July 2, 2021

In a coercive measure that covered the divide between brokers and investment advice, the Financial Industry Regulatory Authority banned a former business development manager at Charles Schwab & Co. in Chicago who improperly claimed expenses for clients of a company consultancy and run an undisclosed outside business.

In November 2018 and March 2019, Michael T. Carl, whose job it was to advise advisors to use Schwab as a custodian, altered invoices and fabricated an email to force Schwab to pay $ 19,000 for services that two RIA custodian clients had used even though RIAs were not eligible for payment of these expenses, according to a settlement letter finalized Wednesday.

In both cases, Carl made it appear that another RIA, which was entitled to refunds, had used the seller’s services, according to Finra. Schwab, who pays some fees for RIA custody clients as a perq, paid the seller directly.

The brokerage industry self-regulator also accused Carl, who had been at Schwab for eight years out of his 19-year career, of operating an undisclosed consulting business that conflicted with his work at Schwab.

The actions violated Finra’s 2010 catch-all rule requiring high standards of trading honor and its 3270 rule prohibiting brokers from engaging in outside trading activities without the approval of their member firm.

Carl, who had been affiliated with seven companies during his 19-year career, settled the charges without admitting or denying Finra’s findings. He did not return a request for comment sent via social media.

In recent years, both spending problems and brokers outside business activities generated dozens of actions to apply Finra and have figured prominently among the regulator’s enforcement priorities.

Carl voluntarily left Schwab in May 2019 while under review for his outside business activities. The review then revealed the incorrectly applied invoices, Finra said, citing the Schwab U5 documents.

Since 2019, Carl has been running a consultancy firm, Redwood Advisor Services, which helps brokers set up their own RIAs and select service providers and vendors, according to his LinkedIn profile. The work seems similar to the company he started in Schwab.

Finra said Carl in March 2016 solicited one of Schwab’s on-call clients to contract with him for counseling services. For a quarterly rate, he offered to locate and hire suppliers and services for the RIA, including custodians – “a conflict of interest in that Carl’s work at Schwab involved, in part, ‘attract advisory clients to Schwab’s custodian services,’ said Finra.

Carl collected more than $ 40,000 in fees between 2016 and 2018 while attesting on Schwab’s annual compliance questionnaires that he was not involved in any outside activity, Finra said. In March 2019, he also asked another Schwab client for consulting services.

The deal, which RIA’s client never finalized, included a confidentiality clause prohibiting its disclosure to Schwab and conditional on Schwab pricing favorable to the client accepting or not becoming Carl’s consultant, according to Finra. .