According to FINRA, Clarence Leo Smith was fined $5,000 and suspended from association with any FINRA member in all capacities for 15 business days for impersonating a customer in a telephone call to a FINRA member firm.
While associated with his member firm, Smith, who also provided tax services to individuals, called a FINRA member firm at which one of his tax clients had an account. During the call, Smith impersonated the customer, answered verifying questions, and successfully requested that a distribution of $2,600 to the customer be sent to the customer's address of record. Although the customer had authorized the distribution, he did not authorize Smith to impersonate him. The customer did not suffer any loss and did not complain.
The suspension was in effect from January 17, 2023, through February 6, 2023.
Impersonating a customer, even with the customer's authorization for the underlying transaction, is a serious violation of securities industry rules and ethical standards. Firms use verification procedures—such as asking security questions and confirming account details—to ensure that the person requesting a transaction is actually the account owner. These procedures protect customers from unauthorized access to their accounts and help prevent fraud and identity theft.
When Smith impersonated his tax client and answered the verification questions, he defeated the purpose of these security measures. Even though the customer had authorized the distribution itself, the customer had not authorized Smith to impersonate him. The distinction is important: a customer might authorize someone to facilitate a transaction on their behalf through proper procedures (such as granting power of attorney or using the firm's authorized representative procedures), but impersonation is never an appropriate method for facilitating transactions.
The fact that Smith was also the customer's tax preparer creates additional concerns. Tax preparers have access to substantial personal and financial information about their clients, which could be used to answer security verification questions. The relationship of trust that exists in the tax preparer-client relationship makes it particularly troubling when tax preparers abuse that access to information by impersonating clients.
While this case notes that the customer did not suffer any loss and did not complain, the absence of harm does not make the conduct acceptable. Impersonation creates the potential for significant harm, and the violation lies in the conduct itself, not merely in any resulting harm. If Smith was willing to impersonate a customer to facilitate an authorized transaction, there is concern he might do so again in situations where the transaction might not be authorized or might not be in the customer's best interests.
The relatively short 15-business-day suspension and $5,000 fine likely reflect the mitigating factor that the customer had authorized the underlying distribution and did not complain. Had the impersonation been used to facilitate an unauthorized transaction or had it resulted in customer harm, the sanction would likely have been much more severe.
For investors, this case illustrates the importance of protecting your personal information and being cautious about who has access to details that might be used to answer security verification questions. Tax preparers, accountants, and other professionals have access to information such as Social Security numbers, dates of birth, addresses, and financial details that are commonly used in security verification.
If you work with a financial professional who also provides tax services or who refers you to a tax preparer, be aware of the potential for information sharing and ensure that your personal information is protected. Never authorize anyone to impersonate you when dealing with financial institutions, even if you want them to facilitate a legitimate transaction. Instead, use proper procedures such as authorizing them as a representative on the account, granting limited power of attorney if appropriate, or participating in a three-way call where you can verify your identity and then authorize the other person to discuss your account.
Financial institutions' verification procedures exist to protect you. While they may sometimes seem inconvenient, they are an important safeguard against fraud and unauthorized access. When these procedures are defeated through impersonation, even for seemingly innocent purposes, it undermines the security system that protects all customers.
