Former Merrill Lynch Broker-Lawyer Suspended by FINRA for Practicing Law

May 17, 2012 By Jay Eng

In April, a former registered representative (a licensed attorney) at Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill” or “ML”) entered into an AWC with FINRA consenting to a 30 day suspension.  The former Merrill broker who was a licensed attorney had  drafted a will for an individual who was not a customer of the firm. The broker was paid $200, and this activity was made outside the scope of his employment with Merrill.  Merrill had denied the broker’s request to practice law outside the scope of his employment. Merrill’s written procedures prohibited representatives from practicing law unless an exception is granted.

FINRA Rule 3270 provides:

No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Passive investments and activities subject to the requirements of NASD Rule 3040 shall be exempted from this requirement.

Emphasis added.

CITIGROUP FINED $1.5M OVER SUPERVISION ISSUES

June 1, 2010 By Jay Eng

On May 26, 2010, FINRA announced “that it has imposed a monetary sanction of $1.5 million against Citigroup Global Markets Inc. for supervisory violations relating to its handling of trust funds belonging to cemeteries in Michigan and Tennessee.” According to FINRA, “over a period of more than two years, Citigroup failed to reasonably supervise the handling of these accounts by inadequately responding to a succession of ‘red flags’ – failures that permitted the scheme to continue undetected until October 2006.” Among the “red flags” were “unusual transfers of cemetery trust funds to accounts opened in the names of third parties.”

See the Acceptance, Waiver and Consent (AWC) here.

What is a FINRA Letter of Acceptance Waiver & Consent (AWC)

February 14, 2010 By Jay Eng

A Letter of Acceptance, Waiver and Consent is a mechanism provided under the FINRA Rule 9216 to permit the Department of Enforcement or Department of Market Regulation to resolve aa controversy between the Department and a member or associated person over a violation of of any rule, regulation or staturory provision, including the federal securities laws and the regulations promulgated thereunder, which FINRA has jurisidiction to enforce. See also FINRA Rule 9211.

Subsection (a) of FINRA Rule 9216 states in part as follows:

(1) Notwithstanding Rule 9211, if the Department of Enforcement or the Department of Market Regulation has reason to believe a violation has occurred and the member or associated person does not dispute the violation, the Department of Enforcement or the Department of Market Regulation may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member’s or associated person’s right to a hearing before a Hearing Panel or, if applicable, an Extended Hearing Panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed. Unless the letter states otherwise, the effective date of any sanction(s) imposed will be a date to be determined by FINRA staff.

In addition, a member or associated person who executes an AWC waives certain rights:

(2)(A) If a member or person associated with a member submits an executed letter of acceptance, waiver, and consent, by the submission such member or person associated with a member also waives:
(i) any right of such member or person associated with a member to claim bias or prejudgment of the General Counsel, the National Adjudicatory Council, or any member of the National Adjudicatory Council, in connection with such person’s or body’s participation in discussions regarding the terms and conditions of the letter of acceptance, waiver, and consent, or other consideration of the letter of acceptance, waiver, and consent, including acceptance or rejection of such letter of acceptance, waiver, and consent; and
(ii) any right of such member or person associated with a member to claim that a person violated the ex parte prohibitions of Rule 9143 or the separation of functions prohibitions of Rule 9144, in connection with such person’s or body’s participation in discussions regarding the terms and conditions of the letter of acceptance, waiver, and consent, or other consideration of the letter of acceptance, waiver, and consent, including acceptance or rejection of such letter of acceptance, waiver, and consent.
(B) If a letter of acceptance, waiver, and consent is rejected, the member or associated person shall be bound by the waivers made under paragraphs (a)(1) and (a)(2)(A) for conduct by persons or bodies occurring during the period beginning on the date the letter of acceptance, waiver, and consent was executed and submitted and ending upon the rejection of the letter of acceptance, waiver, and consent.

FINRA Rule 9126 (2).