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Difficulty: Very hardFinancial Exploitation of Senior Investors and Vulnerable Adults

A 72-year-old investor contacts her registered representative requesting an urgent 200,000wiretransferfromherindividualbrokerageaccounttoanunfamiliaroverseasbankaccount.Tofundthetransfer,shedirectstherepresentativetosell200,000 wire transfer from her individual brokerage account to an unfamiliar overseas bank account. To fund the transfer, she directs the representative to sell 200,000 of blue-chip stock held in her account. Based on a pattern of unusual requests and recent interactions, the firm reasonably suspects that the client is a victim of financial exploitation. Under FINRA Rule 2165 and associated customer account regulations, which of the following actions is the broker-dealer permitted to take?

  1. Place a temporary hold on the cash disbursement while executing the customer's sell order for the equity securities.Answer
  2. B
    Place a temporary hold on both the execution of the stock sell order and the cash disbursement for an initial period of up to 15 business days.
  3. C
    Obtain binding legal authorization from the client's designated trusted contact person to formally cancel both the trade execution and the disbursement request.
  4. D
    Freeze all trading activity and asset movements across the customer's account indefinitely without providing notification to the account owner.

Answer

The broker-dealer is permitted to place a temporary hold on the disbursement of funds while executing the customer's stock sell order as directed.
Under FINRA Rule 2165, a member firm that reasonably believes financial exploitation has occurred, is occurring, or will be attempted may place a temporary hold on the disbursement of funds or securities from the account of a specified adult (individuals aged 65 and older, or aged 18 and older with physical/mental impairments). However, this rule applies specifically to disbursements (transfers of money or assets out of the account) and does not give the firm authority to refuse to execute trade orders (buying or selling securities within the account). Therefore, the firm may hold the wire transfer disbursement while executing the stock liquidation order.

Step-by-Step Solution

1
Analyze the customer classification under FINRA Rule 2165
The client is 72 years old, qualifying her as a 'Specified Adult' (natural persons aged 65 and older, or aged 18 and older who the firm reasonably believes have a mental or physical impairment).
Rule 2165 protections specifically apply to specified adults vulnerable to financial exploitation.
2
Distinguish between disbursement holds and transaction/trade execution requests
The firm may place a temporary hold on the $200,000 cash wire transfer (disbursement), but must fulfill the customer's trade order to sell the blue-chip stock.
FINRA Rule 2165 applies strictly to disbursements of funds or securities out of an account, not to orders to buy or sell securities within the account.
3
Evaluate the role of the trusted contact person
The firm may notify and discuss suspected exploitation with the trusted contact person, but cannot require or accept authorization from them to cancel orders unless they possess valid legal power of attorney.
Under FINRA Rule 4512, trusted contact persons serve as an informational resource to protect account holders, not as legal decision-makers.

Key Concept

FINRA Rule 2165 Disbursement Holds vs. Securities Trade Execution
Estimated Time:1m 45s
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Topics

Financial Exploitation of Senior Investors and Vulnerable Adults