The Financial Industry Regulatory Authority has suspended a former Morgan Stanley rep for two months and fined him $5,000 for causing unauthorized transfers from an individual retirement account held at the time by his wife.
According to FINRA's order, between June 2009 and Feb. 6, 2024, Milwaukee-based Michael J. Schmidt was registered as a general securities rep through an association with Morgan Stanley. The couple has since divorced.
On Feb. 6, 2024, Morgan Stanley filed a Form U5 disclosing that the firm had discharged Schmidt due to “[c]oncerns regarding activity with respect to a family member’s account, including liquidations and transfers entered by registered representative without receiving specific verbal authorization immediately beforehand so as to satisfy family expenses.”
Between June 2021 and June 2022, Schmidt caused the entry of false information in a firm journaling system when completing 15 fund transfers between an advisory account solely owned by his then-spouse and a brokerage account the couple jointly owned at the time, which violated FINRA Rule 2010.
Throughout the relevant period, Morgan Stanley required that reps enter certain information into the firm’s journaling system when transferring customer funds from one account to another.
"The system included a 'Client Authorization Information' field, which requested information about, among other things, the basis for the customer’s authorization of the transfers (verbal or written), the person who obtained authorization, the date and time of authorization, and the stated reason for the transfer," FINRA's order states.
In July 2019, Schmidt’s spouse at the time opened an advisory IRA account at Morgan Stanley. She funded the account with securities worth about $65,000.
"Schmidt was the representative of record for the new IRA account, as well as for a pre-existing brokerage account that the then-couple owned jointly, which they used as a cash management account for joint expenses," the order states.
Between March 2020 and June 2022, Schmidt caused funds to be transferred from the IRA to the joint account on 26 occasions.
Schmidt obtained his ex-wife's "express preauthorization for 11 of these transfers, but he did not obtain her preauthorization for the remaining 15 transfers, which totaled $13,543," FINRA said.
Nonetheless, for all 26 transfers, including the 15 transfers for which he failed to obtain preauthorization, Schmidt stated that he had obtained his then-wife's preauthorization on a particular date and at a particular time, and that she had provided a reason for the transfer, according to FINRA.
In all instances, the transferred funds were used to cover the couple’s joint expenses.
Without admitting or denying the findings, Schmidt consented to the sanctions and to the entry of FINRA's findings.
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