According to FINRA, Miche D. Jean was assessed a deferred fine of $10,000 and suspended for two months for exercising discretionary power in customer accounts without obtaining prior written authorization and for communicating with customers about securities business through text messages without firm authorization.
The findings revealed that Jean exercised discretionary power in customer accounts without obtaining prior written authorization from the customers or prior written approval by his member firm. Additionally, Jean communicated with firm customers about securities-related business through text messages using his personal cellular phone, without the firm's authorization or approval. Jean did not provide these messages to the firm, and he subsequently deleted them. As a result, the firm did not capture or preserve these messages, causing it to maintain incomplete books and records.
The case involves two separate but related violations. First, the unauthorized discretionary trading violated customers' rights to control their own accounts and deprived them of the protections that come with properly authorized discretionary accounts. When discretionary authority is properly documented and the firm accepts the account as discretionary, the firm implements appropriate supervisory procedures to oversee the discretionary trading and ensure it remains consistent with the customer's investment objectives, risk tolerance, and financial situation. By exercising discretion without proper authorization and firm acceptance, Jean deprived his customers of these important protections.
Unauthorized discretionary trading creates significant risks for customers. Without proper documentation of the scope of discretionary authority, disputes can arise about what the representative was authorized to do. Without firm knowledge and acceptance of discretionary authority, the firm cannot provide appropriate supervision to ensure the trading is suitable and in the customer's best interests. This lack of oversight creates opportunities for representatives to engage in excessive trading (churning) or otherwise abuse their control over customer accounts.
The second violation—communicating with customers about securities business through personal text messages that were not preserved—compounds the problem by ensuring that there would be no record of Jean's communications with customers about the discretionary trading or other securities matters. The deletion of these messages after the fact is particularly troubling, as it suggests an effort to conceal evidence of his communications or trading activities.
Federal securities regulations require firms to preserve business-related communications to ensure regulatory oversight and investor protection. When registered persons use personal devices for business communications and fail to preserve those communications, they undermine these important regulatory requirements. The fact that Jean deleted the messages rather than preserving them for the firm raises questions about whether he was attempting to conceal his unauthorized discretionary trading or other improper conduct.
The two-month suspension and $10,000 fine appropriately address these serious violations. The combination of unauthorized discretionary trading and failure to preserve communications demonstrates a pattern of disregard for fundamental regulatory requirements designed to protect customers and ensure proper oversight.
Investors should be aware that discretionary authority must be properly documented in writing and approved by the firm before a representative can make trading decisions on their behalf. If a representative is making trades without discussing each transaction with the customer, investors should verify that proper discretionary authorization has been established. Additionally, investors should be cautious about conducting securities business through personal text messages or other channels that may not be subject to firm supervision and recordkeeping.
