The current volatility and downturn in the markets related to the COVID-19 pandemic undoubtedly will generate a larger-than-normal number of customer complaints from retail investors. While member firms operate with reduced staffs and under work-from-home restrictions, they nevertheless must be vigilant in "pulling the thread" on sensitive complaints and other red flags to identify potential patterns of misconduct and to reasonably discharge their supervisory obligations. Responsible line-of-business supervisors and compliance officers should ask the following questions:
- Is the complaining customer a senior citizen or otherwise vulnerable investor?
- Was an investment made away from the firm?
- Was discretion exercised in a non-discretionary account?
- Does the account reflect unexplained transfers of funds or securities to accounts that are unknown or unfamiliar to the customer?
- Does an otherwise profitable account reflect irregular or frequent commission-generating trading activity that may have been "papered over" under more favorable market conditions?
- Is the account excessively leveraged when considering the customer's investment objectives and risk profile?
- Have unauthorized third parties attempted to conduct activity in the account?