Geoffrey Ortiz, Exchange Act Rel. 34-58416 (August 22, 2008)
Time since appeal filed - 9 months, 8 days
Time since last brief - 5 months, 6 days
Pages - 14
Footnotes - 35
FINRA found that Ortiz, a former registered rep forged or caused to be forged customer initials on two account applications authorizing increased management fees and provided false information to the NASD. He was separately barred for each offense. FINRA’s bar of Ortiz was upheld by the Commission who was pro se.
The customers (husband and wife) opened managed accounts at Ortiz’s firm, but insisted that they would pay no more than 1.5% annual management fees. After the firm refused to open the accounts unless the fee were higher (due to firm policy that linked fees to the size of accounts) it required Ortiz to obtain initials from the customers on the new account forms that reflected an increased annual fee. Ortiz later submitted revised new account forms which reflected the higher fee and purported to be initialed by the customers. Although copies of the purportedly initialed forms faxed to the firm’s operations office were located, the documents with the original initials were never found despite the fact that it was firm policy to retain original account opening documents.
Approximately one year later the customers noticed the increased fees and complained to the firm. The customers denied approving the higher fees or initialing the revised new account forms. After NASD began an investigation Ortiz in writing and sworn testimony claimed that the customers had approved the higher fees and initialed the account forms in his presence at their home. The wife testified and produced documents supporting her claim that she was on an out of town business trip on the days when her initials could have been placed on the documents. Both NASD and Ortiz produced handwriting experts at the hearing. Because there were no original documents, neither expert could testify that Ortiz had made the initials, but the NASD expert found that the customers had not written them. The NASD hearing panel found the customers to be credible and Ortiz "tentative and unconvincing." It also found the NASD handwriting more credible based on the comparison methods he used.
The Commission reiterated its practice of giving "great weight and deference to credibility determinations" by the initial fact finder which it will overturn only "by substantial record evidence." One of the customers erroneously testified he had done business with Ortiz since 1977 when Ortiz was in high school. The Commission refused Ortiz’s invitation to reject all his testimony because this was an error "on a collateral event occurring years before the events at issue." Ortiz argued that the sanctions could not be upheld as the firm failed to produce the original initialed documents. The Commission refused this invitation, noting that firm policy was to keep such originals in the registered rep’s individual files to which Ortiz had access.
NASD sanction guidelines provide for a bar in egregious cases of forgery or falsification and up to two years suspension if there are mitigating factors. The guidelines require analysis of two factors - 1) the nature of the forged documents, and 2) whether there is evidence of good faith but mistaken belief the customer gave express or implied authority. Here the forgery was egregious because it involved account opening documents that authorized a higher fee than the customers had originally agreed to. Nor did Ortiz claim the customers had authorized him to initial the fee increase approval. In addition, Ortiz stuck to his story after documentary evidence demonstrated proved that one of the customers was on a business trip when he claimed she had initialed the forms.
The Commission noted that "the public interest demands honesty" from registered reps and that "anything less is unacceptable." It agreed with the NASD analysis that noted that Ortiz’s actions had caused financial harm to his customers. Finally, the Commission found that the industry simply cannot operate if firms cannot trust documents submitted by associated persons. Accordingly, it found the bar properly served the goal of general deterrence by indicating that forgery "is treated as serious misconduct and receives severe sanctions."
The Commission also upheld the bar based on Ortiz's claim during the NASD investigation that the customers had initialed the new account forms. It noted that it has upheld bars in the case of a complete failure of a rep to provide information and found the providing of false information to have the same undesirable effect.
This was a routine case with a prompt opinion. Given the credibility findings of the NASD hearing panel and the documentary evidence demonstrating that Ortiz's story was false the outcome was not in doubt.