Jan 31 (Reuters) - The risk of being fined, or even
thrown out of the securities business, should be enough
motivation for advisers to follow the industry's most basic
In reality, that is not always the case.
A review of recent disciplinary sanctions by the Financial Industry Regulatory Authority, Wall Street's watchdog, suggests
that some brokers may be either brazen or clueless.
Some went so far as to engage in sneaky transactions without
their brokerages knowing. One broker failed to disclose a felony
plea to an employer when applying for the job. Another got into
trouble for walking out of a licensing exam and trying to cheat
by peeking at a study guide he had stashed in his car.
The alleged missteps can serve as a reminder of some of
these top blunders that brokers should avoid:
- Borrowing money from customers. It may seem like just a
loan, but borrowing from clients is a way of misappropriating
their money. Still, this industrywide taboo continues to tempt
On Jan. 20, FINRA barred a former broker from the securities
industry an Ameriprise Financial Inc unit for borrowing $45,000
from a 102-year-old client and then ignoring the regulator's
request to interview him about the incident, according to a
document from the watchdog.
The broker, James Landon Yarbrough, worked for units of
Ameriprise Financial Inc in Florida between 2008 and 2010, when
he voluntarily resigned, according to regulatory filings.
Ameriprise rules prohibited brokers from borrowing from
customers, except those who were immediate family members or
financial institutions. But in 2009, Yarbrough did so anyway,
according to FINRA.
Efforts by Reuters to reach Yarbrough were not successful.
Desperation and shoddy supervision are among the reasons why
advisers may run afoul of the rule, said Marc Dobin, a Jupiter,
Florida, lawyer who advises brokers. Sometimes advisers also
develop friendships with their clients, blurring the line
between business and personal. But there is no exception in the
rules for borrowing from clients who become friends, Dobin said.
- Selling away. Brokers who privately sell securities
without first getting permission from their brokerage firms are
looking for trouble. The practice, known as "selling away," can
lead to fines and suspensions for brokers, and possible
enforcement actions against their employers for poor
"Why do people do it? It's a perennial question," said
Patrick Burns, a securities lawyer in Beverly Hills, California.
Some brokers may want to sell securities that their firms do
not offer, he said. The practice can also be lucrative since
brokers do not have to share the commissions with their firms,
Be warned: it can also be dicey. Former Edward Jones adviser
Melissa Reppert agreed in early January to a five-month
suspension from the securities industry and $25,000 fine for
selling away, according to a FINRA settlement document.
Reppert, of California, was moving to another company in
2010 when she recommended that two customers invest in that
company, which was unregistered and not publicly traded,
according to FINRA.
She then facilitated their investments in the company she
was joining by transferring funds from their Edward Jones
accounts to the company, according to the settlement. There was
just one problem: She was still employed by Edward Jones, which
was not aware of the situation, according to FINRA.
Reppert, who did not admit to or deny FINRA's allegations,
told Reuters that she could not afford to fight the case. She
did not profit from the transaction, she said, and is starting
over in a new field. An Edward Jones spokesman said the
brokerage had cooperated fully with FINRA's investigation.
- Altering client signatures. Chasing down signatures from
clients can be a hassle. Think before making it worse by trying
to save time by pasting a photocopy of a client's signature onto
a form, or using other tricks.
Michael J. Binstock, a former adviser for Thrivent Financial
for Lutherans Inc's Thrivent Investment Management Inc unit, is
contending with these types of allegations.
In a regulatory complaint dated Jan. 11, FINRA said Binstock
asked customers between 2007 and 2009 to sign blank or
incomplete forms so he could change them to use later. FINRA
also said Binstock had used customers' photocopied signatures to
conduct transactions without clients' knowledge.
Binstock intends to fight the allegations, he told Reuters
in an email, saying he was executing customers' verbal commands
and getting their work "processed in a timely manner." FINRA has
not entered any findings of wrongdoing against him. No customers
were harmed, he wrote.
A Thrivent spokesman said the company had begun an
investigation as soon as it learned of the possible violations
and that Binstock, of Minnesota, voluntarily resigned. He is now
an adviser at another firm.
"We continue to fully cooperate with regulators and have
worked with potentially affected members to rectify any impact
from Mr. Binstock's misconduct," the spokesman said in an email.
Signature violations are often a product of "expediency,"
said George Brunelle, a New York-based securities lawyer.
There's only one way to avoid them, he said: "Don't do it."
(Reporting by Suzanne Barlyn)
Follow us on Twitter: @ReutersLegal