Dec 14 (Reuters) - The year is closing on a bad note for some securities brokers who are learning the hard way that easy money often comes with a steep price.
A review of recent disciplinary sanctions by the Financial Industry Regulatory Authority, Wall Street’s watchdog, shows that even the possibility of strict sanctions cannot keep some brokers in line with the most basic industry rules.
Among securities industry taboos breached in 2012: A broker withdrew a customer’s money, illegally, to buy into a gold scheme. Others traded clients’ accounts without their permission or borrowed money from customers.
The resulting penalties and other sanctions stand to put a dent in their holiday celebrations and, even worse, their careers. But no matter how many times brokers get caught crossing the line, each year brings a fresh crop of egregious behavior, lawyers say.
That is because certain qualities that help many brokers succeed in securities industry, such as the aggressive drive to gain an edge, also lead some brokers astray, said Michael Sullivan, a lawyer at Coughlin Duffy LLP in Morristown, New Jersey.
The will to succeed is another quality that many brokers share. For some, however, “it also lends itself to a significant minority stepping over the line,” said Sullivan, who represents brokers.
Some recent cases and their consequences serve offer a cautionary tale (or stinging rebuke) to brokers:
* Gold heist gone badly: FINRA barred Carlos Suarez from the securities industry this month following a gold coin scheme. Suarez, who was licensed through Wells Fargo Advisors LLC, a unit of Wells Fargo Corp, is also serving three years probation after pleading guilty to federal mail fraud charges in August.
He withdrew $50,000 from a client’s then Wachovia Bank account, without permission, to buy gold coins, according to court documents. Suarez worked then at Mount Pocono, Pennsylvania-based Wachovia as a “financial specialist,” which later became part of Wells Fargo.
Suarez’ lawyer described him as “a bit desperate,” at the time. As the criminal case revealed, Suarez had financial difficulties and planned to sell the coins to turn a profit.
To hide the fact he was buying the coins with a customer’s money, Suarez wore a fake beard and wig to a UPS Store, where he impersonated the customer and rented a mailbox in his name. He then bought the coins through a company in Texas which shipped them to the box. His appearance was so suspicious, that store employees notified the police.
“He made a terrible mistake in a misguided scheme,” said Joe D’Andrea, Suarez’ lawyer in Dunmore, Pennsylvania. Suarez had no previous brushes with the law, D’Andrea said. A Wells Fargo spokeswoman declined to comment. While Suarez pleaded guilty in the criminal cases, he neither admitted nor denied the findings in his regulatory settlement with FINRA.
* Steep borrowing costs: Some of broker Richard Seligson’s customers were friends and family, but those ties did not shield him from industry restrictions on borrowing money from customers. Seligson, a former broker for Morgan Stanley in Boca Raton, Florida, borrowed $45,000 from six friends and two relatives - all Morgan Stanley customers - between 2009 and 2011, according to regulatory documents.
Seligson did not have the firm’s permission for the loans, as industry rules require. Then Seligson made the problem even worse: he lied on annual compliance questionnaires for brokers, which asked if he entered into loans with customers.
Now Seligson, whom Morgan Stanley dismissed in 2011, has agreed to a year-long suspension from the securities industry and a $10,000 fine, according to a FINRA settlement dated Dec. 5. Seligson, who has paid back $3,900 of the loans so far, must pay everyone in full with interest before applying to return to the business.
A phone number for Seligson was not working on Thursday. A Morgan Stanley spokeswoman said the firm dismissed Seligson after “discovering policy violations he had concealed.”
* No discretion: Brokers are not allowed to unilaterally make trades in their clients’ accounts, known as ‘exercising discretion,’ unless they have the client’s written permission. Even then, the brokerage firm must allow the practice. But those restrictions do not stop brokers from doing it anyway.
Former Ameriprise Financial Services Inc broker Christopher Bones recently agreed to a $5,000 fine and a 15-day suspension from the industry after making numerous trades in four customer accounts without their authorization, according to a FINRA settlement dated Wednesday.
While Oregon-based Bones “followed an agreed-upon investment strategy,” he did not always notify customers when he placed trades, according to the settlement. The trades also violated an Ameriprise prohibition on discretionary accounts.
Bones voluntarily resigned from Ameriprise in 2010 and now works for another brokerage. He neither admitted nor denied FINRA’s findings and did not return a call requesting comment. An Ameriprise spokesman declined to comment.