 in that he falsified firm records.

FINRA Rule 4511

FINRA Rule 4511 requires member firms and associated persons to “make and preserve books and records as required under the FINRA rules, the Exchange Act and the applicable Exchange Act rules.” Inherent in that obligation is the requirement that the books and records be accurate. A registered representative who falsifies firm records causes the firm to maintain inaccurate books and records in violation of FINRA Rules 4511 and 2010. 

No Gain, Lots of Pain

While there was no financial gain for the broker in entering the unauthorized trades, the fact that he entered false information into the firm’s customer note system, and then altered that false information later, should be a serious violation. Plus, entering trades in a client’s account without speaking to him is simply foolish.

The broker was suspended for three months. No fine was imposed, since he had filed for bankruptcy.

The AWC (the consent order) is here.

– Mark Astarita

 

Mark J. Astarita
Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | mja@sallahlaw.com | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.

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