Following up the last post reviewing the disciplinary actions reported by FINRA in July 2008 (see that post here) I decided to start a series highlighting common mistakes that brokers make. In this short series, we'll explore some of the more common things that get brokers in trouble with firms and the regulators, and maybe some reasons why they're done. Hopefully, we'll find some smarter alternatives as well. In today's post, we're tackling the issue of forgery. Why? In this month's disciplinary action report, FINRA charged 8 individuals with forgery - more individuals were charged with forgery than for any other violation.
Most typically, the act of forgery refers to signing another person's name without consent and without the other person's knowledge. In most locations, this is a crime. In the securities context, examples of forgery might include signing a customer's name to an account document, such as a disclosure form, application, or other document. I've also seen examples of signing a co-worker's or manager's name to a document for purposes of generating commissions or credits, or otherwise receiving a benefit from the broker-dealer. Brokers should understand that it is never acceptable to the regulators to sign someone's name to a document without permission. As we can see from this month's report from FINRA, the regulators regularly pursue actions against brokers for forgery.
Brokers should also understand that, in many cases, the regulators don't care if you have permission to sign someone's name to a document. In the securities world, oftentimes because of a deadline, a customer may ask a broker to sign his or her name to the document, and the customer gives the broker permission. Generally speaking, that's not forgery in a legal sense, and is not a crime, because permission has been granted. But, many regulators still find that conduct to be a violation of industry rules. For example, FINRA (formerly NASD) has a line of disciplinary cases holding that it is always improper for a person to sign a customer's name to any document. Doing so violates Rule 2110 - conducts of just and equitable principles of trade, according to these cases.
Brokers should be aware of their firm's policies regarding signing other person's name. In most cases, it is prohibited, and violations can result in disciplinary action by the employing firm, and, as discussed above, disciplinary action by the regulators. Having a client or prospect look at your record and seeing that you forged or falsified documents would not be a good selling point. Don't take the chance; avoid this mistake.
Up next in our series - use of discretion.