Bankruptcy

Discharged

DUE TO COSTS ASSOCIATED WITH THE FINRA INVESTIGATION.

FINRA

Arnold was named a respondent in a FINRA complaint alleging that despite his member firm's requirement that firm personnel verbally confirm all emailed wire instructions, Arnold instructed a firm sales assistant, to process two wire requests, falsely representing to her that he had verbally confirmed each of the wire requests with a customer. In connection with the second wire request, Arnold falsely represented to the sales assistant that the customer needed the wire transfer to pay for medical costs. An imposter posing as the customer of the firm, sent emails to Arnold requesting that the wire transfers totaling $127,200 be sent to third-party bank accounts. The complaint alleges that Arnold verbally misrepresented to his firm's supervisor, that he had verbally verified a wire request with the customer, when in fact he had not. The complaint also alleges that notwithstanding the firm's letter of authorization requirements for wire requests exceeding $50,000, and without prompting from the imposter, Arnold structured the impostor's first wire request for $77,200 by splitting it into two separate transfers executed over two consecutive business days. By structuring the imposter's wire request to send $50,000 on one day and the remaining $27,200 on the next, Arnold circumvented the firm's requirement that he obtain a letter of authorization from the customer to process the $77,200 wire request. The firm also expressly prohibited its employees from structuring wire transfer requests over consecutive business days to avoid obtaining a letter of authorization. In so doing, Arnold prevented the firm from detecting the true dollar amount of the wire request, the authenticity of the wire request and its ability to supervise such transactions. In addition, in connection with the second wire request, the firm wired $50,000 out of the customer's account to the third-party bank account, as instructed by the imposter. However, on the next day, the imposter sent Arnold another email requesting an additional wire transfer of $170,000 to a third-party. For the first time, Arnold called the customer to verbally verify the wire request. During Arnold's ensuing telephone conversation with the customer, Arnold learned that the customer's email account had been hacked and that the customer had not requested either of the wire requests. Arnold subsequently called the firm's supervisor and informed him that the wire requests from the customer's account were fraudulent. During the call with the firm supervisor, Arnold admitted that he had lied to him when he told him that he had verbally verified the wire request with the customer. The firm reimbursed the customer $127,200 for the fraudulent wire transfers that it had processed from his account. The complaint further alleges that relying on Arnold's misrepresentations, and at his direction, the sales assistant recorded false entries in the firm's firm web-based system concerning Arnold's purported verbal verification of the wire requests, and a fictitious purpose for a wire request, causing the firm to preserve and maintain false books and records, in contravention of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-3 thereunder.

Decision & Order of Offer of Settlement

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

$15,000.00

Suspension

All Capacities

60 days

7/18/2016

9/15/2016

Without admitting or denying the allegations, Arnold consented to the sanction and to the entry of findings that despite his member firm's requirement that firm personnel verbally confirm all emailed wire instructions, he instructed a firm sales assistant to process two wire requests, falsely representing to her that he had verbally confirmed each of the wire requests with a customer. In connection with the second wire request, Arnold falsely represented to the sales assistant that the customer needed the wire transfer to pay for medical costs. An imposter posing as the customer of the firm, sent emails to Arnold requesting that the wire transfers totaling $127,200 be sent to third-party bank accounts. The findings stated that Arnold verbally misrepresented to his firm's supervisor that he had verbally verified a wire request with the customer, when in fact he had not. The findings also stated that notwithstanding the firm's letter of authorization requirements for wire requests exceeding $50,000, and without prompting from the imposter, Arnold structured the impostor's first wire request for $77,200 by splitting it into two separate transfers executed over two consecutive business days. By structuring the imposter's wire request to send $50,000 on one day and the remaining $27,200 on the next, Arnold circumvented the firm's requirement that he obtain a letter of authorization from the customer to process the $77,200 wire request. The firm also expressly prohibited its employees from structuring wire transfer requests over consecutive business days to avoid obtaining a letter of authorization. In so doing, Arnold prevented the firm from detecting the true dollar amount of the wire request, the authenticity of the wire request and its ability to supervise such transactions. In addition, in connection with the second wire request, the firm wired $50,000 out of the customer's account to the third-party bank account, as instructed by the imposter. However, on the next day, the imposter sent Arnold another email requesting an additional wire transfer of $170,000 to a third-party. For the first time, Arnold called the customer to verbally verify the wire request. During Arnold's ensuing telephone conversation with the customer, Arnold learned that the customer's email account had been hacked and that the customer had not requested either of the wire requests. Arnold subsequently called the firm's supervisor and informed him that the wire requests from the customer's account were fraudulent. During the call with the firm supervisor, Arnold admitted that he had lied to him when he told him that he had verbally verified the wire request with the customer. The firm reimbursed the customer $127,200 for the fraudulent wire transfers that it had processed from his account. The findings also included that relying on Arnold's misrepresentations, and at his direction, the sales assistant recorded false entries in the firm's firm web-based system concerning Arnold's purported verbal verification of the wire requests, and a fictitious purpose for a wire request, causing the firm to preserve and maintain false books and records, in contravention of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-3 thereunder.

I STRONGLY DISAGREE WITH THE ALLEGATIONS IN THE COMPLAINT AND PLAN TO VIGOROUSLY DEFEND MYSELF AGAINST THE CLAIMS. THE UNDERLYING CIRCUMSTANCES RELATE TO THE PROCESSING OF CERTAIN WIRE TRANSFER FORMS THAT WERE HANDLED BY ADMINISTRATIVE STAFF AND AS TO WHICH I DID NOT RECEIVE MEANINGFUL TRAINING. SADLY, THE REAL WRONGDOER IN THIS MATTER WAS A COMPUTER HACKER WHO DECEIVED MYSELF, MY EMPLOYER AND ITS PARENT COMPANY, ALONG WITH THE COMPLIANCE DEPARTMENTS AND ADMINISTRATIVE STAFF OF MY EMPLOYER AND ITS PARENT COMPANY. WHILE WE WERE ALL UNFORTUNATE VICTIMS OF THE HACKER, THE CLIENT WAS MADE WHOLE FOR ANY LOSSES CAUSED BY THE HACKER.

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED

Discharged

FAILURE TO PROPERLY VERIFY THE IDENTITY OF A CUSTOMER PRIOR TO EXECUTING A TRANSACTION.

It should be noted that no sales practice violations or security transactions were involved.