On February 8, 2019 the Financial Industry Regulatory Authority (“FINRA”) accepted an Acceptance Waiver and Consent (“AWC”) from Elizabeth Marie Garcia, a Merrill Lynch Financial Advisor, pursuant to which Ms. Garcia consented to a complete and total bar from the securities industry. FINRA’s investigation concluded that Ms. Garcia filed fake childcare reimbursement expenses to Merrill Lynch, through the Merrill Lynch Business Development Account (“BDA”). The investigation concluded that approximately $9,015 in false expenses were improperly reimbursed to Ms. Garcia.
Financial services firms such as Merrill Lynch have business development accounts, or travel and entertainment spending allowances, for Financial Advisors, and other client facing/business development personnel. It is common for firms to contribute a sum to the accounts, and Financial Advisors to also contribute to the account, and there are generally tax advantages to this practice. Because Financial Advisors contribute their own money to the account, there is a trend towards advisors filing false expense reports, as they view a large portion of the money set aside as their own.
This view is unfounded: a percentage of the monies in any BDA account are contributed by the firm, therefore some percentage of any fraudulent expense is paid for with firm money. Additionally, filing a false expense report is taken very seriously by FINRA, and seen as both a violation of the just and equitable principles of trade, and a violation of the requirement to maintain accurate books and records. Individuals who file false expense reports can expect to face possible termination by their employer, face negative U5 language, and be investigated by FINRA. These investigations can have a wide range of outcome, with anything from a letter of warning, to a complete bar from the industry, depending on FINRA’s view of the specific circumstances surrounding the matter.
The attorneys at Lax & Neville LLP has represented a significant number of individuals who had expense reporting issues that resulted in termination or a FINRA investigation, and Lax & Neville urges financial services employees to take the policies and procedures surrounding expense reporting very seriously. Please contact our team of attorneys for a consultation at (212) 696-1999.