According to FINRA, Felipe Henao Vargas was assessed a deferred fine of $7,500 and suspended from association with any FINRA member in all capacities for 45 days for exercising discretion without written authorization by initiating a substantial short position in a volatile exchange-traded note. After the trade went against his customer, Henao closed out the position without written authorization from the customer or permission from his firm to exercise discretion.

Short positions in volatile securities carry substantial risk, as losses can theoretically be unlimited if the security's price rises. Initiating such a position without specific customer authorization is particularly problematic because the customer may not understand or accept these risks. When the trade resulted in losses, Henao compounded his violation by closing the position, again without authorization.

Henao further aggravated his misconduct by using an unapproved communication channel to exchange messages concerning the trades with a family member of the customer after the fact. This suggests an attempt to explain or justify the unauthorized trades outside of firm-supervised communications, preventing the firm from monitoring these discussions.

The 45-day suspension and $7,500 deferred fine reflect both the unauthorized discretionary trading and the use of unapproved communications to discuss the trades. The combination of unauthorized high-risk trading and off-channel communications to discuss the results represents a serious breakdown in compliance. Investors should never tolerate representatives who make trades without authorization or who want to discuss account activity through personal communication channels.