An Imperfect Storm(s): FINRA Bars Compliance Personnel for Falsifying Branch Audit Data

It often is said that “it’s not the crime, but the cover-up” that is the most damaging to someone alleged to have committed misconduct. In a recent FINRA enforcement action, however, the cover-up was the crime. On July 3, 2019, FINRA barred Vincent J. Storms, a now-former Raymond James & Associates (RJA) compliance associate, for particularly egregious falsifications of RJA’s branch audit data that violated FINRA Rules 2010 and 4511.

At RJA, Mr. Storms was responsible for auditing branch offices and performing follow-up work resulting from the audits. As part of the audits, RJA sent an email to each registered representative requesting that they complete a questionnaire that gathered information such as whether the representative had any undisclosed outside business activities or undisclosed securities accounts at other broker-dealers, and whether the branch used third-party vendors to store data.

Depending on the responses from representatives, Storms was required to perform follow-up actions. RJA used a software program to store the representatives’ answers to the questionnaire and generated a numerical valuation for each response. A score of “2” required that Storms perform additional steps. To avoid these additional steps, “Storms altered answers to 524 questions from 145 registered representatives, affecting 60 branch audits.” To further hide his misconduct, Storms tried unsuccessfully to correct the data he had altered. RJA terminated Mr. Storms’s employment upon learning of his misconduct.

FINRA found Storms’s conduct violated Rule 2010, as falsifying documents is a “prime example of misconduct that adversely reflects on a person’s ability to comply with regulatory requirements and has been held to be a practice inconsistent with just and equitable principles of trade.” His conduct also violated Rule 4511 as it caused RJA to “make and preserve false or inaccurate books and records.”

FINRA was unequivocal in its punishment and decided to bar Mr. Storms from “associating with any member firm in any capacity.” FINRA based its punishment on the FINRA Sanction Guidelines for falsification of records and for recordkeeping violations. FINRA found it particularly significant that Mr. Storms (1) engaged in the conduct for a lengthy period of eight months, (2) acted with deliberate intent to deceive RJA and (3) attempted to further cover up his actions once RJA confronted him.

While Mr. Storms’s conduct was egregious, there are some positive takeaways for member firms. FINRA appeared to noticeably place the blame squarely on Mr. Storms. This is likely because Storms took active measures to ensure that RJA would not discover his misdeeds. RJA specifically confronted and subsequently terminated Storms’s employment upon uncovering his fraud. In fact, the decision rightfully casts RJA as the victim “[RJA] relied on Storms to honestly fulfill his function as a compliance associate. Instead, Storms’s misconduct created significant risks for [RJA].” Thus, while member firms should strive to prevent fraud such as that perpetrated by Storms, if they are ever placed in a similarly unfortunate situation, they should take swift and decisive corrective action.

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About the Author: Sandra D. Grannum

Sandra Dawn Grannum concentrates her practice on securities, broker/dealer arbitration, litigation, mediation and regulatory defense. She is co-chair of the Commercial Litigation Team.

Sandy has tried complex multimillion-dollar arbitrations before FINRA, AAA and JAMS across the country. She has represented brokerage firms, banks, clearing firms, and associated persons in over 60 arbitrations before the NASD and FINRA which have been tried through award. In addition, she has successfully pursued cases in state and federal courts and in adversarial proceedings before bankruptcy courts.

About the Author: Edward J. Scarillo

About the Author: Jamie L. Helman

Jamie L. Helman concentrates her practice on securities, broker-dealer arbitration, litigation, mediation, employment matters, and regulatory defense. She has experience first-chairing FINRA arbitrations, defended on-the-record testimony of broker-dealer employees before FINRA, and is presently involved in the representation of broker-dealers in several pending FINRA cases as well as regulatory matters.

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