Securities Industry Commentator by Bill Singer Esq

January 22, 2019

The cold, harsh reality of the ongoing government shutdown
In re: Pending Administrative Proceedings (Order, '33 Act Rel. No. 10602; '34 Act Rel. No. 84986; Invest. Adv. Act Rel. No. 5101; Invest. Co. Act Rel. No. 33344 / January 16, 2019) [Ed: footnote omitted]:

The Securities and Exchange Commission has experienced a lapse in appropriations. Absent an appropriation, the staff of the Commission is prohibited from performing the ongoing, regular functions of government except in very limited circumstances, including "emergencies involving the safety of human life or the protection of property."

Accordingly, the Commission stays all pending administrative proceedings initiated by an order instituting proceedings that set the matter down for a hearing before either an administrative law judge or the Commission. The stay is effective immediately and shall remain operative pending further order of the Commission. 

Any party in a proceeding pending before an administrative law judge may request that the stay be lifted in its proceeding, if it believes that lifting the stay would be in accordance with the narrow classification of excepted matters discussed above, by filing a motion with the chief administrative law judge, who is authorized to act on such motions. Any party in a proceeding pending before the Commission may make such a request to the Commission. . .
You know how something bothers you but you decide to try and ignore it, but the longer you try to ignore it, the more it bothers you? The old festering wound . . . and it is brought to life in all its glory in today's blog about a 2009 customer complaint that slowly and painfully prompted a 2019 stockbroker's expungement. There's also an intriguing thought-piece about whether a stockbroker should ever fire a client.

Elderly Lady of Modest Holdings Upset by her stockbroker's commissions
In a FINRA Arbitration Statement of Claim filed in April 2018, associated person Claimant Sheppard sought the expungement of three customer complaints from his Central Registration Depository record ("CRD"). Respondent Merrill Lynch took no position on the requested expungement. None of the customers participated in the hearing. In the Matter of the Arbitration Between David N. Sheppard, Claimant, v. Merrill Lynch Pierce Fenner & Smith Inc., Respondent (FINRA Arbitration 18-01481). The sole FINRA Arbitrator made a FINRA Rule 2080 finding the the customers' claims, allegations, or information is false. In pertinent part, this is the rationale published by the Arbitrator:

The customer was an elderly lady with modest holdings, limited to securities issued by her late husband's employer. She was referred to Claimant who, after reviewing her life circumstances, recommended a rebalancing into CDs and mutual funds. The customer became upset, however, when she learned the sale of some of her shares resulted in a commission. She filed a complaint that the transaction was not authorized and that the penalties attached to early redemption of the mutual funds had not been explained to her. Claimant, a veteran of 47 years in the business, testified credibly that she had agreed to his recommendations and that the commission structure had been explained to her, along with the backend load aspects of the funds. The evidence at hand established clearly that the complaint she filed was untrue and that expungement is therefore appropriate.

. . .

These CRD entries emanated from a married couple, both of whom, contrary to Claimant's recommendation, sold their equity positions during a sharp decline in the market and then, when it bounced back, brought "unsuitability" complaints. The circumstances are sufficiently similar that they can be treated together. Both of the customers had considerable investment experience when they became customers of Claimant. Claimant spent significant time learning their economic situation and formulated similar strategies, creating for each a portfolio balanced between equities and debt.

The husband rode out the 2007/2008 downturn but became skittish at the 2011
market. The wife, who had not been Claimant's customer in 2007/2008, followed
suit. Their "unsuitability" allegations were likely triggered by the market's
comeback shortly after they sold, which is a clear case of hindsight. Claimant
testified persuasively that he took the time and effort to propose a rational
investment strategy for both of the customers. I conclude that their claims had no
serious basis and therefore should be expunged.
Jeremy Jones was indicted in the United States District Court for the Western District of Tennessee on conspiracy to commit identity theft and mail fraud, and separate counts of identity theft, mail fraud, aggravated identity theft, obstruction of justice, and tampering with government witnesses. After a six-day jury trial, he was convicted on all counts and found guilty of using stolen identities to defraud over 100 individual victims and various financial institutions of more than $1.9 million dollars. Jones was sentenced to 102 months in federal prison, and ordered to pay $199,698.35 in restitution. As set forth in pertinent part in the DOJ Release:

According to information presented in court, Jones executed a scheme to steal the identities of personal acquaintances, car dealers and over 145 Memphis Neurology patients throughout 2011, 2012 and 2015. Jones used this identifying information to apply for loans and credit cards and open bank accounts in the individuals' names without their knowledge. A co-conspirator who was employed at Memphis Neurology removed patient information from the company's database and provided it to Jones upon his request. Jones agreed to compensate the co-conspirator for providing him with this information.