Wall Street regulation can be a funny thing at times. As a recent FINRA settlement shows, self regulation may often be indistinguishable from an animated sitcom: all we need is Fred, Barney, Wilma, and Betty . . . oh, okay, sure, let's toss in Dino too. Instead of a meaningful conclusion to two settlements, FINRA sort of presents us with something akin to laughable hi-jinks in Bedrock City replete with a Yabba Dabba Doo send-off.
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, Respondent submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of [Ed: Name redacted at the sole discretion of BrokeAndBroker.com Blog], Respondent (AWC 2014040091301, November 20, 2015).
Respondent was first registered in 1987 and by July 2008 he was registered with FINRA member firm Bedrok Securities LLC. The AWC asserts that he had no prior relevant formal disciplinary history with the Securities and Exchange Commission, any self-regulatory organization or any state securities regulator.
A Yabba Dabba Doo Tale ?
Sometime in August 2012, an unnamed Bedrok Securities supervisor with payroll and compliance duties (identified only as "SG") allegedly told Respondent that he (the supervisor) would put into motion the payment by the firm to Respondent of "an additional $50,000." The AWC alleges that the supervisor then asked Respondent to accept the extra $50,000 in compensation but with the proviso that Respondent would remit $30,000 of that amount back to the supervisor. Thereafter, Respondent would apparently pocket $20,0000; however, the AWC asserts that the supervisor warned Respondent that a chunk of that sum would need to be used to pay the taxes on the full $50,000 in compensation, which was credited (at least on the books) to Respondent.
As far as scams go, this one ain't all that grand or clever. Sure, the supervisor pretty much walks away with a chunk of change but Respondent comes off as a colossal fall-guy. At this point, however, this statement in the AWC loses me [Ed: Although the AWC references the last name of the Respondent in the following quote, in the sole discretion of the BrokeAndBroker.com Blog, that last name has been deleted]:
Unbeknownst to [DELETED by BrokeAndBroker.com] and the Firm, SG was embezzling that money from the Firm. Ultimately, [DELETED by BrokeAndBroker.com] agreed to accept the $50,000, remitted approximately $30,000 of that amount to SG in cash, and used the remainder to pay applicable taxes. ln so doing, [DELETED by BrokeAndBroker.com] caused the books and records of the Firm to be inaccurate. By reason of the foregoing, [DELETED by BrokeAndBroker.com] violated FINRA Rules 4511 and 2010.
Lemme see if I can get my arms around FINRA's "unbeknowst" conclusion.
Someone taps you on the shoulder and offers you $50,000 in compensation. You don't have to do jack to earn it. The guy making the offer is a superior to you. You both work for the same firm. The guy offering you the extra bucks says that he's taking a $30,000 cut and you should use what's left in your hands to pay off the taxes that you will owe on your unearned compensation. Seems to me that a reasonably intelligent registered rep would sort of have an inclination that something wrong was afoot -- something that would likely have involved stealing $50,000 from Bedrok, something along the lines of a beknownst embezzlement.
Ummmm, ya wanna explain to me just what part of this embezzlement scam was "unbeknownst" to Respondent?
The "unbeknownst" to Bedrok I get. It's the "unbeknownst" to Respondent, the guy who took the extra bucks, paid out a portion to the embezzling mastermind, and then apparently paid tax on what he never really had earned that I'm not getting.
If Respondent was truly clueless, then what the hell is he being charged with? Wouldn't the "unbeknownst" thing sort of make him an unwitting victim? Unless, of course, FINRA didn't exactly mean what it said in the AWC, or, you know, maybe there was more to this scam than the self-regulator explained to us. Regardless, it seems like we're in Bedrock City and Fred Flintstone is about to let out with a Yabba Dabba Doo as the cartoon comes to an end.
In accordance with the terms of the AWC, FINRA imposed upon Respondent a $5,000 fine and a 30-calendar-days suspension from association with any FINRA member in any and all capacities.
Second Case In Point
For some idiotic reason, the first AWC hides the identity of
the mastermind of the "unbeknownst" embezzlement scam. The grand embezzler is hidden by FINRA behind the initials of SG. Unfortunately for FINRA, that inveterate Wall Street raconteur and bon vivant lawyer Bill Singer is on the job! Undeterred by the challenge of breaking into FINRA's well-guarded and protected Vault of Secrecy, Bill soldiers on.
Raising the Veil of FINRA Secrecy
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, Steven P. Goldberg submitted a Letter of
Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the
Matter of Steven P. Goldberg, Respondent (AWC 2013037009301, August 6, 2015).
In the Goldberg AWC, FINRA informs us that Steven P.
Goldberg was first registered in 2001 and
from February 2, 2009, to April 17, 2013, he was registered with Bedrok
Securities LLC. The Goldberg AWC asserts that on May
17, 2013, Bedrok Securities filed a voluntary termination for Goldberg via a Uniform
Termination Notice for Securities Industry Registration ("Form U5").
The Goldberg AWC asserts that Goldberg had no prior relevant formal disciplinary history
with the Securities and Exchange Commission, any self-regulatory organization
or any state securities regulator.
COO Versus Mere Supervisor
In contradistinction to the first AWC, which characterizes
Goldberg as "a Bedrok Securities supervisor who had payroll management and
compliance duties at the Firm. . ." The Goldberg AWC asserts that:
From May 2010 through April 2013
(the "Relevant Period"), Goldberg was the Chief Operating Officer
("COO") of Bedrok Securities and his duties consisted of, among other
things, approving business expenses incurred by employees of the Firm. Also
during the Relevant Period, Goldberg was given a Firm-issued corporate credit
card for travel and other expenses incurred in connection with his authorized
business activities for the Firm.
During the Relevant Period, Goldberg charged personal expenses to the Firm's credit card, including airline tickets, hotel rooms, restaurant bills, and concert tickets. In total, Goldberg charged approximately $50,000 in personal expenses to the Firm's credit card. Thereafter, as COO of the Firm, Goldberg approved these personal expenditures as "business expenses" and paid for the purchases with funds from the Firm's bank accounts. As a result, Goldberg converted these funds from the Firm...
According to the Goldberg AWC, FINRA deemed the cited conduct to constitute a violation of FINRA Rule 2010 and in keeping with the
terms of the AWC, the self-regulatory organization imposed upon Goldberg a Bar from association with any FINRA member in any capacity.
Bill Singer's Comment
Oh my. Dare I say it? Should I be so bold as to conjecture that I have cracked the many layers of FINRA's heretofore impenetrable initials code? Could it be that the undisclosed supervisor SG is the now-disclosed COO Steven Goldberg?
What was that sound? Did you hear it too? Was that the crumbling of the stone walls that surround FINRA's regulatory Vault of Secrets? Is Wall Street collapsing amid the rubble of the COO's uncovered identity? Is the Universe itself imploding? Or is Barney Rubble sitting in a car next to his pal Fred Flintsone and the two preparing to embark upon another funny episode of regulatory life in Bedrock City?
Year after year, I fail to understand FINRA's ongoing idiocy in protecting the identities of individuals who are referenced only by initials in an AWC in which their names do not appear in the caption but these same individuals are ALSO fully named as a respondent in a second AWC (or in an accepted Offer of Settlement or who have been found guilty after a hearing). Specifically, I am limiting my complaint to the specific circumstance where the "initialed" unnamed individual has either been found guilty after a hearing or has entered into a settlement (either AWC or Offer of Settlement) concerning underlying facts material to both citations. In contradistinction, I do understand the appropriateness of using initials to mask the identities of individuals who have not yet settled or are actively contesting their alleged guilt.
See these articles for further examples of FINRA's misguided secrecy policy: