According to FINRA, David Michael Brendza was fined $5,000 and suspended from association with any FINRA member in all capacities for six months for causing his member firm to maintain inaccurate books and records by falsifying the representative code for trades.
Brendza entered into an agreement through which he agreed to service certain customer accounts, including executing trades for those accounts, under a joint representative code that he shared with a representative who was planning on retiring in several years and an active representative who was part of Brendza's team and who is an immediate family member. The agreement set forth what percentages of the commissions each representative would earn on trades placed using the applicable joint representative code. The parties later amended the agreement to provide Brendza and his immediate family member with higher percentages of commissions than what was set forth in the original agreement.
Although the firm's system correctly prepopulated the trades with the applicable joint representative code, Brendza changed the code for the trades to a different joint representative code that he only shared with his immediate family member. As a result, Brendza and his immediate family member received higher commissions than what they were entitled to receive pursuant to the amended agreement. Brendza did not ask the retiring representative whether he could change the code on the trades at issue and did not otherwise indicate to him that he was doing so.
Brendza mistakenly believed that the retiring representative had agreed that he could change the representative code so that Brendza and his immediate family member would receive higher percentages of commissions than what was set forth in the amended agreement. The firm has since paid restitution to the retiring representative. Brendza, together with his immediate family member, reimbursed the firm a total of approximately $275,000, which is the approximate amount of additional commissions that they received from the trades.
The suspension is in effect from January 3, 2023, through July 2, 2023.
Representative codes are critical to the accurate tracking of trading activity and commission allocation in brokerage firms. These codes identify which representative executed each trade and determine how commissions are allocated among representatives in joint representative arrangements. Accurate representative codes are essential for proper supervision, compliance monitoring, and compensation.
By changing the representative code on trades from the joint code that included the retiring representative to a code that included only Brendza and his immediate family member, Brendza caused the firm's books and records to inaccurately reflect who was responsible for the trades. This inaccuracy affected both compliance functions and commission allocation.
The $275,000 in additional commissions that Brendza and his family member received as a result of the falsified codes represents a substantial amount of money that should have been paid to the retiring representative according to the agreement. While Brendza claims he mistakenly believed the retiring representative had agreed to the change, the fact that he did not confirm this belief or document any such agreement, and that he made the changes without informing the retiring representative, suggests he knew or should have known that the conduct was improper.
The six-month suspension and requirement to repay approximately $275,000 reflect the seriousness of falsifying books and records, even when the motivation is to reallocate commissions among representatives rather than to harm customers. The falsification undermined the integrity of the firm's records and deprived a colleague of commissions to which he was entitled.
For investors, while this case primarily involved internal commission allocation rather than customer harm, it is still relevant. Accurate books and records are fundamental to proper supervision and compliance in the securities industry. When representatives falsify records for any reason, it demonstrates a willingness to engage in dishonest conduct and undermines the reliability of the firm's systems. Additionally, disputes among representatives about commissions can distract from customer service and indicate dysfunction within the firm.
