Without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication, Hernan Charry submitted a Letter of Acceptance, Waiver and Consent ("AWC") to the Financial Industry Regulatory Authority ("FINRA") for the purpose of settling alleged rule violations by the Financial Industry Regulatory Authority ("FINRA"), and the regulator accepted that offer. Charry had no prior regulatory history. In the Matter of Hernan Charry, Jr., Respondent (AWC/2010022715607/October 24, 2011).
After entering the securities industry in 2004 and associating with several firms, Charry registered with Longview Financial Group, Inc. ("LFG") in September 2008. Following the April 2009 opening of LFG's Scottsdale, AZ branch office, Charry became Branch Manager in June 2009 and was responsible for supervising at least three LFG associated persons. In February 2010, Charry resigned.
Private placements were a favorite FINRA target in 2011 and that scrutiny will likely continue into 2012, In Charry's case, FINRA alleged that he had failed to enforce LFG's written supervisory procedures ("WSPs") regarding the handling of private placement memoranda, subscription documents, and investor funds for private placement offerings sold by LFG. Moreover, FINRA alleged that Charry had failed to effectively supervise LFG associated persons' handling of such documents.
Purportedly, Charry failed to prevent associated persons from sending subscription documents directly to the private placement issuer. This direct transmission effectively did an end-run around LFG's ability to conduct an in-house review of those documents and to monitor the transactions. Making matters worse from FINRA's perspective, Charry allegedly did not undertake a suitability review of those transactions, and, according to the AWC, he seems to have largely abdicated his responsibilities to review the subject transactions.
Separately, FINRA was troubled by Charry's alleged acquiescence in the use by associated persons of non-LFG email for securities business. Alleging that Charry was aware of or did not prevent such email usage, FINRA alleged that this permitted yet another end-run around LFG's in-house ability to review customer communications.
Following his February 2010 resignation, Charry purportedly left the Scottsdale office's keys (including those for filing cabinets containing LFG customers' non-public personal information) with the office's landlord, who was not affiliated with LFG. FINRA alleged that this act constituted a failure to safeguard customers' non-public personal information and, in addition, made such information available to a unaffiliated third party without providing customers with the appropriate notice - in violation of FINRA Rule 2010 (by causing LFG to violate SEC Regulation S-P).
Based upon the above, FINRA alleged that Charry failed to:
- enforce his firm's WSPs,
- effectively supervise, and
- safeguard confidential customer records.
FINRA imposed a 20-business-day suspension in Principal capacities only and a $10,000 fine.
Bill Singer's Comment
Okay, sure - I get it. According to FINRA, Charry wasn't exactly a diligent branch manager. Given all the nonsense that goes on at branch offices everyday, the public has the right to expect that those required to supervise aren't merely sleepwalking through their job.
Still - from my perspective, there's more than a bit of hypocrisy when FINRA points fingers at industry supervisors for not staying on top of things. As if, what, FINRA stayed on top of things for the past decade? Do we really need to go into the Madoff fiasco and Stanford? Given the lousy example set by Wall Street's cops, I'm hardly surprised to learn that some branch managers are not the epitome of vigilance.
Notwithstanding the pot calling the kettle black in this and similar regulatory cases, I truly understand why the regulator cited Charry for his alleged failed diligence as a supervisor and even for his laid back policy regarding unapproved email addresses. Consequently, the sanctions for those shortcomings strike me as valid.
On the other hand, c'mon with the whole thing about the office keys. I mean, really? Yeah, yeah, yeah - he should not have quit his job and dropped the keys in the landlord's grubby hands. A lapse of judgement. No question about it. On the other hand, suppose that Charry quit at 3 p.m. and walked out of the office with those same keys. Since he's no longer an employee of the FINRA member firm, wouldn't that also be a violation for him to retain the keys from 3:01 p.m and beyond? Seems like a damned-either-way scenario.
What I don't like about the whole key charge is that it smacks of pettiness and piling on by FINRA. It reminds me of the jerk in the football game who tries to poke you in the eye under cover of the pile: a cheap shot is a cheap shot.
It's not that Charry merits my defense as much as it is that FINRA didn't need to get in this somewhat low blow. I expect that many will disagree and I respect that; however, for me, it's always odd that Wall Street's cops take every opportunity to get in the kidney punches when they got some shlub on the ground but we just never seem the same determination when it's one of those too-big-to-fail firms. Seriously, you don't think that a former branch manager at JP Morgan, Goldman Sachs, Morgan Stanley, Citigroup, or Wells Fargo quit in a fit or rage and left the office keys with some unregistered third-party or took the keys home? Send me a copy of the FINRA charges for that one, okay?