John Charles Kautter of Bethesda, Maryland, a registered representative with New England Securities, was suspended for two months from association with any Financial Industry Regulatory Authority (FINRA) member in any and all capacities in connection with an Order Accepting Offer of Settlement containing findings that he had facilitated an unapproved loan transaction. Department of Enforcement v. John Charles Kautter, Disciplinary Proceeding No. 2012032922102 (Dec. 4, 2015). Kautter’s firm discharged him on January 29, 2013, in connection with the misconduct.
According to the Order, an elderly securities customer, MLB, had an account at Firm A that was serviced by registered representative George Hoffman. The Order indicated that in April 2011, Kautter, acting in his capacity of a registered representative with New England Securities, knowingly received a wire transfer of $36,000 from MRB’s securities account at Firm A to Kautter’s personal bank account and had immediately wire transferred the same funds to Hoffman’s personal bank account.
The Order indicated that Kautter, who was deemed an experienced registered representative, knew or should have known that it was improper for a registered representative to accept money from a customer. Kautter reportedly permitted the pass-through of funds from a securities customer to Hoffman away from Hoffman’s member firm employer, and never took reasonable steps to ascertain the rationale pertaining to the transaction. FINRA found that by doing so and ignoring warning signs that that the transaction may have been improper, Kautter had violated FINRA Rule 2010.
The Order further indicated that on October 6, 2014, FINRA’s Office of Hearing Officers had entered a default judgment barring Hoffman from associating with any FINRA member firm, for borrowing $36,000 from an elderly customer without obtaining approval from his FINRA member employer. The Order stated that Firm A’s written policies and procedures had required that associated persons obtain written authorization from Firm A prior to accepting a loan from one of its securities customers. Hoffman reportedly never requested or received written approval from Firm A prior to accepting the loan from MRB.
According to the Order, just shortly after MRB had agreed to loan Hoffman the proceeds, Hoffman had contacted Kautter and asked him to accept the wire of funds from one of Hoffman’s customers to Kautter’s personal bank account, and to subsequently wire the funds to Hoffman’s personal bank account. Hoffman reportedly informed Kautter that the customer had owed him money, and Kautter did not inquire further into the transaction. FINRA found that Kautter failed to make a reasonable inquiry into the specific facts concerning the transaction before facilitating it, specifically with regard to the reason for the transfer of the funds, source of funds, and whether Hoffman’s firm was aware of the transaction or approved it. FINRA ultimately found that Kautter had facilitated an unapproved loan transaction between Hoffman and MRB in violation of FINRA Rule 2010.
Firms and individuals, not surprisingly, are prohibited from unauthorized use of customer funds, borrowing of a customer’s securities or funds, forgery, non-disclosures or misstatements of material facts, and various deceptions and manipulations. Such conduct can also be found to violate criminal and other civil laws, and be subject to sanctions from the federal and state government bodies.
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