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Street Legal: A Paperwork Shortcut Nearly Short-Circuits a Young Broker's Career

Street Legal: A Paperwork Shortcut Nearly Short-Circuits a Young Broker's Career

To avoid looking foolish to a customer, the rep makes a terrible choice.

In 2005, 21-year-old Freddy Medina, freshly graduated from college, joined the industry. By 2007, he was providing investment advice to bank customers at three PNC Investments LLC branch offices in Newark, N.J.

On May 6, 2008, following discussions with Medina, a PNC customer signed a form to initiate the withdrawal of funds from her life insurance accounts in contemplation of purchasing a fixed annuity plan. Three weeks later she again met with Medina and signed more documents authorizing him to purchase the fixed annuity.

Unfortunately, Medina subsequently discovered that he had failed to obtain his client's signature on a new account form needed to transfer her funds and buy the annuity. Believing that she had a busy schedule, Medina did not want to inconvenience his customer with an additional meeting — especially one for the purpose of getting a signature that, well, to be honest, Medina sort of overlooked. Worse, Medina had promised the client that she would receive a 5 percent rate on her fixed annuity and, because companies were reducing interest rates without notice, he was concerned that any further delay in submitting the annuity paperwork could jeopardize the promised rate.

What's a broker to do?

Shortcut

Faced with looking like a jerk in front of a busy customer and fearing he would lose a promised interest rate, Medina opted for a shortcut — he placed a photocopy of the client's genuine signature onto the application, without her knowledge or consent. There-after, Medina submitted the altered document to PNC.

In December 2008, Medina's branch manager discovered the client's photocopied signature. Medina was promptly confronted with the discrepancy and he readily admitted his misconduct — and immediately submitted his resignation.

During its investigation, PNC contacted the client about the altered form, confirmed that she understood and was satisfied with the fixed annuity, and secured her original signature on the new account application. As a precaution, PNC contacted other customers of Medina but did not uncover any similar irregularities.

Prior to resigning from PNC, Medina had been negotiating a job offer with another bank. He fully disclosed to that prospective employer the circumstances surrounding his resignation from PNC, but, nonetheless, the other bank hired him after its legal department gave clearance. He presently remains employed with that bank.

FINRA's Case

Based upon the issues noted above, the Financial Industry Regulatory Authority issued a complaint charging Medina with violating NASD Conduct Rules 2110 and 3110. FINRA and Medina agreed on the underlying facts, his liability, and the need to sanction his misconduct; however, the two sides could not agree on what constituted reasonable sanctions. FINRA sought a 30-calendar day suspension and a $5,000 fine; Medina argued that any suspension would be excessive and punitive; but he did propose a censure and $5,000 fine. On the horns of that impasse, the matter headed for a FINRA disciplinary hearing.

The FINRA hearing panel conceded that Medina's violations were not “egregious” and essentially constituted a single occurrence lacking any apparent intent to deceive or harm his client. The panel appreciated that Medina's misguided intention was to expedite the purchase in order to lock in advantageous rates. Further, the panel observed that even after being informed of Medina's misconduct, his client still chose to retain her investment.

Counterbalancing those favorable factors was the finding that Medina failed to voluntarily disclose his misconduct until such time as he believed it had been detected. Still, the panel gave him points for fully admitting his violations to PNC, to his subsequent employer, and then to FINRA.

In light of all the facts and considerations, the hearing panel decided that a 30-day suspension was inappropriate and only imposed a censure, $10,000 fine, and hearing costs of $1,700.


(In the Matter of the FINRA Disciplinary Proceeding of Freddy A. Medina, Respondent (Office of Hearing Officers Panel Decision, FINRA # 200901651301, March 8, 2011.)

WRITER'S BIO:

Bill Singer is the publisher of RRBDLAW.com and BrokeAndBroker.com.

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