Articles Posted in Unauthorized Discretion

Kelly Marvin Barnett (CRD #4127608, Sarasota, Florida):

Recently, the Financial Industry Regulatory Authority announced that Kelly Marvin Barnett executed and Acceptance, Waiver and Consent in which Barnett was assessed a deferred fine of $15,000 and suspended from association with any FINRA member in all capacities for six months. Without admitting or denying the findings, Barnett consented to the sanctions and to the entry of findings that he used discretion in five customers’ accounts without written authorization or acceptance of the accounts as discretionary. The findings stated that a customer of Barnett’s died of a heart attack. Barnett was unaware of his customer’s death and two days after his customer’s death, Barnett placed three trades in the customer’s account for the sale of two ETFs and for the purchase of an ETF. Four days after his customer’s death, Barnett placed two additional trades in his customer’s account for the purchase of a UIT and for the sale of an ETF. Barnett’s customer had orally granted him discretion to place trades in the account but had never given him a written grant of authorization to use discretion. Further, Barnett’s member firm had never accepted the account as a discretionary account. The findings also stated that Barnett exercised discretion in four additional customer accounts without a written grant of authorization and without having the accounts accepted as discretionary. The customers had orally agreed to a trading strategy. When Barnett could not reach the customers, he executed the planned strategy without speaking to the customers first. In total, Barnett executed 25 discretionary trades in the four customers’ accounts. The findings also included that Barnett maintained handwritten notes of customer contact in the firm’s customer files in order to document conversations with clients regarding orders and recommendations.

With regards to the trades in Barnett’s deceased customer’s account, after his customer’s death, Barnett created two handwritten documents falsely stating that he had spoken to the customer on the dates of the trades and that the customer had approved the transactions. Barnett maintained the falsified handwritten notes in the firm’s customer file to substantiate his contact with his customer on the dates of the trades. FINRA found that Barnett maintained blank, signed switch disclosure forms in the firm’s customer files. The forms contained important disclosures regarding UIT exchanges. On 19 occasions, Barnett used the blank signed forms to effect UIT exchanges without having each client sign a completed switch disclosure form. Each form detailed the UIT that was being sold, the UIT that was being purchased, provided the reasons for the switch, and detailed the charges associated with the switch. As a result, the switch forms were an instruction given or received in connection with the purchase or sale of a security and was a record that the firm was required to maintain. By completing the blank, signed forms to falsely evidence acknowledgement of disclosures, Barnett falsified the exchange forms and caused the firm’s books and records to be inaccurate. The suspension is in effect from June 4, 2018, through December 3, 2018. (FINRA Case #2015048320901).

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