An industry appeals panel has upheld an advisor's suspension over trades that allowed a client's ex-wife to nearly empty his individual retirement account.
The Financial Industry Regulatory Authority's National Adjudicatory Council on Wednesday held that Wisconsin advisor John E. Pelletier executed unauthorized trades in the client's account, and affirmed the penalty — a three-month suspension and $10,000 fine. He also must pay over $6,400 in hearing and appeal costs.
The client's ex-wife lacked trading authority over the account but the advisor made trades on her instructions, the NAC noted in the 32-page decision. The FINRA hearing panel found last year that Pelletier executed 16 unauthorized transactions that allowed the ex-wife to almost drain his IRA.
The client, a retired factory worker, discovered the situation when his electricity cut off while he watched TV, subsequently learning that his former wife — who reunited and lived with him many years after their divorce and handled the bills — had taken the money and not paid the electric bill for months, according to testimony at the FINRA hearing.
"It is indisputed that Pelletier executed trades at the direction of the customer's partner without the customer's authorization, and that Pelletier did not obtain the customer's oral authorization for each of the transactions at issue," the NAC said.
The advisor, however, claimed he executed the trades based on a blanket oral authorization from the customer to accept trade instructions from the ex-wife, which Pelletier believed allowed him to engage in the trades, the council said. His firm's policy required written authorization before executing third-party trades, although an exception allowed oral authorization on a per-call basis under certain conditions.
"The customer flatly denied granting his partner any authorization whatsoever to trade in his account," the decision states, noting that recorded phone records support this assertion. In addition, based on the customer's demeanor, the hearing panel found his testimony credible, NAC notes.
Pelletier worked as a representative in a BMO Harris Financial Advisors call center at the time and now is affiliated with LPL Financial. While at BMO, his pay wasn't based on commissions and he received no compensation for processing customers' IRA contributions, the decision notes.
"Seven years ago, someone deceived a number of people, including Mr. Pelletier, who acted in good faith. It is not a case that FINRA should have brought and suspending him does nothing to advance investor protection," Pelletier's lawyer, James L. Kopecky, told ThinkAdvisor by email Friday.
In a civil complaint against BMO Harris, the ex-wife and a notary, the client contended his partner's unauthorized withdrawals totaled $51,550. The parties settled the suit for slightly more than this amount: BMO Harris paid $35,000; the notary paid $15,000; and the ex-wife paid $5,115; Pelletier was not required to contribute to the settlement.
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