Blog by Bill Singer WEEK IN REVIEW

January 7, 2017

In Face Of Split Circuits, SEC ALJ Rules Because We Say So

Having noted my own ambivalence, let me be clear in noting my disagreement with SEC ALJ Elliot's decision. Respondent Kon -- and many similarly situated SEC respondents -- is now forced to incur considerable costs in defending allegations of serious misconduct via an in-house SEC proceeding rather than in a federal court. Moreover, Respondent Kon has Bandimere, a 10Cir Opinion, declaring the SEC's ALJs "unconstitutional," and, as such, by inference, deeming the SEC's in-house administrative adjudications unconstitutional by way of the taint of the regulator's ALJs. 

On the one hand, it would seem that any SEC ALJ is irredeemably conflicted when asked to decide whether they are acting in a constitutionally permissible manner after a federal Circuit Court of Appeals has found their service is in violation of the Appointments Clause. It's one thing if there had not been any contrary ruling but there is and that significantly alters the equation. For ALJ Elliot to now acknowledge the split in the federal appeals courts but to reject the undesired ruling by simply concluding that we here, at the SEC, have held that our ALJs are not subject to the Appointments Clause is a dubious undertaking. At this point in time, the law of the land in Oklahoma, Kansas, New Mexico, Colorado, Wyoming, and Utah is as the 10Cir says: SEC ALJs serve in violation of the Constitution. I do not downplay the significance of the supportive Lucia DCCir Opinion. I do question the propriety of a mere SEC ALJ picking sides when the issue is of such fundamental, constitutional import. READ

BREAKING NEWS: Corzine Ordered To Pay $5 Million In MF Global Case 

BREAKING NEWS: On January 5, 2017, the Commodity Futures Trading Commission ("CFTC") announced that it has obtained Consent Orders against Defendants Jon S. Corzine and Edith O'Brien in connection with their respective roles in MF Global's unlawful use of customer funds totaling nearly one billion dollars. Former MF Global Chief Executive Officer Corzine was required to pay a $5 million civil monetary penalty and to enter into an undertaking that he will never act as a principal, agent, officer, director, or employee of a Futures Commission Merchant ("FCM") and that he will never register with the CFTC in any capacity. Former MF Global Assistant Treasurer O'Brien was required to pay a $500,000 civil monetary penalty for aiding and abetting MF Global's violations and she will be prevented from associating with an FCM or registering with the CFTC in any capacity for a period of eighteen months. 

READ the CFTC's FULL TEXT Press Release and Consent Orders 

Today's Blog is short (if not sweet) and, hopefully, to the point. We consider yet another Wall Street employment dispute that winds up as an intra-industry arbitration at FINRA. In the end, we have two of three respondents dismissed and a proposed revision to a Form U5. READ

Time and tide wait for no man. When it comes to arbitrating a dispute at the Financial Industry Regulatory Authority, said time and tide have a shelf life of six years. As demonstrated by a recent public customer arbitration against Citigroup Global Markets, Inc., one more trite expression also comes into play: He who hesitates is lost. READ

For entities and individuals in a regulated industry, there is often the sense that their regulators are hypocrites, who impose unfair regulations. Such complaints are heard from virtually all those who are subject to regulation, no matter the industry or the profession. In a sense, this distrust is the inevitable byproduct of most regulatory systems, be it the securities industry, the liquor business, power companies, the pharmaceutical industry, etc.

Can anything be done to truly erase the tension between the regulated and regulator -- and perhaps just as profound a question: Aren't we best served when such tension exists? Alas, that is far too difficult a topic to tackle here. That being said, those who regulate should at least strive to maintain the integrity of the regulatory scheme and ensure that they are not engaged in gotcha regulation. The perception of speed traps on the regulatory highway is a troubling problem.

The fine. The suspension. The Bar. Those are the potent arrows in the regulatory quiver. At times, however, it seems that the ability to inflict pain is to quick a remedy for noncompliance. There are times when the reason for a regulatory failure is inadvertent error or good-faith misunderstanding. There are times, however, when the fault is negligence or intentional misconduct. I do not pretend that it is an easy task do discern when misconduct is caused by somewhat benign misadventure or bad intent. During my career as an industry regulator, as an industry defense lawyer, and as a public customer lawyer, I know that regulators often fail to provide timely notice of noncompliance coupled an opportunity to cure any deficiencies. Not every misstep requires a fine, suspension, or Bar. Similarly, effective regulation must impose a fine, suspension, or Bar when warranted. There is a delicate balance between cultivating sound regulatory/compliance practices versus punishing misconduct.

Let's face it, those who regulate are human beings beset by the same human frailties as the rest of us. Sometimes regulators drop the ball. Sometimes they are unfair. Sometimes they are petty and vindictive. Among the worst conduct we see emanating from any regulatory community arises when regulatory staff falls asleep on the job, awakens to find that they have promoted deficient conduct by not timely responding to red flags, and, as a result, fostered a protracted period of misconduct during which the regulated entity or individual thought everything was okay. When the slumbering regulator finally awakens and takes action, tempers flare. Now you tell me? But we've done it this way for years and you never said anything before? Consider today's Blog in which we are forced to wonder how long is too long for a regulator and at what point was enough enough for a regulated individual? READ

With the onset of a new year, the Blog offers its annual recap of FINRA Rule 3270: Outside Business Activities of Registered Persons, which sets out the all-important requirements for what we refer to as OBAs. With the Trump Administration on the horizon, registered persons may be offered opportunities to engage in a wide range of business opportunities outside of their broker-dealer roles. Let's examine FINRA's OBA Rule and make sure that we understand what's required. Note Bill Singer's Comment after each rule section. READ