According to FINRA, registered representative Larry Joseph Michaels (CRD #4351477) of Lake Forest, California, was fined $10,000 and suspended for two months from associating with any FINRA member firm in all capacities. This action was resolved through an Acceptance, Waiver, and Consent (AWC) agreement effective April 18, 2024, under FINRA Case #2020069057401.

Michaels was found in violation of FINRA rules on two separate grounds. First, he exercised discretionary authority in customer accounts without obtaining the required written authorization from the customers or acceptance from his member firm. FINRA rules mandate that before a broker can make trading decisions on behalf of a customer without prior approval for each transaction, the customer must provide explicit written consent and the firm must formally accept the discretionary arrangement. By trading on a discretionary basis without these safeguards in place, Michaels operated outside the bounds of his authorized activities and deprived his customers of essential protections.

Second, Michaels failed to provide his member firm with complete and accurate information about his outside business activities. Specifically, he did not disclose the full nature of his roles as a manager, consultant, and incorporator for clients of an accounting company. FINRA rules require registered representatives to promptly notify their firms of all outside business activities so that the firm can evaluate whether those activities create conflicts of interest or other compliance concerns. By failing to disclose these roles, Michaels prevented his firm from exercising appropriate supervisory oversight over his activities outside the firm.

The combination of unauthorized discretionary trading and undisclosed outside business activities represents a pattern of conduct in which a broker operates without proper oversight. When a firm is unaware of a representative's full range of activities, it cannot adequately supervise that individual or identify potential conflicts of interest that could harm customers. Discretionary trading without authorization compounds this problem by giving the broker unchecked control over customer assets.

For investors, this case highlights two important areas of concern. Customers should ensure that any discretionary trading arrangement is supported by signed written agreements and should verify with their firm that the arrangement has been formally approved. Additionally, investors should be aware that their broker may have business interests outside of their brokerage activities, and they should not hesitate to ask about potential conflicts of interest that could influence the advice they receive.