Recently released details from the Financial Industry Regulatory Authority (FINRA) have outlined how Delaina Kucish, a FINRA registered General Securities Representative associated with Edward D Jones & Co., L.P since 2001, used unauthorized text messages on a personal mobile device to share client documentation, before submitting false or misleading responses in subsequent investigations.
Taking place between February and July 2021, Kucish’s actions in transmitting client data via illicit communications channels resulted in Edward Jones failing to be compliant with several industry regulations. These include:
- Section 17(a) of the Securities Exchange Act of 1934, Exchange Act Rule 17a-4(b)(4), which requires members to preserve “(o)riginals of all communications received and copies of all communications sent by the member, broker or dealer … relating to its business as such …” for up to three years
- A subsequent violation of FINRA Rule 4511, which requires that members “make and preserve books and records are required under the FINRA rules, the Exchange Act, and the applicable Exchange Act rules”
Kucish did not disclose the use of personal text messages to Edward Jones, or provide the firm with copies of these text messages. So far, so non-compliant – but things didn’t end there.
FINRA Rule 2010 requires that associated persons “observe high standards of commercial honor and just and equitable principles of trade”. Observing this rule not only seeks to safeguard high levels of compliance, but also acts as a guarantee that both organizations and individuals can maintain their good reputations.
By utilizing channels of illicit communications, Kucish’s conduct meant that neither she individually nor Edward Jones as an organization met these high standards. This was compounded by Kucish’s further behavior: providing information to both internal and external inquiries.
As part of an internal investigation in August 2021, Kucish told an Edward Jones investigator that she did not send client information or documentation via text message – a false statement that violated FINRA Rule 2010. As part of a subsequent FINRA investigation, Kucish again denied that she had used illicit communication channels, in contravention of FINRA Rule 8210(a).
Personal Liability – Not just for injury lawyers
As a result of Kucish’s non-compliant action, FINRA issued a $15,000 fine and a 15-month suspension from association with any FINRA member in all capacities, although Kucish had already voluntarily terminated her association with Edward Jones.
This case comes amid an ongoing crackdown on illicit communications and a rise in incidences of regulators singling out individuals for non-compliance. Kucish’s story is similar to FINRA sanctions of two brokers for texting violations in 2022 – one an industry veteran using a personal device to send business messages to clients, and another who refused to cooperate with a FINRA investigation into his conduct.
This is not even the first incident of its kind that Edward Jones has experienced this year. In March the firm announced it had discharged another experienced broker for texting customers on an unapproved device (and later deleting messages prior to an audit) in violation of firm compliance policy.
What is becoming clear is that we have entered an era of personal accountability when it comes to sanctions, with individuals not only facing measures such as dismissal from organizations, but further suspensions and fines imposed by regulators. What is also clear is that individuals using illicit means of communication is a challenge that hasn’t gone anywhere.
While this will serve as a cautionary tale for individuals to straighten up and fly right, lest they find themselves personally accountable, it is also a reminder to organizations that they need to be focusing on controlling and capturing communications.
“Nothing Motivates Quite Like Accountability”
While Gary Gensler, the Chair of the Securities and Exchange Commission (SEC), was referring to a different enforcement action with his quote, his words apply to the growing trend towards individual accountability. The U.S. Department Of Justice’s Assistant Attorney General Kenneth Polite JR was right in his assertion that individual accountability is fast becoming “one of the most pressing challenges we face”.
But firms need to remember that this rise in individual accountability does not insulate them from the repercussions of allowing a culture of illicit communications to propagate. Record fines levied against J.P. Morgan Securities are still a keen reminder that compliance is a team sport, and the responsibility to foster – and adhere to – good practice does not just lie with individual staff.
While some organizations have attempted to use the sledgehammer of full channel bans to crack the nut of illicit communications, these run the risk of simply ‘relocating’ illicit means of contact to other channels. Reminding individual staff, especially senior and longstanding members, that individual accountability is here to stay, and of the potential personal impacts, such as fines, disbarment, and reputational damage, is a necessary step to reducing instances of illicit communications.
But the surest step to helping eliminate illicit communications is to open up channels of communication and capture them all – making all communications compliant by default. This helps reduce the weight felt by already overburdened CROs and CCOs to effect frameworks that meet regulatory compliance requirements, fosters a compliance-positive culture when it comes to communications, and will allow individuals at every level to communicate freely with clients and colleagues knowing it is ‘safe’ to do so. The outcomes of illicit communications might be getting more personal, but when it comes to compliance, we’re all in it together.