Broker-Dealer Principal Settles SEC Charge That Alleged Misconduct Led to Violations of the Custody Rule
Commentary by Steven Lofchie
The SEC imposed no monetary penalties against a former broker-dealer financial and operations principal charged with supervisory and reporting misconduct that allegedly led to violations by the broker-dealer of the Customer Protection Rule.
Former associated person and head of the Regulatory Reporting Department of Merrill Lynch, Pierce, Fenner & Smith ("Merrill Lynch") William Tirrell was accused of "negligently caus[ing]" violations that placed "[Merrill Lynch] customers' money at risk."
To settle the charges, the SEC ordered Mr. Tirrell to cease and desist from further violations of the Customer Protection Rule. Merrill Lynch agreed previously to settle related charges.
Commentary
A curious aspect of the settlement in this case is that the SEC seems to absolve the businessperson who had designed the improper trade, and who was the individual who would have received a bonus for the trade, from any consequence of the misconduct. According to the SEC narrative, this businessperson had not the slightest idea that the trade raised issues and went out of his way to raise questions with all firm personnel. Note, e.g., the SEC's statement that "[n]either SEFT Trader nor other traders on the SEFT desk involved with structuring the Trades had responsibilities with respect to the Reserve Account or had expertise with Rule 15c3-3." Wouldn't the trader have had to learn about the rule, and its purpose, as the reason for the trade was to avoid the rule's requirements? Further, if one looks at paragraphs 32-38 of the original settlement, it is apparent that the activities of the trader, e.g., soliciting customers to engage in trades with no market risk or exposure, were not appropriate. So why did the SEC make the enforcement decision that it did?
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