May 24, 2012
On August 16, 1996, the National Association of Securities Dealers ("NASD") filed a regulatory Complaint against Bruce Gregory Buscetto. According to NASD Notice To Members August 2000 at Page 420, the regulatory matter was resolved via settlement as follows:
Bruce Gregory Buscetto (CRD #1425416, Registered Principal, Newtown, Pennsylvania) submitted an Offer of Settlement in which he was barred from association with any NASD member in any capacity. Without admitting or denying the allegations, Buscetto consented to the described sanction and to the entry of findings that he disregarded his duty of fair dealing with public customers. According to the findings, Buscetto did not research securities that he recommended to customers and misled customers by: making material misrepresentations, including price predictions; and omitting material negative information during the offer, purchase, and sale of securities.
Subsequent to his NASD Bar, Buscetto became employed at SXC HealthSolutions, Inc. ("SXC"), a provider of pharmacy benefit management services. In 2009, SXC sought permission to act as a Third Party Administrator in Florida, and applied for a certificate of authority; however, the Office of Insurance Regulation for the State of Florida advised SXC that it would not approve its application for a certificate of authority out of concern over Buscetto's background and NASD Bar. As a result, SXC demoted Buscetto from a corporate officer to the lower position of Senior Vice President of Sales.
That Was Then
On April 13, 2011, Buscetto filed a Statement of Claim with NASD's successor, Financial Industry Regulatory Authority's ("FINRA"), seeking an expungement of the disciplinary action from the Central Registration Depository ("CRD"). On April 20, 2011, FINRA declined Buscetto's request.
Making A Federal Case
On September 14, 2011, Plaintiff Buscetto filed aComplaint against FINRA, which was removed to the United States District Court of New Jersey on October 27, 2011. Bruce Gregory Buscetto, Plaintiff, V. Financial Industry Regulatory Authority, Defendant. (Opinion, DNJ, 11-6308 (JAP)). Buscetto sought a judgment expunging reference to his NASD Bar and vacating the self-regulator's July 11, 2000 Order. In support of the requested expungement and vacatur, Plaintiff asserted that the relief was appropriate because, inter alia:
- it would pose no risk to the public,
- he continues to suffer collateral consequences as a result of the Bar, and
- a substantial amount of time has elapsed since the bar was instituted in 2000.
On November 3, 2011, FINRA moved to dismiss Plaintiff Buscetto's Complaint, arguing that:
- Buscetto had no legal right to the relief he requested;
- the Court lacked subject matter jurisdiction over the action;
- no private right of action exists against FINRA under the Exchange Act; and
- FINRA is entitled to absolute immunity as a regulator.
SIDE BAR: According to the Court, FINRA is a Securities and Exchange Commission registered self-regulatory organization that is charged with, among other things, establishing and maintaining a system for collecting and retaining registration information about its member firms and their current and former registered representatives. Such information is characterized as involving disciplinary actions, regulatory, judicial, and arbitration proceedings, which FINRA is required to make publicly available - in furthering that mandate, FINRA established the CRD database and BrokerCheck, an internet resource that the public can use to obtain registration information about current and former representatives.
The Court noted that in both his NASD Offer of Settlement and the NASD Order, Plaintiff Buscetto expressly acknowledged FINRA's continuing obligation to maintain and make available his registration information. Further, attendant to the settlement process, the Court underscored that Plaintiff had waived any right to challenge or contest the validity of the NASD Order and had expressly confirmed his understanding that a consequences of having entered into a settlement was that:
the Order will be available through the NASD public disclosure program in response to public inquiries or requests for information about his disciplinary record . . . this Order will become part of [Plaintiff's] permanent disciplinary record.
As to the somewhat mechanical issue as to whether a federal Court could even order FINRA to expunge the Bar from CRD or vacate the self-regulator's 2000 Order, the Court found that
Plaintiff does not cite any authority that supports imposition of the relief he requests, and even "acknowledges that there is no caselaw directly on point in which a federal district court has ruled that it has the power to consider and order expungement of a final disciplinary Order from the CRD.
As to Plaintiff Buscetto's fallback position, which seemed to be that FINRA Rule 2080: Obtaining an Order of Expungement of Customer Dispute Information from the Central Registration Depository contemplates some possibility of expungement, the Court made short shrift by asserting that the cited Rule was limited to "customer disputes," and not the regulator's disciplinary actions.
Finally, the Court holds that dismissal of Plaintiff's complaint was also warranted because FINRA is entitled to absolute immunity in the exercise of its regulatory functions, as was the case here.
Bill Singer's Comment
Few issues seem to cause more anger among former registered persons than the modern-day online availability of a regulatory settlement. Prior to the full blown onset of the Digital Age, Web 2.0, iPads, and smartphones, NASD/FINRA settlements were more complicated things to locate and download. The relatively obscure, somewhat private, generally impossible to locate aspect of such settlements often provided a motivation for some Wall Street professionals to enter into such resolutions - particularly if they were planning on leaving the industry and figured "what the hell," who's gonna know or ever care?
In more recent years, what was once a hard copy is now digital; what was once bound in some binder whose location was known to few is now easily found on Google or at a regulator's website. The largely hidden regulatory settlement of the 1990s is now a permanent tattoo on your forehead. Moreover, with the expanding ease of online access, the problem of the availability of such matters will likely grow exponentially and in ways that we may yet not comprehend. Alas, the future may come back to haunt you!
Some of these cases engender sympathy for the barred or suspended former broker - and some involve such despicable conduct that the now enhanced consequence of digital outing are welcomed. For too many former brokers, a regulatory settlement was little more than an expedient exit at little or no cost, and one that merely paved the way for more fraud in some other field. For other brokers, a foolish youthful indiscretion or a miscue based upon an inadvertent misunderstanding may now have disproportional impact upon their future careers and private lives.
There are over 600,000 registered persons in the biz. Some are at major firms of the ilk of Merrill Lynch, Morgan Stanley, Wells Fargo, or UBS; others fill in the ranks at LPL or Schwab; and others work at smaller indie/regionals. The one common denominator is that a long-term regulatory suspension or bar has the power to keep on giving, regardless of where you work or once worked. The silver lining of my reporting about cases such as Buscetto's is that they serve as warning beacons for many registered folks. These are the crippling consequences of misconduct.
This ain't the 80′s or 90′s. We ain't talkin' about telexes, faxes, landlines or first class mail. This is the age of instant online gratification. Now, there are new roadblocks in your career path if you opt for too quick a regulatory settlement (or even if you fight and lose at a regulatory hearing). Make sure that you fully discuss the ramifications of settlement with your lawyer.
Sometimes, it just may pay to fight a regulatory case through the regulator's administrative remedies, to the SEC, and to the federal courts - but, trust me, when I say "pay," I mean it; the legal fees for such a fight are considerable. Similarly, make sure that you and/or your lawyer have exhausted all possible opportunities to influence the regulator on the final wording of any order. As I have often written, it is frequently advisable for the explanation of misconduct cited in a settlement offer's enabling order to include more facts and explanations rather than less. While the conventional wisdom is that you should keep these statements short and sweet, years from now, you may wish that a third party had more context and a better basis to appreciate the true nature of what you had agreed to settle.