12/08/2010 11:31:00 AM EST
Grandmother Test Applied – FINRA Sanctions for Conversion of Customer Securities Upheld
Securities, Corp., Craig M. Biddick, Exchange Act Rel. 63453, December 7,
Time since appeal filed - 8 months 6 days
Time since last brief - 4 months 26 days
FINRA found that Mission and Biddick, a rep at the firm converted customer
securities. Mission was expelled and Biddick barred. Joint disgorgement of
$38,000 plus interest was also ordered. The facts were not disputed. Mission
and Biddick transferred securities from customer accounts without notice or
authorization and used a portion of the proceeds to pay the firm's expenses.
The Commission rejected the defense claims that the accounts had been
abandoned, the appropriated stock was worthless, and the firm had been paying
safekeeping fees on behalf of the customer accounts. It found the record did
not support these arguments.
Contrary to the abandonment claim, several customers testified that they had
not in fact abandoned their accounts and received no notice of the conversion
of their securities. Needless to say, the assertion the stock was worthless was
belied by the fact that the proceeds from its sale were used by the firm to pay
Respondents also claimed that FINRA is unconstitutional on separation of powers
grounds, citing Free Enterprise Fund v. Public Company Accounting Oversight
Board, 130 S. Ct. 3138 (2010). The Commission noted that the court distinguished
the PCAOB from self regulatory organizations like FINRA.
In upholding the sanctions the Commission noted the stunningly obvious - by
deliberately converting customer property to pay for firm expenses and then
attempting to conceal the misconduct respondents should not be licensed to
handle other people's money. This invocation of the "grandmother
test" (would you want this person to handle your grandmother's money?) was
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