Maryland

Respondent violated sections 11-302(2) and (3) of the Maryland Securities Act by, among other things, withdrawing from a client's account funds that were far in excess of what he may have been entitled to receive and depositing those funds into his account and withdrawing $2,000 from another client's account to fund his personal gambling expenses, and violated section 11-411(d) of the Securities Act by, among other things, failing to amend his Form U4 to disclose an outside business activity.

Order

Bar (Permanent)

Investment Adviser, Investment Adviser Representative, Broker Dealer, Agent

7/2/2019

Civil and Administrative Penalty(ies)/Fine(s)

$100,000.00

Revocation

Lombard Securities Incorporated

Discharged

Cutshall was named a respondent in a FINRA complaint alleging that he abused his position as trustee for trusts that he administered on behalf of separate customers, a married deceased couple and an elderly then 91-year widow, by converting and improperly using funds from these trusts. The complaint alleges that in total, Cutshall took approximately $400,000 from the account of the deceased customers' residuary trust by using his position as trustee to write checks drawn against the trust's account at his member firm and depositing the checks into his personal bank account. Cutshall did not disclose to his firm that he took these funds. After having already taken $400,000 from the trust, Cutshall claimed for the first time that there was a handwritten note purportedly signed by the deceased customer, the husband. Rather than consult with the lawyer who drafted and witnessed the original deceased couple's trusts, Cutshall hired a different law firm to, among other things, give him an opinion regarding the enforceability of the handwritten note. The law firm's legal opinion acknowledged the suspicious nature of the signature on the document and acknowledged that because the deceased wife did not sign the handwritten note or execute a similar document, Cutshall had no claim to any assets deriving from her trust. The law firm advised Cutshall to return the money that he took from the account of the residuary trust so that they could perform an accounting of trust assets based on the value of the husband's trust and the wife's trust as of a particular date. Cutshall repaid the residuary trust only $229,100 and he kept the difference of $170,900. Based on the presumption that the husband signed the handwritten note and that it was enforceable, the law firm told Cutshall that he was entitled to receive approximately $292,100 from the account of the residuary trust based on their accounting of the funds attributable to the husband trust in that account. In total, Cutshall r

FINRA

Cutshall was named a respondent in a FINRA complaint alleging that he abused his position as trustee for trusts that he administered on behalf of separate customers, a married deceased couple and an elderly then 91-year widow, by converting and improperly using funds from these trusts. The complaint alleges that in total, Cutshall took approximately $400,000 from the account of the deceased customers' residuary trust by using his position as trustee to write checks drawn against the trust's account at his member firm and depositing the checks into his personal bank account. Cutshall did not disclose to his firm that he took these funds. After having already taken $400,000 from the trust, Cutshall claimed for the first time that there was a handwritten note purportedly signed by the deceased customer, the husband. Rather than consult with the lawyer who drafted and witnessed the original deceased couple's trusts, Cutshall hired a different law firm to, among other things, give him an opinion regarding the enforceability of the handwritten note. The law firm's legal opinion acknowledged the suspicious nature of the signature on the document and acknowledged that because the deceased wife did not sign the handwritten note or execute a similar document, Cutshall had no claim to any assets deriving from her trust. The law firm advised Cutshall to return the money that he took from the account of the residuary trust so that they could perform an accounting of trust assets based on the value of the husband's trust and the wife's trust as of a particular date. Cutshall repaid the residuary trust only $229,100 and he kept the difference of $170,900. Based on the presumption that the husband signed the handwritten note and that it was enforceable, the law firm told Cutshall that he was entitled to receive approximately $292,100 from the account of the residuary trust based on their accounting of the funds attributable to the husband trust in that account. In total, Cutshall received approximately $463,000 from the account of the residuary trust. The complaint also alleges that Cutshall administered a trust for the benefit of the elderly customer and improperly withdrew and used $2,000 in customer funds for his own benefit. The complaint further alleges that Cutshall never disclosed to his firms that he had been named as a beneficiary of the husband's trust, including during the time that he withdrew funds from the residuary trust despite completing forms that called for the disclosure of such information. Cutshall further failed to disclose that he served in any other fiduciary capacity for the deceased customers or that he would be compensated for any such role. Cutshall failed to provide his firms a copy of the handwritten note naming him as a beneficiary of the trust. Cutshall actively thwarted his firms' ability to supervise his conduct. In addition, the complaint alleges that Cutshall made a misrepresentation in his annual compliance questionnaire issued by his firm.

Decision & Order of Offer of Settlement

Bar (Permanent)

All capacities

Indefinite

4/11/2019

Without admitting or denying the allegations, Cutshall consented to the sanction and to the entry of findings that he abused his position as trustee for trusts that he administered on behalf of his customers, a now deceased and an elderly 91-year old widow, by converting and improperly using funds from these trusts. The findings stated that Cutshall used his position as trustee to write checks from the account of the deceased customer's residuary trust totaling approximately $400,000 that he deposited into his own bank account. In 2013, Cutshall made public for the first time an unwitnessed handwritten note purportedly signed by the late husband of the deceased customer in 2002 that named Cutshall as a beneficiary of 50 percent of the assets in the late husband's trust as the basis for his taking those funds. The wife, the deceased customer and the owner of the residuary trust account, did not sign the note, and she did not execute any similar document naming Cutshall as beneficiary to her trust. After having already taken approximately $400,000 from the residuary trust account, Cutshall then hired a law firm to give him an opinion about the validity of the handwritten note. The law firm, among other things, advised Cutshall to return all of the money that he had already taken. Cutshall only repaid $229,100 to the residuary trust account, keeping the difference of $170,900. The law firm conducted an accounting to determine the funds available for distribution to the beneficiaries of each trust, but Cutshall did not tell the law firm that he had not returned all of the money that he had already taken. The law firm determined that Cutshall's 50 percent was approximately $292,100. Thus, with the funds he previously kept, Cutshall took approximately $463,000, significantly more than he was purportedly entitled to receive, and thereby converted funds from the account of the customer's residuary trust. The findings also stated that Cutshall thwarted his member firms' ability to supervise his trustee activities by failing to disclose that he had been named as a beneficiary to the trust for which he had been serving as trustee. Moreover, when each firm asked Cutshall to provide copies of the trust documents related to the account of the customer's residuary trust in connection with his request to continue acting as trustee, he failed to provide a copy of the handwritten note that materially altered the terms of the customer's trust and made him a beneficiary. The findings also included that Cutshall improperly used funds from the trusts of a customer, then 91-year old widow, another trust for which Cutshall served as trustee. Cutshall used a check from the brokerage account of the customer to engage in an automated clearinghouse transaction for $2,000 to gamble. FINRA found that, Cutshall completed an annual firm questionnaire and falsely claimed that he was not named as beneficiary of any non-family member account.

Federal Deposit Insurance Corporation

During 2012-2013, FDIC had determined that Mr.Cutshall was a director of Woodsboro Bank, Woodsboro, MD engaged or participated in certain unsound or unsafe practices related to certain Maryland testamentary trusts for which he was trustee resulting in personal gain to him and/or financial loss to the bank.

Stipulation and Consent

Prohibition

No civil or monetary sanctions were imposed in this order and the order does not impose any limitations or restrictions regarding Mr.Cutshall's brokerage or advisory services.

Bankruptcy

Discharged

MORGAN STANLEY SMITH BARNEY

Discharged

4.ALLEGATIONS RELATED TO EMPLOYEE'S DISCLOSURE OF FIDUCIARY STATUS WITH RESPECT TO OUTSIDE ACCOUNTS AS WELL AS EMPLOYEE'S WITHDRAWAL FROM A TRUST ACCOUNT ON ONE OCCASION.

RETRIEVED TRUST CHECKBOOK ERRONEOUSLY THINKING IT WAS MY PERSONAL CHECKBOOK. WROTE A CHECK FOR CASH AND REALIZING THE ERROR, REPORTED IT FIRM.