FINRA, the financial industry’s self-regulator often accused of favoritism toward its large member firms, has filed a case against a whistleblower on behalf of J.P Morgan over a mere $624 client loss.
RIA Johnny Burris has been embroiled in a four-year dispute with the bank, his former employer, which he says pressured him to push his clients into the bank’s own or favored investment products. J.P. Morgan, and now FINRA, accuse Burris of causing the loss and neglecting to make his superiors aware of the problem.
The regulator filed the action against Burris, a former broker with J.P. Morgan in Sun City West, Arizona, last week.
Burris said he’s spent more than $100,000 defending himself in arbitration and whistleblower cases so far. He estimates FINRA’s case could cost him another $60,000.
FINRA filed its complaint against Burris with its Office of Hearing Officers. FINRA calls these officers "impartial adjudicators of disciplinary cases" who nonetheless work for FINRA. In other words, FINRA will be hearing its case against Burris, who may have to pay for the proceedings.
"Are you serious?" securities lawyer and frequent FINRA critic Bill Singer asks. "Do we want to encourage whistleblowers or do we want to collect $600? This gives ... the appearance that FINRA is retaliating against this guy so they can squash whistleblowing."
J.P. Morgan referred questions about the case to FINRA.
"The complaint speaks for itself," FINRA spokeswoman Michelle Ong wrote in an email. "These are very serious violations. ... FINRA does not file a formal complaint unless it has strong reason to believe there are violations at its core. FINRA has proceeded with this case as we would any other similar matter." Ong did not elaborate when asked to explain why FINRA regards the alleged violations in the case as "very serious."
Read more: The full text of FINRA's response
In 2012, Burris accused the bank of pushing favored products — either J.P. Morgan's own investments or outside ones such as hedge funds that paid the bank high fees. He considered those investments too expensive or too risky for his elderly clients. Five months after he refused to comply and challenged the firm's investment policy in writing, the bank laid him off.
Three years later, last December, J.P. Morgan admitted that it failed to disclose to clients that it pushed its own products and paid a combined $307 million in fines in two linked cases to the SEC and the U.S. Commodity Futures Trading Commission.
Although J.P. Morgan caused "significant harm to clients" in the case, according to the SEC's head of enforcement, Andrew Ceresney, none of the fines were used to reimburse investor losses.
To date, "not a single person at J.P. Morgan has been publicly reprimanded in any capacity for those breaches" by a regulator, Burris says. The SEC action neither named nor sanctioned individuals.
Burris has a related pending case with the U.S. Occupational Safety and Health Administration. The SEC declined to comment when asked about the status of his whistleblower case with the commission. OSHA did not respond to a request for comment.
'YOU ARE IN BIG TROUBLE'
Now an independent RIA, Burris runs Burris Wealth Management in Surprise, Arizona, and serves mainly elderly clients. Two years after he initiated his OSHA whistleblower case, Burris says he got a got a call from Margery Shanoff, a FINRA enforcement attorney, in the spring of last year.
Burris said she told him that FINRA had completed a thorough investigation into his activities at J.P. Morgan.
"You are in big trouble," he recalls Shanoff telling him.
Burris said he asked how that could be, given that no one had called to get his side of the story. Shanoff did not respond to a request for her description of the conversation.
He says Shanoff offered him a deal: Settle, and the whole situation would go away.
He says FINRA wanted him to agree to the facts of the case against him by signing a Letter of Acceptance, Waiver and Consent, which he refused to do.
He suspects that FINRA planned to use the document during potential OSHA negotiations to show his culpability in the case.
"I'm fighting this," Burris says, "if for nothing else then just for the plain and simple fact that I'm not going to agree to something that is inaccurate."
'I MADE A MISTAKE'
The case Shanoff filed last week accuses Burris of neglecting to execute a trade for a client, which resulted in a tax liability. It also says he resolved the matter on his own without seeking appropriate approvals before doing so.
Burris acknowledges that he forgot to execute the trade in a married couple's account that resulted in his their having insufficient funds to cover a tax bill. "I made a mistake," he says.
He also concedes that he took care of the problem without informing supervisors, but says manager approval was not required because there was no customer complaint to elevate the issue. The couple signed an affidavit, reviewed by Financial Planning, saying they never intended to file a complaint about Burris and that the bank should not have done so in their names.
FINRA cited the following letter Burris wrote to his clients in the case as evidence against him:
"I want to apologize for the error that has caused your tax payment to be rejected," Burris wrote to the couple in April, 2012. "This has since been remedied with the enclosed cashier's check. … You can be assured, if there are any tax penalties, and/or interest, please bring them to my attention. I will have those remedied."
Many financial advisers continue to work in good standing for large corporate firms after causing clients losses in the tens or hundreds of thousands of dollars, or more.
Singer said even if the charges in the case were found to have merit, the consequence they would normally draw would not rise above a so-called private letter of caution,
Instead, the bank terminated Burris for "failure to follow firm policies," the case says.
STRING OF ACTIONS
Last week's case is the latest in a string of actions J.P. Morgan has taken since Burris protested its policy of pushing more expensive and risky products to clients, he says.
He says the following two events, on successive days, support his claim that J.P. Morgan went looking for a pretext to get rid of him:
- On Nov. 2, 2012, J.P. Morgan decided it would fire Burris, according to Gabrielle Frawley (née Lehu), a J.P. Morgan human resources representative. Her comments were included in documents reviewed by Financial Planning from a 2014 arbitration case that Burris filed against the bank for alleged defamation in which Burris did not prevail.
- The next day, Nov. 3, the bank discovered the documents "that broke the camel's back" and led to the decision to fire him, according to testimony of Umbreen Kazmi, a J.P. Morgan supervisory manager in the arbitration case.
Neither Kazmi nor Frawley returned calls seeking comment.
At the time of his termination on Nov. 6, Burris' FINRA BrokerCheck record contained no client complaints. Weeks after The New York Times first wrote about his case on March 3, 2013, the bank filed the first complaint against him on BrokerCheck. By May 14, it had filed two more.
Burris obtained signed affidavits from the clients associated with these complaints in which each said they never intended to file a complaint against him. Several of those clients interviewed by Financial Planning last year reiterated the views they expressed in their affidavits.
"I think it was unethical because she didn't explain it to me," retiree Carolyn Scott told Financial Planning about the J.P. Morgan employee who filed a complaint in her name against Burris. "I had no problem with Johnny."
Laya Gavin, Burris' manager, who he says took over his $100 million book of business after his dismissal, wrote the complaints after contacting Burris's clients.
When asked in the arbitration if any J.P. Morgan employees ever write complaints on behalf of clients, Kazmi said, "Absolutely not." However, bank spokeswoman Patricia Wexler told Financial Planning last year that Gavin had done so "as a courtesy."
No longer with J.P. Morgan, Gavin now runs a consulting firm, Money Wisdom & Faith, in which she counsels people about "biblical financial stewardship." She did not return a call seeking comment.
"Part of the horrific problem we have as evidenced by the Wells Fargo mess is that we really need to encourage a lot of the men and women in this industry to call up FINRA when they see the nascent stages of this conduct," Singer says. "I would suggest that the good folks at FINRA really need to take a deep breath and step back and look at the full picture."