← Broker database 2023-09-05
Anthony Cross Suspended for Unauthorized Discretionary Trading
According to FINRA, Anthony Lynn Cross was fined $5,000 and suspended from association with any FINRA member in all capacities for 20 days for exercising discretionary authority without proper authorization.
Cross exercised discretionary authority to effect trades in customer accounts without obtaining written authorization from the customers to exercise discretion and without his member firm having accepted the accounts as discretionary. Although the customers understood that Cross was placing trades in their accounts, none of them had given him prior written authorization to exercise discretion and Cross did not speak with the customers on the dates of the trades.
Discretionary authority is a significant responsibility that allows a broker to make investment decisions on behalf of customers without obtaining specific approval for each transaction. Because of the potential for abuse, FINRA rules require that discretionary authority be properly documented through written authorization from the customer and acceptance by the firm. The firm's acceptance ensures that appropriate supervisory procedures are in place.
When brokers exercise discretion without proper authorization, it creates several risks. First, there is no formal documentation of the scope of authority granted, which can lead to disputes about whether particular trades were authorized. Second, the lack of firm acceptance means the account may not receive the enhanced supervision that discretionary accounts typically require. Third, customers may not fully understand that they have granted discretion or may not realize the extent of the authority they have granted.
In this case, while the customers understood that Cross was placing trades, they had not provided written authorization for him to exercise discretion, and he did not speak with them on the dates of the trades. This meant that Cross was making investment decisions without contemporaneous customer input, which is the hallmark of discretionary trading.
The 20-day suspension and $5,000 fine reflect the seriousness of the violation while recognizing that there is no indication the customers objected to the trading. Investors should ensure they understand whether they have granted discretionary authority and ensure it is properly documented.