Earlier this month the SEC issued an opinion in the case of John Mullins and Kathleen Mullins (Sec. Exch. Act Rel. No 34-66373, February 10, 2012). The case generally dealt with charges of breach of fiduciary duty to a customer (J. Mullins), borrowing funds from a client without member firm notice or approval (J. Mullins and K. Mullins), and failure to disclose information on member firm compliance questionnaire (J. Mullins and K. Mullins). J. Mullins and K. Mullins are married, and were both former representatives of Morgan Stanley. Both had appealed FINRA's case against them to the SEC.
The case is not necessarily something unusual, as we see these types of basic charges against reps. somewhat routinely. On appeal to the SEC, as to K. Mullins, the Commission modified the sanctions imposed upon her for her disclosure failures, reducing FINRA's six-month suspension to a four-month suspension, and reducing the fine from $15,000 to $10,000. (Some other findings against the two were vacated, some were sustained, and the bar imposed on J. Mullins was sustained by the SEC).
Normally, such a sanction modification might be routine or insignificant. But here, the SEC's language is surprising, as the Commission seems to give K. Mullins credit for cooperating with FINRA during the examination. "That K. Mullins appears to have cooperated fully with FINRA's investigation lends some further mitigative effect" (Slip. op. at 36.) This is certainly unusual as FINRA (and former NASD) staff and hearing panels have routinely asserted a position that a broker has an obligation to cooperate with their examinations pursuant to the rules, and that a broker's cooperation does not therefore mitigate the misconduct.
What will come of this recent language and finding by the SEC, if anything? Time will tell.