FINRA suspended broker John Joseph Arnold, formerly of Merrill Lynch's Newport Beach, CA branch, and fined him $15,000 for failing to verify the identity of a customer prior to executing a wire transfer transaction, resulting in $127,200 in customer losses when it turned out that the person Arnold failed to identify was actually a fraudster posing as the victimized Merrill Lynch customer.
The findings indicate that Arnold (CRD #2854371) failed to take at least two steps at two different times to communicate with his customer about the wire transfers and, thereafter, effected or caused the fraudulent wire transfers to be effected without so much as having communicated with his customer about the $127,200 that was to be taken out of the customer's account, as the result of a fraudulent wire request initiated by an imposter.
The investigation shows that in August 2013, an imposter posed as a Merrill Lynch client of Arnold's, and sent two e-mails to Arnold requesting two wire transfers totaling $127,200 be sent to third-party bank accounts. Although Merrill Lynch policies required its representatives to verbally confirm all e-mailed wire instructions, Arnold purportedly instructed a sales assistant to process the wires and falsely represented to her that he had verbally confirmed the wire requests with his client, even though he had made no such contact and furthermore did not speak with his client whatsoever about the wire transfer requests.
FINRA's report states that after falsely representing that the wire transfers were for "medical costs," Arnold structured the imposter's first wire request for $77,200 by splitting it into a $50,000 request on one day and $27,200 on the next day, thereby disguising from Merrill Lynch the true amount of the wire request in order to evade a firm policy that requires its personnel to obtain a Letter of Authorization from a customer for all wires exceeding $50,000. Arnold purportedly replied back to the imposter via e-mail his proposal to split the $77,200 transaction into consecutive $50,000 and $27,200 transactions, but again failed to verbally confirm the imposter's consent to arranging the transactions in such a split fashion.
As the imposter's second request was for only $50,000, this second wire transaction did not technically require a Letter of Authorization.
Still, pursuant to FINRA's findings, Merrill Lynch's written supervisory procedures (WSPs) prohibited its employees from accepting instructions for account transactions—including wire requests—sent by e-mail and furthermore required its employees to use the firm's web-based "ASAP" system to process all wire transfer requests.
The findings indicate that Arnold violated the WSPs by accepting the transaction instructions via e-mail and not verbally confirming them with his customer before effecting the transactions. When a firm supervisor subsequently questioned Arnold about the e-mail correspondence with his "customer," Arnold falsely replied that he had verbally spoken with his customer over telephone when no such contact had occurred.
Arnold finally discovered the fraud when the imposter subsequently sent him another e-mail requesting an additional wire transfer of $170,000 to an account at "JCAT Inc.," and Arnold, for the first time, called his client to verbally verify the wire request. At that time, Arnold's customer informed him that the e-mail account had been hacked and that no wires had been requested.
The present settlement order follows an October 2015 FINRA complaint, when regulators first alleged that Arnold's false statements contributed to fraudulent wire transfers totaling $127,200 in damages.
If you have invested with John Joseph Arnold, who after leaving Merrill Lynch joined Raymond James & Associates (also in Newport Beach, California), or with any broker or financial adviser who failed to verify your identity prior to executing wire transfer requests or other transactions initiated by an imposter and this fraud has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.