By Erwin Shustak, Esq. of Shustak Reynolds & Partners, P.C. posted on Wednesday, May 16, 2018.

Erwin J. Shustak

Managing Partner

Location: San Diego, California
New York, New York
Phone: (619) 696-9500 (Ext. 109)
(800) 496-5900 (Ext. 109)
Email: [email protected]

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 [email protected], or call 800.496.5900 ext. 109.

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