NASD Overkill

When regulators play hardball—and lose.

A Series 6 relationship banker (we'll call him RB) was floating between several of his bank's branches while awaiting a permanent slot. While temporarily working at one branch, he responded to a customer's telephone request by upgrading her savings account to permit the issuance of an ATM card. Two days later, around 6 p.m., when RB was preparing to leave work and pick up his daughter from day care, he received a telephone call from the client (SW) asking for an instant-issue ATM card.

Because RB had already signed off of the bank's computer system, he used a computer that was still open under the log-in of another employee. That was a violation of the bank's policies and procedures. Regardless, RB used the computer in full view of his team leader and at least two other bank employees. He activated the ATM card by assigning it a PIN of his selection (another violation of internal policies), but he never personally retrieved the card from the dispenser.

False Assumptions

When SW didn't arrive within the anticipated time, RB left to get his daughter but gave his colleagues the PIN number he had assigned. The next day, the bank assigned RB to a different location and he never confirmed SW's collection of the card.

During the subsequent 18-day period, SW's ATM card was used on 22 occasions to withdraw $5,761 from her account. Shortly thereafter, SW reported the unauthorized withdrawals and was fully reimbursed. The bank determined that SW did not pick up the card or make the withdrawals. RB was terminated.

Intentional Misconduct?

NASD's Department of Enforcement filed a one-count complaint against RB, alleging that he violated NASD Conduct Rule 2110 by using another bank employee's log-in and creating an instant-issue ATM card without the customer's knowledge, authorization or consent. Enforcement argued that RB intentionally created the card in violation of bank policies and procedures, and that his conduct effectively permitted the misuse of customer funds. Enforcement concluded that such facts “reflected directly on his ability to comply with regulatory requirements fundamental to the securities business,” and asked for the imposition of a bar.

RB admitted violating the policies but argued that he thought he was complying with SW's wishes and left the ATM card in safekeeping with other bank employees. RB noted that the bank declined to pursue the matter through a criminal investigation, and he believed that such an investigation would have exonerated him.

In a fairly stark rebuke, the Hearing Panel found that:

“Enforcement failed to prove by a preponderance of the evidence that Respondent knowingly created an ATM card that was not authorized by the customer. To the contrary, the Hearing Panel finds that Respondent sincerely believed that he was assisting a customer. The Hearing Panel also notes that: (1) Respondent accepted responsibility for his actions; (2) the violation was a single instance; (3) Respondent made no effort to conceal his actions; (4) his actions were negligent, not reckless or intentional; and (5) the losses in customer SW's account resulted principally from the criminal acts of the person or persons who took and used the ATM card.

(OHO Redacted Decision E8A2004065102)

For his admitted violations of bank policies and procedures, and in full consideration of the findings above, the Hearing Panel imposed a “Letter of Caution.”

An Eye for a Tooth

RB's case underscores the wisdom of two sayings: The road to Hell is paved with good intentions; and No good deed goes unpunished. Please understand my position — RB's conduct was a clear violation of internal policies and procedures. But just as we don't hang folks for jaywalking, these facts did not support the demand for a bar. Suspend him for a few days — OK, even a few weeks. Keep in mind that he lost his job.

What was the game here? Apparently the NASD likes its role of schoolyard bully and thinks it's OK to get in a few extra kicks in the ribs while you're down.

Writer's BIO: Bill Singer practices law at Stark &Stark, and is the publisher of RRBDLAW.com

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