An 80-year-old investor instructs her broker-dealer to sell $100,000 of blue-chip stock in her account and immediately wire the cash proceeds to an unfamiliar third-party account. The registered representative suspects that the investor is a victim of financial exploitation. Under FINRA Rule 2165 and Rule 4512, which of the following actions is the broker-dealer permitted to take?
- Execute the trade order to sell the stock, but place a temporary hold on the wire disbursement while initiating an internal review.Answer
- BPlace a temporary hold on both the stock sale order and the wire disbursement until an independent medical assessment is provided.
- CFreeze all trading activity in the account and transfer the cash proceeds directly to state securities regulators within 15 business days.
- DCancel the stock sale order and place a permanent hold on all account assets until a court designates a legal guardian.
Answer
Execute the trade order to sell the stock, but place a temporary hold on the wire disbursement while initiating an internal review.
Under FINRA Rule 2165, broker-dealers may place a temporary hold on the disbursement of funds or securities from the account of a Specified Adult (persons aged 65 and older, or aged 18 and older with physical or mental impairments) when financial exploitation is reasonably suspected. However, Rule 2165 does not allow firms to freeze or refuse trade execution orders. Therefore, the firm must execute the stock sale as instructed but can place a temporary hold on the outgoing wire disbursement.
Step-by-Step Solution
Key Concept
FINRA Rule 2165 Temporary Hold on Disbursements vs. Trade Execution
Estimated Time:1m 15s