FINRA Sanctions Partially Upheld

FINRA Sanctions Partially Upheld

John Edward Mullins, Kathleen Maria Mullins, Exchange Act Rel. 66373, February 10, 2012

John Mullins was sanctioned by FINRA for converting customer property, misusing customer funds, borrowing from a customer without firm authorization, and failing to disclose outside activities to his firm.  His wife was found to have failed to disclose outside activities and borrowed funds from a customer without firm approval. The violations arose in the Mullins' handling of funds held by a charitable foundation established by a client.

John Mullins was barred. Kathleen Mullins was suspended for six months and fined $15,000 for failing to disclose outside activities to her firm. She was suspended for an additional three months and fined $5,000 for borrowing funds from a customer. The suspensions were consecutive.

The Commission sustained the sanctions against John Mullins. It lowered Kathleen Mullins' sanction for failing to disclose outside activities to her firm to four months suspension and a $10,000 fine. The Commission set aside one of the rule violations found by FINRA (but upheld another) in connection with disclosure of outside activities to the firm. It also noted a "mitigating" factor of her cooperation with FINRA during its investigation. It rejected her claim that a clean disciplinary record was a mitigating factor because "an associated person should not be rewarded for acting in accordance with his duties as a securities professional." Similarly the fact that violative behavior is not repeated is not considered mitigating.

The fact that the Commission viewed cooperation during the investigation as a mitigating factor while rejecting the claim that a clean disciplinary record is not seems inconsistent. Reps are required to cooperate with FINRA investigations and therefore the same rational for rejecting the "clean record" mitigation argument would seem to apply to the cooperation claim. The opinion does not explain this apparent contradiction.

Read more commentary on SEC administrative opinions at SEC Tea Party, a blog by Robert Fusfeld.

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