According to FINRA, John E. Pelletier was named as a respondent in a FINRA complaint alleging that he engaged in unauthorized trading by executing trades with a total principal value of $37,799 in a customer's Individual Retirement Account without the customer's authorization.
The complaint alleges that the customer, a 62-year-old who was retiring, was the sole owner of the IRA and the only person authorized to direct trades in the account. The only securities transactions in, or distributions from, the IRA were periodic distributions of $500 to be deposited every month in a checking account the customer held jointly with his ex-wife.
Each of the alleged unauthorized trades involved Pelletier selling one of two classes of shares of a mutual fund holding in the customer's account in order to fund a redemption and distribution. Although the customer's ex-wife was not an authorized party on the account, Pelletier allegedly executed each of the trades after receiving verbal instructions to process the redemption solely from her. The customer had not provided Pelletier or his member firm with written authorization or a power of attorney authorizing his ex-wife to direct trading in the account.
For each of the trades, Pelletier allegedly decided which class of mutual fund to sell in order to generate the funds requested by the customer's ex-wife, without obtaining authorization or consent from the customer for the trades.
If proven, this conduct would represent serious violations of fundamental investor protection rules. Brokers can only accept trading instructions from the account owner or someone with documented legal authority to act on the owner's behalf. Taking instructions from an ex-spouse without proper authorization could expose the customer to unauthorized transactions and potential financial loss.
The case is particularly concerning because it involves an IRA, which represents retirement savings that receive special tax treatment. Unauthorized distributions or trades in an IRA could have significant tax consequences for the account owner.
It is important to note that this is a complaint with allegations that have not yet been proven. Pelletier has the right to defend against these allegations. However, the case serves as a reminder that proper authorization procedures are essential to protect customer accounts.