The Financial Industry Regulatory Authority (“FINRA”) has suspended former Morgan Stanley broker Michael R. Neill from the securities industry for one month and fined him $5,000. Mr. Neill consented to the suspension after FINRA alleged that Mr. Neill violated FINRA Rules 4511 and 2010 by altering representative codes for 219 trades from January 2014 through March 2018, causing Morgan Stanley to maintain inaccurate books and records.
Origination of the Matter
This case originated from FINRA’s review of the Form U5 (Uniform Termination Notice for Securities Industry Registration) that was filed by Morgan Stanley after it terminated Mr. Neill.
Background of Neill’s Actions
FINRA Rule 4511 requires member firms and associated persons to “make and preserve books and records as required under the FINRA rules, the Exchange Act, and the applicable Exchange Act rules.” Exchange Act Rule 17a-3(a)(8) obligates member firms to make and keep “copies of confirmations of all purchases and sales of securities.” Implicit in the requirement to make and preserve books and records is the need for accurate information. An associated person who enters inaccurate information in a firm’s books and records violates both FINRA Rule 4511 and FINRA Rule 2010, which requires members and their associated persons to “observe high standards of commercial honor and just and equitable principles of trade.”
In approximately March 2013, Neill entered into an agreement through which he agreed to service certain customer accounts, including executing trades for those accounts, under a joint representative code (also known as a joint production number) that he shared with the estate of a retired representative. The agreement set forth the percentages of the commissions the estate of the retired representative and Neill would earn on trades placed using the joint representative code.
From January 2014 through March 2018, Neill placed a total of 219 trades in accounts covered by the agreement using his own personal representative code. Despite the firm’s system correctly prepopulating the trades with the applicable joint representative code, Neill altered the code for the 219 trades to his personal representative code. Neill did so under the mistaken belief that his agreement with the estate of the retired representative did not apply to new assets added to accounts subject to the agreement and that he was thus authorized to enter the 219 trades using his personal representative code. The firm’s trade confirmations for the 219 trades inaccurately reflected Neill’s personal representative code.
Impact of Neill’s Actions
Neill’s actions led to him receiving higher commissions from the 219 trades than he was entitled to receive according to the agreement. In August 2022, Morgan Stanley reimbursed the estate of the retired representative.
Violations and Settlement
By causing Morgan Stanley to maintain inaccurate trade confirmations, Neill violated FINRA Rules 4511 and 2010.
In response, FINRA imposed a one-month suspension from associating with any FINRA member in all capacities and a $5,000 fine.
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