October 23, 2014
What would you think if I told you that the BrokeAndBroker.com Blog was a live performance or that an email was a theatrical correspondence event? Sounds odd, right? Like most normal people, you'd probably wonder what the hell is wrong with me and what the hell am I talking about. So . . . how would you feel if the nation's largest financial industry self-regulatory organization called a Tweet a "public appearance?" Consider this recent FINRA regulatory settlement.
Case In Point
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Jon Robert Hickman submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Jon Robert Hickman, Respondent (AWC 2011030501201, October 14, 2014).
In 2003, Hickman first became registered and by 2005, he was registered with FINRA member firm MDB Capital Group LLC., where he remained until June 16, 2011, at which time he registered with another firm. The AWC asserts that Hickman has no prior disciplinary history with the Securities and Exchange Commission, any state securities agency, FINRA or any other self-regulatory organization.
50 Followers On Twitter
The AWC asserts that Hickman maintained a Twitter account from at least April 2009 through June 2011. That account purportedly had a mere 50 followers.
While registered as a research analyst through MDB but without his firm's knowledge, Hickman allegedly Tweeted about equities he covered. The AWC alleges that in eleven of the Tweets, Hickman discussed seven securities that he personally owned but failed to disclose that conflict. Further, 14 of his Tweets purportedly failed to be fair and balanced by disclosing risk or contingent factors or failed to provide a sound basis for evaluating certain facts discussed.
FINRA deemed Hickman's Tweets to constitute
Additionally, FINRA deemed Hickman's inadequate disclosures to violations of NASD Conduct Rules 2711(h)(1)(A) and 2210(d)(1)(A), FINRA Rule 2010 and 1M-2210-1.
- public appearances under NASD Conduct Rules 2711(a)(5) and 2210(a)(5) and
- communications with the public under NASD Conduct Rule 2210(a).
NASD Conduct Rule 2711. Research Analysts and Research Reports
For purposes of this rule, the following terms shall be defined as provided.
. . .
(5) "Public appearance" means any participation in a conference call, seminar, forum (including an interactive electronic forum) or other public speaking activity before 15 or more persons or before one or more representatives of the media, radio, television or print media interview, or the writing of a print media article, in which a research analyst makes a recommendation or offers an opinion concerning an equity security. This term does not include a password protected Webcast, conference call or similar event with 15 or more existing customers, provided that all of the event participants previously received the most current research report or other documentation that contains the required applicable disclosures, and that the research analyst appearing at the event corrects and updates during the public appearance any disclosures in the research report that are inaccurate, misleading or no longer applicable. . .
(h) Disclosure Requirements
(1) Ownership and Material Conflicts of Interest
A member must disclose in research reports and a research analyst must disclose in public appearances:
(A) if the research analyst or a member of the research analyst's household has a financial interest in the securities of the subject company, and the nature of the financial interest (including, without limitation, whether it consists of any option, right, warrant, future, long or short position); . . .
In accordance with the terms of the AWC, FINRA imposed upon Hickman a $15,000 fine and a 10-business-day suspension from association with any FINRA member firm.
Bill Singer's Comment
I get this one and truly don't have a problem with FINRA's action -- frankly, even the fine and suspension strike me as fair.
On the other hand, there's something awfully tortured when the only way a Wall Street regulator can corner a violator is by deeming a Tweet to be a "public appearance." If you ask me (go ahead, please, ask me. Gee, thanks!), this case underscores how outdated much of Wall Street's regulation has become and how we seem to be trying to regulate 21st Century misconduct by 20th Century rules. To make matters even worse, although FINRA replaced the old NASD in 2007, the current self-regulatory organization is still charging violations pursuant to the NASD Rulebook. After seven years of existence, FINRA still can't produce a consolidated rulebook and is relegated to pretending that Tweets are "public appearances."