John William Cutshall of Frederick Maryland a stockbroker formerly employed by Morgan Stanley has been charged by Financial Industry Regulatory Authority (FINRA) in a Complaint alleging that Cutshall (1) converted a customer’s funds (2) improperly utilized customer funds (3) failed to abide by standards of commercial honor and principles of trade and (4) made misrepresentations to his firm concerning his activities. Department of Enforcement v. John W. Cutshall Disciplinary Proceeding No. 2014041590801 (Aug. 10, 2018).
According to the Complaint, from 2012 to 2014, Cutshall improperly utilized and converted funds of a trust which had been administered by him on behalf of elderly and deceased customers, effectively abusing his position as trustee. He was also alleged to have hindered the ability of his employers, including Morgan Stanley, to supervise his activities as trustee by way of Cutshall’s failure to notify the firms that he was designated as the beneficiary of a trust that he served as trustee.
The Complaint alleged that in 1992, two customers of Cutshall, LB and JB, established separate trusts for the administration and distribution of their assets. The Complaint stated that until both LB and JB died, Cutshall served as trustee. After their deaths, funds from their trusts had been aggregated into the LB Residuary Trust, which was maintained at Cutshall’s employing firm. Cutshall reportedly administered the trust on behalf of LB’s and JB’s daughter, MB, until MB died in January of 2012.
Apparently, between January of 2012 and June of 2013, thirty-four checks were written by Cutshall from the LB Residuary Trust account totaling $400,000.00, where those funds were directed by Cutshall to his bank. Then, in 2013, Cutshall made it known that before JB’s death, JB ostensibly designated Cutshall as a beneficiary of fifty percent of the JB Trust assets, which Cutshall claimed justified his taking of the $400,000.00 in funds from the LB Residuary Trust account. FINRA Department of Enforcement alleged in the Complaint that LB neither signed the note Cutshall spoke of, nor executed any documents designating Cutshall as her trust beneficiary.
The Complaint revealed that after Cutshall took the $400,000.00 from the LB Residuary Trust account, he consulted a law firm to provide him with the firm’s perspective on the handwritten note’s validity. Apparently, Cutshall was advised by the firm to return the funds. Yet, the Complaint stated that only $229,100.00 had been repaid by Cutshall; he kept $170,900.00 for himself.
The Complaint then alleged that Cutshall never informed the law firm of his failure to return the funds that had been taken by him. Without that information, the firm apparently concluded that Cutshall was entitled to half of the JB Trust assets, amounting to $292,100.00. This, in turn, caused Cutshall to take possession of $463,000.00 – a greater amount than had been granted to him based on the note he claimed was signed by JB. FINRA Department of Enforcement alleged that Cutshall converted the LB Residuary Trust account funds; conduct violative of FINRA Rules 2010 and 2150(a).
The Complaint additionally revealed that in April of 2014, funds had been improperly used by Cutshall from the brokerage account of his customer, HSR Marital Trust, for which he also served as trustee. According to the Complaint, the check was used for a $2,000.00 ACH transaction so that Cutshall could gamble at Charlestown Gaming. Apparently, the trust had not been repaid by Cutshall until he was questioned by compliance personnel. The Complaint stated that Cutshall used trust funds in an unauthorized manner. Cutshall’s inappropriate use of customer funds was conduct alleged by FINRA Department of Enforcement to be violative of FINRA Rules 2010 and 2150(a).
The Complaint additionally stated that Cutshall neglected to inform his employing firms that he was beneficiary of the JB Trust even though he was obligated to disclose that designation pursuant to the written supervisory procedures of the firms. In addition, when the firms called for Cutshall to provide the LB Residuary Trust documentation, Cutshall apparently failed to provide the handwritten note despite that note significantly changing JB Trust’s terms through Cutshall being made a beneficiary. Cutshall was further accused of hindering the firm’s supervision of him by way of Cutshall making those checks payable to Cutshall’s bank instead of making them payable to himself. FINRA Department of Enforcement alleged that Cutshall’s conduct here was violative of FINRA Rules 2010.
Moreover, FINRA found that Cutshall falsified his responses in an annual compliance questionnaire administered to him in February of 2014 by claiming that he had not been named as a beneficiary of a non-family member’s investment account. FINRA Department of Enforcement alleged that Cutshall’s conduct in this respect was violative of FINRA Rule 2010.
Cutshall was terminated by Morgan Stanley on May 19, 2014 supported by allegations of his misconduct concerning a withdrawal from a trust account as well as his designation as fiduciary on accounts that were held away from Morgan Stanley. He has been employed by Lombard Securities Incorporated since July 10, 2014.
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