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November 03, 2020 at 10:08 AM
A recent 2-1 decision by the Financial Industry Regulatory Authority Office of Hearing Officers stretched Rule 8210 beyond its wording and intent, barring a registered representative in the process.
The case, Department of Enforcement v. Wilfredo Felix, et al., involved several issues, including Felix’s failure to produce his Wage and Income Transcript (IRS transcript), which he could have obtained by submitting an IRS Form.
An IRS transcript is an IRS-created document that shows “most line items” from tax returns, including adjusted gross income. During the investigation, FINRA staff asked Felix to produce his IRS transcripts (a very rare request), which he did not have in his possession, or to sign an IRS Form instructing the IRS to send them to him.
He refused, stating that FINRA’s request went beyond the scope of Rule 8210.
What Rule 8210 Requires
FINRA has the right to obtain “the books, records, and accounts of such member or person … that is in such member’s or person’s possession, custody or control.”
The Supplementary Material section explains that “of such member or person” refers to “books, records and accounts that the broker-dealer or its associated persons make or keep relating to its operation as a broker-dealer or relating to the person’s association with the member.”
The rule goes on to state that a firm or individual “must make available its books, records or accounts when these books, records or accounts are in the possession of another person or entity, such as a professional service provider, but the FINRA member, associated person or person subject to FINRA’s jurisdiction controls or has a right to demand them.”
What About IRS Transcripts?
Are IRS transcripts “of such member or person” or “its books, records or accounts”?
The answer should be no, but the Hearing Panel majority answered in the affirmative, ignoring and conflating the rule’s language.
First, the majority analyzed the issue by introducing words not found in the rule. The panel stated that, even though the IRS “maintained” the information, the tax information was:
personal to Felix and related to his association with a FINRA member firm. The 2013 IRS Transcript FINRA wanted therefore was “of” Felix because it concerned his own tax-related information even though the IRS stored it[.] (Emphasis added.)
The panel’s analysis does not withstand scrutiny. Simply because information is “personal” (which presumably means it is about him as a person) and “concerned” his taxes, does not mean that the IRS documents are books, records or accounts “of” Felix.
For example, while the Social Security Administration has records of a representative’s “personal” information, like date of birth, those documents are not books and records “of” the individual. Similarly, while a fund sponsor or insurance company may have information on their documents “concerning” a broker-dealer, that does not mean those documents are “of” the broker-dealer.
