November 6, 2014
A recent FINRA regulatory settlement asks us to consider an in-house compliance effort that "repeatedly" asked a registered person to stop using an outside email account. What is not explained is why repeated requests were necessary -- or how many requests added up to whatever was deemed to be "repeatedly." Clearly, the indefatigable self-regulatory organization is targeting the misuse of social media and email. What is a little less clear -- and in need of some fine tuning -- is the content of some of FINRA's published regulatory settlements. Here is just another example:
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, Peter Sen Lau submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Peter Sen Lau, Respondent (AWC #2011029206502, November 3, 2014).
In 1982, Lau first became registered and by December 2004, he was registered with FINRA member firm Buckman, Buckman & Reid, Inc. ("BBR"), where he most recently served as Managing Director of Investment Banking.
The AWC alleges that from January 1, 2010 to November 31, 2011, Lau conducted certain firm-related business through a Gmail.com account. During that relevant time, the AWC asserts that BBR prohibited the use of personal email accounts for business purposes.
Pretty Please With Sugar On Top
An interesting allegation by FINRA in this settlement is that "Lau continued to use his personal email account for company business after being advised repeatedly by the firm that such use was improper."
FINRA deemed Lau's conduct to constitute violations of NASD Rule 3110 and FINRA Rule 2010. In accordance with the terms of the AWC, FINRA imposed upon Lau a $5,000 fine and a 20-business-day suspension from associating with any FINRA member in any capacity.
Bill Singer's Comment
What I'm not understanding about this matter is that according to FINRA online records as of November 6, 2014, Lau is still employed by BBR - despite the AWC's assertion that he had persisted in the use of his personal Gmail account "after being advised repeatedly by the firm" that such use was in violation of the company's policy. The AWC presents a picture of Lau as an obstinate, non-compliant, registered person who refuses to follow repeated requests by his firm to stop using an unapproved email platform for business communications. If, in fact, FINRA's characterization is accurate, then why was Lau not discharged by BBR -- or, at a minimum, fined and placed on some administrative leave?
Other questions that are prompted by this pregnant AWC are
- How many emails did Lau send via his Gmail account?
- What was the nature of the Gmail messages under scrutiny?
- How many times did BBR request that Lau stop using the Gmail account?
- What, if any, steps did BBR take to confirm the cessation of use of the Gmail account?
- What explanation did Lau offer as to why he failed to honor the repeated requests from his firm to stop?
- Did BBR impose any in-house sanctions upon Lau?
The point of publishing these AWC settlements is to inform the industry and investing public of regulatory issues involving FINRA member firms and their associated persons. For these published settlements to have any value, they should (at a minimum) explain what happened, why the cited conduct was a violation, and offer some guidance (where appropriate) as to how best to detect and deter such issues.
FINRA sets forth a scenario where BBR "repeatedly" asked for cited misconduct to cease but such demands were ignored by Lau. I would argue that give such a predicate that it is incumbent upon the regulator to explain why BBR was not also charged and what the firm's proper response should have been under the circumstances. It seems okay for a FINRA member firm to merely paper its file with repeat demands for a registered person to cease doing any number of acts -- apparently, it's you can go through the motions as long as you keep insisting that something stop. FINRA raises the appearance of compliance complacency but fails to address the issue.