Old-Fashion Fraud Trips Up Corner-Cutting Sales Associate
While sophisticated cyberattacks inspire fears and headlines, it’s more basic and preventable fraud that continues to trip up brokers and their associates.
The point was brought home in a settlement letter that Financial Industry Regulatory Authority enforcement officials have reached with Nancy L. Johnson, a former Morgan Stanley sales associate in Greenwood Village, Colorado, who moved a little too quickly on a customer fund-transfer request.
The 32-year industry veteran agreed to a five-month suspension and a $10,000 fine for wiring $86,000 to the bank account of an imposter who “improperly accessed a client’s email account,” according to the acceptance, waiver and consent letter published on Thursday on a Finra website.
Johnson, who could not be reached for comment, wired the money in December 2015 without obtaining verbal approval, violating the second level of verification that Morgan Stanley and most firms now require, according to Finra. The error was intensified by the fact that she several times resubmitted the transfer requests after they were rejected by banks because of incorrect beneficiary information.
Johnson also falsely and knowingly represented on order forms that another employee had obtained confirmation, Finra said.
The actions violated its rule 2010 requiring members to “observe high standards of commercial honor” and caused Morgan Stanley to violate its books-and-records Rule 4511, Finra said. It also found that Johnson failed to timely report a bankruptcy petition from 2010.
Wire-transfer shortcuts are often made to get transactions done without bothering clients, but firms and regulators have been cracking down on such oversight in a world of instant communications. Last week, Finra fined and suspended a former Merrill Lynch broker for inputting trades without receiving clients’ written authorizations.
“It’s getting more unusual just because of cybersecurity and the regulatory regime that we’re in right now, but it still does occur,” Hank Sanchez, a consultant at Oyster LLC and a former compliance officer at LPL Financial, said of the shortcuts.
Morgan Stanley fired Johnson in February 2016, two months after the alleged violation, according to her BrokerCheck record. She joined Morgan Stanley in 2009 from Smith Barney, according to the database.