Leon William Vaccarelli of Waterbury, Connecticut, a registered representative with The Investment Center, Inc., was fined $7,500 and suspended for one month from associating in any and all capacities with any Financial Industry Regulatory Authority (FINRA) member firm after consenting to findings that Vaccarelli exercised unauthorized discretion in customer accounts. Letter of Acceptance, Waiver and Consent, No. 2014042302001 (Nov. 24, 2015).
According to the AWC, at various times from 2011 through 2015, while Vaccarelli was registered with The Investment Center, he had exercised discretion in four of his firm customers’ accounts. Vaccarelli reportedly exercised discretion even though he had not received any written authorization from the customers to place the discretionary trades. The AWC stated that the firm had never approved and accepted the accounts as discretionary.
Additionally, the AWC reported that Vaccarelli had falsely certified in four of his firm’s annual compliance questionnaires from 2011 through 2014 that he had not handled any retail, non-advisory customer accounts on a discretionary basis. FINRA found that Vaccarelli’s conduct in this regard was violative of NASD Conduct Rule 2510(b) and 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 sanction from the federal and state government bodies.
By definition, a broker is liable for making unauthorized trades without the customer’s prior authorization. Absent written discretion, it is a violation of Section 10(b) of the Exchange Act, and Rule 10b-5, as promulgated thereunder, to effect transactions in customer accounts without their prior authorization or consent.
Customers also have a duty to review securities purchase and sale confirmations and review their securities accounts. If a stockbroker has placed unauthorized transactions in a customer account, the customer under most circumstances has a duty to act, or a duty to complain, or else generally, the customer may be deemed to have ratified these transactions, with actual or imputed knowledge, by doing nothing. Under such circumstances, a customer’s damages may be limited to the time they knew or should have known about the unauthorized transactions.
Public disclosure records reveal that Vaccarelli has been subject to five disclosure incidents. On December 16, 2003, he was subject to a customer dispute, where a customer stated that her annuity was not managed properly. He was subject to a customer dispute on May 27, 2010, where a client alleged misrepresentation.
The Investment Center maintains a series of geographically dispersed “independent” or “franchise” branch offices consisting of approximately “330 Independent Representatives” in twenty-nine states. In substantial part, these offices are “franchise” offices wherein the broker pays all the expenses, in consideration for a higher commission pay-out. The Investment Center purports that its “entrepreneurial approach gives [representative] the flexibility to run [their] business the way [they] choose.” However, there is no on-site supervision at these geographically dispersed, remote locations. As such, The Investment Center is also substantially unable to directly supervise the sales practices or activities conducted at these “independent” offices, and since its inception, The Investment Center has been subject to certain regulatory actions, and customer initiated, investment related complaints, or arbitrations, alleging fraud in connection with the sale of securities.
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