Paid Administrative Leave

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May 12, 2008 9:13 pm

I was placed on paid adminstrative leave today by my firm as the result of a client complaint regarding possible unauthorized trades.  The trades were down within the clients investment policy and only resulted in locking in unrealized gains and enhancing yields appreciably on AAA government bonds.  There were no losses whatsoever and was an isolated event due to unique market opportunities for the clients benefit.

 
I am on leave until the investigation is over which I was told would be yet this week.  Should I be concerned?  What can come of this?
May 12, 2008 9:26 pm

Did you call the client with the trades and get agreement?  If so did you document the call?  Or do you have written discretion to trade?  How much of a tx consequence for what size account to you create?

May 12, 2008 9:39 pm

Not in every case.  Client said they wanted me just to take care of the account within the investment policy of the municipality.  It is a no=profit.  No tax consequence.

May 12, 2008 9:39 pm

The fact that you locked in gains, and increased yields, is irrelevant. Assuming you did not have discretion, and did not speak with the client prior to the trade, you did unauthorized trading. Whether or not the trades were suitable is not the issue.

I dont know what the consequences would be. I have seen more than one Advisor terminated, or "permitted to resign", based on unauthorized trades. However, in these instances, there were multiple instances.
I would think RDBLAWYER,, AKA Bill Singer would be able to best answer this question.
May 12, 2008 9:43 pm

By multiple instances, do you mean multiple times this was done with numerous clients or multiple complaints?

 
I never did this before and have no complaints since starting over seven years ago.
 
Thank you.
May 12, 2008 9:54 pm
May 12, 2008 10:03 pm
Krapinsky:

Not in every case.  Client said they wanted me just to take care of the account within the investment policy of the municipality.  It is a no=profit.  No tax consequence.

 
You should be quite concerned.  If the client can show any type of loss (even if it is a gain today and turns into a loss in six months) get out your checkbook.  Depending on your B/D, you are not in a good situation there either and this will go on your U4.  You have to ALWAYS call a client before a trade, otherwise you are putting your savings and career on the line.
May 12, 2008 10:07 pm

Something does not pass the smell test here.  I know the complaint is unauthorized trades.  What is the reason though.  What does the client feel they have lost?  What is the basis for the complaint?

May 13, 2008 11:41 pm
Krapinsky:

By multiple instances, do you mean multiple times this was done with numerous clients or multiple complaints?

 
I never did this before and have no complaints since starting over seven years ago.
 
Thank you.
 
Both
May 14, 2008 3:15 pm

What happens if the firm asks the client to sign a document that states that the client would have made the trades if they had been asked for approval before the trade and the client does not wish to cancel any of the unauthorized trades.  Does that ratification of the trades nullify or minimize the complaint?

 
Thank you.
May 14, 2008 11:15 pm
Primo:

Something does not pass the smell test here.  I know the complaint is unauthorized trades.  What is the reason though.  What does the client feel they have lost?  What is the basis for the complaint?

 
Can you answer this?
May 14, 2008 11:17 pm

Thinks of it this way -- if you run over someone with your car and kill them, backing up over the body doesn't undo the damage.



 
True, but if you were really mad at them, it might make you feel better.
May 15, 2008 10:47 am

Client claims no loss at all.  Acknowledged trades are what they would have approved if asked first.  In fact client is surprised at the big deal being made, just wants to clarify procedures going forward.  Client admitted ignored confirms and statements.

May 15, 2008 10:50 am

Going forward, I realize I should have a written permission for discretion.  I do not want discretion on accounts.  In fact, I may not even accept verbal approvals,  I may require written approval that is notarized with two witnesses.  I say this half in jest and half seriously.

May 28, 2008 4:15 pm

FYI, I feel very fortunate.  I received a letter of reprimand and a five day suspension from the firm.  I have learned my lesson and am very grateful.