To synopsize . . .
Here's a guy, Eric D. Wanger, who the SEC alleges, over a period of three years, made 15 "improper" trades in several small, illiquid stocks, in a fund that he oversaw at his firm. The SEC also alleges that these small stocks inflated the fund's performance and generated extra fees for him.
He settled with the SEC and accepted, in part, a one year suspension. As a result, he had to close his investment firm and an office that advised dozens of clients leaving $300 million in assets flapping in the breeze.
The extra fees, his ill-gotten gains, were less than $2,270.00.
His suspension was orchestrated by the SEC's own court system of Administrative Law Judges ("ALJ"). It's not all sweet music when you're forced to defend yourself before a regulator's own court system, as was detailed in "Crying Foul on Plans to Expand the S.E.C.'s In-House Court System" (New York Times, by Gretchen Morgenson, June 26, 2015).
Based on his settlement, Wanger was under the impression that after his one year suspension, he would be able to resurrect his business and to earn a living, again. But NOOOO!! His one year suspension has turned into five (5). You heard me right; ONE YEAR HAS TURNED INTO FIVE and STILL COUNTING!
THE SEC CHANGED ITS MIND AND TURNED HIS SUSPENSION INTO, WHAT APPEARS TO BE A LIFETIME BAR SAYING THAT IT WOULD NOT BE IN THE PUBLIC INTEREST FOR HIM TO REJOIN THE INDUSTRY.
As I see it, Wanger's story uncovers the overall bias of the SEC's own court -- or perhaps "owned" would be better.
FINRA, which I see as an enforcement agent of the SEC, can demand that any of its members and their associated persons appear for what the SRO calls an an "On The Record" interview ("OTR"), which is nothing more or less than a deposition conducted without any constitutional rights or protections. In my mind, this is FINRA's version of the SEC's Administrative Law Judge system, blatantly unfair, designed to bully one into submission. And BULLY you, they do.
In becoming a member of FINRA, you have agreed to check your Constitutional Rights at the door. When "requested" to appear for an OTR, one is admonished, in writing, with the following:
You are obligated, under FINRA rules, to answer all questions asked by FINRA staff. Please be informed that FINRA is not a governmental agency, and thus, does not recognize the Fifth Amendment privilege against self-incrimination in any of its proceedings, including an OTR. Should you refuse to answer any questions based on and assertion of the privilege, you may be subject to a FINRA disciplinary action and the imposition of sanctions, including a bar from the securities industry, suspension, censure and/or fine.
In both the SEC's and FINRA's "judicial" venues, the cards are stacked against you. At the SEC, you have your constitutional protections but they try to railroad you into an in-house court system. At FINRA, they not only have their own in-house court system but don't recognize your constitutional rights. Of course you have the option of employing counsel if you can afford the expense.
There is a need for regulation in the financial services industry but it must be meted out with an even hand. The form of justice to which the "Little Guy" is subjected is, often times, draconian and whittles away at the very fabric of what binds us all together.
It would be nice if all of our regulators would sit back, take a deep breath, and give serious consideration to the consequences and far reaching effects of their often hasty decisions. Sadly, they never have and I doubt that they ever will. Why do they persist in disregarding our requests for fairness? Likely because they feel like they're in charge and we have to do whatever they say because they say so. Our failure to come together and press for reform only motivates our regulators to persist in ignoring us. Imagine if one day we all joined together and in one firm, uniform, loud voice said: ENOUGH!
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.