The industry-wide crackdown on expense account improprieties continues. In recent blogs I wrote about the crackdown by FINRA, the Financial Industry Regulatory Authority, and member firms on violations of expense reimbursement policies. This week, FINRA fined and suspended a former Merrill Lynch broker in Palm Beach Gardens, Florida, over a $524 reimbursement claim. For that he was suspended for six months from the brokerage industry and fined $10,000.
Merrill fired Joshua Crossman in January 2017 for an “inaccurate business expense reimbursement report.” He had worked at Merrill for 18 months at its Private Banking and Investment Group that services very wealthy customers. Crossman submitted the $524 claim for mileage and dinner expenses that he said represented two meetings with prospective clients. He subsequently admitted to the firm that he fabricated the events to use up and be reimbursed for the Business Development Account (BDA) money that were deducted pretax from his compensation.
Crossman agreed to the sanctions without admitting or denying the findings, according to the letter of acceptance, waiver and consent signed with FINRA. The self-regulator said he violated its catch-all Rule 2010 requiring brokers to observe “high standards of commercial honor” by making false statements to Merrill.
Business expense benefit policies have been tripping up a growing number of brokers in recent years, leading to monetary penalties, bans, and occasional bars from regulators and dismissals by firms. The issue impelled Merrill two weeks ago to impose a mandatory review course for brokers and sales associates on its BDA policies and to liberalize some documentation requirements. The firm noted that 66% of expense-account submissions in last year’s fourth quarter were returned because of errors or flat-out ineligibility.
In November, FINRA imposed a one-year suspension and $10,000 fine against Sandy Galuppo, a veteran broker on a large team in Boston who Merrill had fired a year earlier for inaccurate BDA reports. Morgan Stanley has similarly laid off several advisors, including one who claimed less than $300 in reimbursement for a meal with family, and Merrill last month permitted Michael Feller, a 20-year firm veteran in Evansville, Indiana, to resign for BDA inaccuracies.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. For more information, contact Erwin J. Shustak, Managing Partner shustak@shufirm.com, or call 800.496.5900 ext. 109.
Good news for registered reps seeking to expunge customer complaints from their CRD records. A report recently issued by PIABA, the association of lawyers who represent aggrieved investors, reveals that brokers were able to obtain the approval of arbitration panels to expunge the customer complaints from their CRD records in an astonishing 96.9 percent of cases settled from May, 2009 through December, 2011. Typically, these CRD expungement requests are made by the broker or his firm after the case was settled and the firm, not the broker, paid the settlement amount. A typical aspect of pre-hearing settlements requires the customer to agree not to oppose, and to cooperate, with the broker’s application to the Panel to expunge the complaint from his or her record. The Financial Industry Regulatory Authority (FINRA), the private corporation that is the brokerage industry’s self-financed policing arm, maintains Broker-Check and the CRD system which lists all customer complaints and other negative items about each registered representative and firm. This unusually high percentage of successful expungement requests is even more surprising since the FINRA rules list only 3 very narrow grounds for expungement: 1) The claim or allegation against the broker is factually impossible or clearly erroneous; 2) the registered person was not involved in the alleged investment related violation; and 3)the claim or allegation against the broker is false. The results of the study reveal that even with such specific, narrow grounds for expungement, crd expungement is almost universally granted by panels, on request, after the case has been settled. We have successfully handled many expungement requests. Contact us to discuss your particular situation.
Most of us who follow Ponzi schemes, scams and scoundrels remember R. Allen Stanford’s long standing Ponzi scheme. He now resides in a Fed Pen, serving a 110 year sentence for running a 20 year scam which offered high-interest cd’s purportedly on deposit with the Stanford Int’l Bank in Antigua. The only catch was there never were any CD’s. Any money paid to early investors came directly from new pigeons snared in the fraud. Investors left holding the bag sued law firms, insurance brokers and financial service companies saying those intermediaries also bore responsibility for the fraud. The defendants moved to dismiss the class actions, alleging they were barred by the Securities Litigation Uniform Standards Act of 1998. The plaintiffs, in turn, argued that, since the “investments” never actually existed, they were not “covered securities” under that act and their state court class actions should be allowed to continue. The Supreme Court heard lively argument on the first day of its new term. The issue the Court will have to resolve is whether a security that never existed can, in fact, be a “covered security”. Ponzi Schemes are as ubiquitous as they are pernicious. But there seems to be no shortage of takers willing to buy investments that never exsited. If you have been the victim of a Ponzi Scheme, or are being sued in a “claw-back” case, contact us.
