Dead men can't snitch. They don't complain, file lawsuits or call the police. And they are not likely to do more business with you. If all this leads you to think it won't hurt to take a few liberties with your deceased clients' interests, think again. You have to act in your clients best interests, even after they're gone. In the following examples we have two brokers who figured they could get away with crimes, because nobody was watching. The latter examples show how well-meaning advisors can get tripped up by ignoring the rules that apply to a deceased client.
Client Withdrawal Symptoms
Daniel Castro was a registered representative. He was also a crook, according to the NASD. He withdrew some $47,000 from a number of deceased public customers' accounts. When the NASD scheduled an interview, Castro decided not to cooperate. In light of his failure to respond to the regulator, he was barred from the industry. Daniel Castro, AWC/#2005001982501/May 2006.
Kai Richardson Walker also took advantage of a client's demise and got nabbed for it. According to the NASD, he changed the address of record for the estate of a deceased customer to an address under his control, then issued a debit card and checks to the new address. Next, Walker went on a $9,689.11 spending spree, and, for good measure, he converted $1,092.30 in funds belonging to his member firm by depositing checks into his own personal account. When the NASD came knocking and asked for explanations, Walker refused to answer and was subsequently barred. Kai Richardson Walker/#2005000688601/May 2006
Lending a Warm Hand
Thomas Robert Van Tassel's problems began when he signed a widow's name, at her request, to papers authorizing the removal of her husband's name from a brokerage account. Van Tassel's firm's written supervisory procedures prohibited advisors from signing documents on behalf of clients — even if the clients instruct them to do so. Nonetheless, Van Tassel ignored the policy and submitted the letter — as he had done in lending a hand to other clients. The NASD fined him $5,000 and suspended him for 60 days. Thomas Robert Van Taseel/AWC/#E8A2004085001/May 2006
Execution After Death
Peter Muldowney was also too accommodating. He transferred 6,600 shares of a stock from the account belonging to his deceased customer to the account of the customer's wife on the word of someone claiming to be the executor for the estate. He was armed with a letter of authorization apparently signed by the customer a month before he died. However, Muldowney did not obtain proof that the “executor” was who he said he was and did not notify his firm of the client's death — both actions were required by the firm's policies and procedures. Muldowney received a censure, a one-month suspension and a $10,000 fine from the NYSE. Peter Muldowney/SFC/NYSE Hearing Panel Decision 05-173/December 9, 2005
NASD Rule 2510(b) prohibits all discretionary trades “unless such customer has given prior written authorization…” Such black-letter law rarely deters those fearless souls who insist that there's always a way around every rule. True, Rule 2510(d) does allow the customer to give a verbal OK for an advisor to buy a definite amount of a specific security when he thinks the time and price is right. However, “time and price discretion will be considered to be in effect only until the end of the business day on which the customer granted such discretion, absent a specific, written contrary indication signed and dated by the customer.” Unless you complete the trade on the day it was given, you can't readily turn it into a good-till-canceled order — and then claim that the client is deceased and never called you. Not even if you are a psychic.
NOTE: Acceptance, Waiver and Consent (AWC) and Stipulation of Facts and Consent to Penalty (SFC) cases are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions and to the entry of findings.
Writer's BIO: Bill Singer is a practicing regulatory lawyer and the publisher of RRBDLAW.com