Finra Enforcement Loses Elder Abuse Claim Against Oklahoma Broker
A Financial Industry Regulatory Authority appeals body on Wednesday ruled that the regulator’s enforcement division failed to prove its case that a former Edward Jones broker had stolen $36,000 from an 82-year-old client with dementia who was a longtime family friend.Finra two years ago accused Austin W. Morton, who spent the entirety of his five-year career at a Jones branch in Sallisaw, Okla., of twice taking money from the octogenarian customer because he was “strapped for cash” due to frequent gambling. It brought the complaint after Jones discharged Morton in 2016 for failing to disclose that he received money from a client following an investigation of a complaint by his daughter.
In March 2018, however, the majority of a Finra hearing panel concluded that the enforcement division’s case was based on circumstantial evidence insufficient to prove that Morton violated its “high standards of commercial honor and just and equitable principles of trade” rule. The enforcement department appealed the finding to Finra’s National Adjudicatory Council, which on May 15 upheld the lower panel’s findings and dismissed the case.
The rare finding occurs as Finra and state regulators have been stepping up warnings about elder abuse, adjusted rules to help advisers and firms act quickly to identify signs of dementia, and opened hot lines for consumer complaints of suspect broker behavior.
“Like the Hearing Panel, in this decision we do not intend to suggest that we endorse Morton’s conduct or his dealings with [the client],” the NAC’s decision concluded. “We recognize that the financial exploitation of seniors and other vulnerable adults is a serious and far too prevalent problem.”
However, it and the hearing panel also upheld principles of evidence.
“The Hearing Panel majority concluded that the circumstantial evidence Enforcement presented in support of its claims was unpersuasive and the inferential connections Enforcement drew from the evidence were ‘tenuous,” the NAC wrote. “In this appeal, Enforcement argues that the Hearing Panel majority failed to give sufficient weight to circumstantial evidence showing Morton’s ‘motive and opportunity’ to steal. We disagree.”
Finra investigators argued that Morton had a compelling motive to steal because he was “strapped for cash” due to his frequent gambling. But the panel and the appeals body accepted Morton’s testimony and evidence showing that he bet no more than $500 at a time, and was able to pay his gambling debts. “That Morton ended the year with a net loss of $4,680 from gambling does not create a strong enough inference to conclude that Morton’s gambling caused him such financial pain that he would likely steal,” the NAC decision said.
Morton had about 350 active clients households with assets of $35 to $40 million, and earned $106,821 as an Edward Jones financial advisor in 2016, the decision said. He made frequent cash deposits and withdrawals in bank accounts, but Finra enforcers failed to prove that any of the deposits mirrored what he allegedly stole from the client.
The broker, who helped the client locate an annuity of more than $180,000 held outside Jones and urged him not to cash it to avoid surrender charges, also testified that he was unaware the client suffered from dementia or memory loss until after the two allegedly illegal transactions. Finra cited the annuity incident as an undisclosed outside business activity.
The broker, and the client’s daughter, also testified that much of the money he received by filling out a blank check with his client’s signature was a loan.
A Finra spokeswoman declined to comment on the NAC decision. Morton’s lawyer did not respond to a request for comment on the decision or any action he may be considering, and an Edward Jones spokesman said he could not immediately comment on the case.
Morton, who could not be reached for comment, wrote on his BrokerCheck report, that he did not violate firm policy by failing to inform Edward Jones of the loan because the client had closed his Jones account before the loan was made. “This is a long time family friend,” he wrote. “He was not a client.”