April 28, 2017
Are Deceptions Duplicitous?
by Stephen Kohn, Stephen A. Kohn & Associates, Ltd.
In my humble opinion, many FINRA examiners seem to be aspiring proctologists. They come into our offices wearing gloves, fearing the expectation of finding all kinds of contagion hidden in secret places, waiting to be analyzed by pathologically inept "laboratories" designed to get rid of an increasing, annual percentage of our membership.
As Bill Singer so aptly blogs in "Decepticons Invade FINRA As Nationwide Email Program Reload Fails" (BrokeAndBroker.com Blog, April 10, 2017), rather than meaningfully credit a regulated member's timely and constructive efforts to self-correct a problem, industry regulators have a disappointing tendency to merely note such remediation but still tick off the violations and add up the fines. It's all too mechanical and I get the sense that I'm dealing with robots whose programs are only set to "Punish." Every compliance mistake does not need to be responded to with a fine or suspension. There is transformative power in responding with constructive criticism and in encouraging better compliance practices.
More than once, I have been victim of the "decepticons" disguised as regulators. In the end, I have been intimidated and shamed into accepting the terms of an infamous Acceptance Waiver and Consent (AWC). Sure, I would like to stand up and wage the battle on behalf of mankind but I am a businessman who must take into account paying legal costs, getting consumed by what looks like an endless hearing and appeals process, and getting whacked by the higher fine that often is ordered by a panel after you declined to accept the staff's earlier offer of a "discounted" fine.
When FINRA informs you that they are going to charge you, the staff morphs from so-called investigators into insurance adjusters trying to low-ball you as they adjust your claim. Many of my industry colleagues tell me that sometimes you just have to suck it up, whether you feel that you were right or wrong, and just pay the fine, whatever FINRA wants, and get it all over with. No point in fighting it because the lawyer's fee will be more than any fine. As to appealing, well that's pretty much a losing proposition because those added costs will also wipe out the value of whatever principle you are fighting for. Like I said, I am a businessman and more often than not, businessmen can't justify the expense of fighting regulators even if you're right and they are wrong. From a business perspective, the most prudent thing, economically is to accept the AWC, pay the fine, and sign on the dotted line.
So, here we are, in the age of technology that continues to expand, exponentially. Like many small firm owners, I have all that I can do to keep up. I run a clean shop. I value my reputation. I want to make sure that I deliver the best service at the best price to my customers. My best intentions don't offset what I call the I/O (Input/Output) factor, which is what happens when the world of humans meets the world of technology. We got our input and then there is the machine's output. We have fat fingers. We get tired. We have indigestion. Just look at what happens with trading, data entry, backups, upgrades, or anything that we mere mortals have to do with machines that machines can't do by themselves. Ever heard of garbage in / garbage out (GIGO)? Sometimes we mortals can only shovel the stuff so fast.
All over the FINRA small firm community, the little guys are petrified about losing emails when some computer drive crashes or a software program melts down. It always seems to happen when you upgrade to the newer model or download what they call the critical security patch. You lost a bunch of email through no real fault of your own and you didn't discover the loss until long after it happened. Now what? If you report your belated discovery, FINRA will nail you. If you don't report the loss of records, FINRA will double-nail you. No matter what you do, FINRA seems intent to charge you for not reporting something before it happened and then not accepting why a technology glitch is all your fault.
Even the most technically literate are not immune to being victimized by digital bugs, flaming lithium batteries, and power failures. As for the folks who run the smaller broker-dealers, we often rely upon the wisdom of our tech consultant, who convinced us to buy a new server, to upgrade our computer memory, and to install something called an enterprise solution. It was all a high-price fix but we really didn't understand much of the jargon that our tech guru was using. We relied in good faith on an expert. We admired the flashing lights and how easily everyone logged on to Amazon.com when they were supposed to be working.
Your good intentions and reasonable reliance on experts don't matter. FINRA doesn't seem to care about that. The Decepticons don't see things the way humans do. Something went wrong and no matter the reason, it is your fault. Not only will FINRA haul out the Rule 4511 (Books & Records) violation, but they add on a Rule 2010 (Conduct Rule) charge for the hell of it. Some memory chip failed or a new program froze and FINRA cites you for a Rule 2010 violation:
A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.
I know what I am talking about from personal, painful experience. I got slapped around and charged with a Rule 2010 violation for a ministerial oops. I didn't intend to make a mistake. No clients or anyone else for that matter were harmed. Why did FINRA charge me? Why did they demand a fine? I was told in these very words: "Because we can; that's how it is."
So, I guess it is because they can, and we let them because we can't afford to fight and they know it. It's just how it is. It is just not how it should be.
What we in the small firm community do all day, every day is not a science fiction movie. We are not robots. We are not planning the destruction of Earth or intergalactic dominance. We are little guys running small firms and trying to give to our local clients what the large firms with all their machines and technology can't: the human touch. We still meet with our clients. We still answer our phones. I just wish that FINRA would stop feeding the machines and would offer some helpful encouragement to the few of us red-blooded men and women who are still working on Wall Street.
Stephen A. Kohn & Associates, Ltd.
3232 South Vance Street, Suite 210
Lakewood, Colorado 80227
Stephen A. Kohn has been employed in the financial services industry since 1984. In 1996, he founded FINRA member firm, Stephen A, Kohn & Associates, Ltd. ("SAKL"), which he owns and operates in Lakewood, Colorado. SAKL is a small, Independent broker/dealer, catering to the needs of 28 independent representatives and their clients, with office locations in seven states, registered in thirty-seven.
Mr. Kohn holds Series 7, 24, 53, 63, 72, 73, 79 and 99 registrations. He has the distinction of having been elected twice to the National Adjudicatory Council ("NAC") in 2009 and 2014. Mr. Kohn also serves as an Industry Arbitrator and has been elected to the District 3 Committee.
Mr. Kohn graduated from C.W. Post College in 1964 with a BA degree. He has the distinction of having served in the U.S. Coast Guard Reserve.
Well known to those in the NASD and now FINRA small-firm community as a passionate and persistent advocate for small broker/dealers, who comprise 92% of FINRA membership, Mr. Kohn continues to speak out on behalf of his industry constituents and colleagues. He intends to remain active in the FINRA reform movement and urges all like-minded industry participants to reach out to him in full confidence concerning any and all matters.
NOTE: The views expressed in this Guest Blog are those of the author and do not necessarily reflect those of BrokeAndBroker.com Blog.