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FINRA Upholds Bar of Ex-RBC Broker Accused of Taking $1M After Trading Error

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What You Need to Know

  • A system error left the broker with an unexpected $1 million windfall, which he transferred to a personal account, FINRA says.
  • The broker, who returned the money after RBC corrected the error, said he didn't know he had received the money by mistake.
  • FINRA’s National Adjudicatory Council affirmed the panel's decision, rejecting the broker's arguments.

The Financial Industry Regulatory Authority’s National Adjudicatory Council has upheld a hearing panel decision that a former RBC Capital Markets broker be barred from associating with any FINRA member firm for allegedly transferring $1.06 million from his RBC account to his personal bank account.

A system error had caused a trade to be priced in the wrong currency and left him with an unexpected windfall.

In November 2016, Thomas Lee Johnson, who was registered as a broker with RBC, inherited from his father’s estate 60 shares of a South Korean company, Doosan Heavy Industries and Construction. The shares were transferred to Johnson’s RBC account on Dec. 14, 2016, priced at about $23 per share, FINRA said.

Between December 2016 and October 2017, the value of Johnson’s Doosan holdings ranged from $896 to $1,430. Johnson tried to sell his Doosan shares in February and March 2017 but was unsuccessful due to the lack of market in the U.S. for them, FINRA said.

On Aug. 30, 2017, Johnson was informed via email that RBC would “no longer custody” Doosan securities, according to FINRA. RBC offered Johnson three options: 1) liquidate the position; 2) transfer his holdings to another custodian; or 3) complete a “dollar write-off” transaction. The notice further stated that RBC would liquidate the shares and warrants if no action was taken by October 2017.

At the time of the notice, the 60 Doosan shares were valued at $1,010, FINRA said, noting Johnson took no action. RBC sent another notice on Sept. 21, 2017. “Johnson again failed to act,” FINRA said. The Doosan shares were valued at $939 collectively on Johnson’s October 2017 account statement.

RBC liquidated the 60 Doosan shares and 10 warrants on Nov. 14, 2017. But the firm incorrectly priced the sales in U.S. dollars rather than South Korean won and, due to a system error, Johnson received $1.06 million in his firm securities account from the sales, according to FINRA. He was, however, only entitled to just under $1,000, FINRA said.

After the firm’s mistake, Johnson allegedly moved the money to his personal bank account. He returned the funds to his firm’s account after he saw that RBC had corrected its error and reversed the credit, causing the account to have a negative balance, according to FINRA.

RBC terminated Johnson on Dec. 4, 2017, after concluding he violated its code of conduct, specifically Section 6.2 Protecting RBC Property (fraud, misappropriation and misuse), according to a disclosure on his report.

A FINRA hearing panel issued a decision on Aug. 23, 2019 barring Johnson and ordering him to pay hearing costs of $3,818. He appealed the decision.

In a decision posted on FINRA’s website on Wednesday, FINRA’s National Adjudicatory Council said: “After an independent review of the record, we affirm the Hearing Panel’s findings of violation and the sanction imposed.”

Johnson maintained he didn’t convert the funds because he genuinely believed he was entitled to the money and was not aware RBC had credited the funds in error, according to FINRA.

However, the hearing panel found his testimony on that issue was not credible, the National Adjudicatory Council noted, adding: “We defer to the Hearing Panel’s credibility determinations because they are well supported by the record and there is not substantial evidence to overturn them.”

Johnson’s various arguments are “without merit,” it went on to say, adding it also disagreed with his position that there were “mitigating factors” that made him deserving of a lighter sanction.

RBC and Jon-Jorge Aras, an attorney at The Warren Law Group, who represented Johnson, did not immediately respond to requests for comment on Friday.

Johnson joined RBC in 2009, after working as a registered broker for Citigroup Global Markets from 1993-2009, Lehman Brothers from 1992-1993 and Dean Witter from 1983-1992, according to his report on FINRA’s BrokerCheck website.