The deluge of memes and articles covering the now-infamous ‘kiss-cam’ footage from a recent Coldplay concert are already being leveraged by commentators as a cautionary tale of the perils of concealing poor conduct – a cautionary tale that has come too late for one former Charles Schwab representative who hid evidence of his misconduct using off-channel communications.
Unfair share
A Financial Industry Regulatory Authority (FINRA) investigation found that, from October 2020 to January 2022, Daniel Michael Roper had entered into an undisclosed oral profit-sharing agreement with a customer, without alerting Charles Schwab to this agreement. Roper conducted more than 14,000 equity trades and over 6,000 options trades using the customer’s self-directed account and login details – directly contravening written policies.
Roper was aware that his activities breached Charles Schwab policies, and went to considerable lengths to conceal his misconduct, including:
- Using customer login credentials to access the account
- Utilizing non-Schwab accounts to transfer payments
- Communicating by SMS (Text) messages on his personal device and via his personal email
As a result, Roper received over $80,000 in profit-sharing payments.
Off channel, off the books
It was found that Roper had exchanged “thousands” of messages relating to profits, account performance, and trades, using both his personal device to send SMS messages and his personal email account. By going off-channel to conceal these messages from Charles Schwab, he violated written firm policies that explicitly prohibited employees from using personal devices and emails for business communications.
Roper also failed to provide the firm with copies of these texts or emails, meaning that no record of his conversations exists. This meant that he caused Charles Schwab to maintain incomplete records of communications, leaving the firm in breach of regulatory rules, including:
- Books and records Rule 17a4 that requires firms to create and maintain specific records related to their business (i.e. customer information, order records, and transaction details)
- FINRA Rule 4511, requiring that member firms create and maintain legible, true, accurate, and complete records
By depriving Charles Schwab of these communications, Roper opened the firm up to regulatory scrutiny around recordkeeping and data completeness – something we have seen FINRA already take enforcement action on earlier this year.
But it wasn’t just “books and records” rules that were violated, with Roper’s conduct also seeing him violate FINRA Rule 2150, relating to “improper use of a customer’s securities or funds,” and Rule 2010 – requiring that firms and individuals “observe high standards of commercial honor and just and equitable principles of trade.”
You can hide, but you can’t run
Roper voluntarily terminated his association with Charles Schwab in August 2023, with the firm filing a “Uniform Termination Notice of Securities Industry Registration” on his behalf soon after. A firm spokesperson said:
“At Schwab, we hold ourselves to the highest standards of ethical conduct. The actions of this former representative fell short of those expectations.”
Roper was charged with making improper use of a customer’s securities or funds, exercising unauthorized discretion in a customer’s account, and using unapproved communications channels to conceal his conduct. He has been suspended in all capacities for two years by FINRA and will need to requalify by examination for registering as a securities representative in the future. The regulator also issued a fine of $15,000 and a repayment order for the $80,000 profit Roper made.
The case stands as a warning to individuals who may feel emboldened by an apparent slowdown in the regulatory appetite for enforcement activity, and who may be tempted to use off-channel communications to try and conceal their misconduct – whether through a regulatory investigation, a firm’s surveillance and monitoring, or with a stadium kiss-cam – you’ll be found out sooner or later.
Off-channel communications are still posing problems for firms. While your first line of defence should be enabling all channels for business use and compliantly capturing your communications data, your second should be monitoring messages for the telltale signs of misconduct, from profit-sharing to bullying and harassment.
