According to FINRA, Michael McDermott Sr. was suspended for three months on March 28, 2022, for trading without authorization in a customer's account both before and after the customer's death and for causing inaccurate books and records.

McDermott placed a trade in a customer's account without first obtaining authorization. The account was fee-based, so McDermott earned no commission. Later, unaware the customer had died, McDermott placed multiple stop loss orders in the account, some of which were cancelled and others executed.

McDermott entered a note in his firm's electronic customer note system falsely indicating he had spoken with the customer in connection with the stop loss orders. This was impossible as the customer had died prior to McDermott placing the orders. After learning of the customer's death, McDermott edited the note to inaccurately state he had spoken with the customer prior to death. These actions caused the firm to maintain inaccurate books and records.

In light of McDermott's financial status, no monetary sanction was imposed.

Trading in a deceased customer's account is a serious violation because the account should be frozen upon notification of death until proper estate documentation is provided. Only authorized estate representatives can provide trading instructions for a deceased person's account.

The false customer notes compound the violation by creating fictitious documentation of customer authorization that never occurred. When McDermott learned the customer had died, rather than promptly reporting his error, he attempted to cover it up by editing the notes to suggest he had spoken with the customer before death.

Accurate customer notes are critical for supervisory review and regulatory examinations. When representatives create false documentation of customer communications, they undermine the entire supervisory system designed to detect unauthorized trading and other misconduct.

This case illustrates that even in fee-based accounts where representatives earn no commissions from trading, unauthorized trading is prohibited. The compensation structure does not eliminate the requirement to obtain customer authorization before executing trades. Investors and their estate representatives should be aware that accounts must be frozen upon death until proper estate authority is established.