According to online FINRA BrokerCheck disclosures as of July 21, 2017, Valencia was first registered in 2005 and was registered with JP Morgan Securities from October 2012 to July 2014.
As to this FINRA Arbitration Decision -- well, frankly, I'm not quite sure what to make of it. Moreover, I'm not even sure where to begin with my commentary. For lack of any explanation other than just picking any old place to start, let's tackle the arbitrators' finding that JP Morgan had engaged in "reckless disregard of the accuracy of Valencia's Form U4."
As has been amply covered by the BrokeAndBroker.com Blog over many years, few regulatory issues attract more fines, suspensions, and bars by FINRA than those pertaining to a registered person's failure to accurately disclose events on his or her Form U4. Just by way of underscoring that point, consider all of the settlements and hearing decisions that we have analyzed involving an individual's failure to disclose (timely or at all) a criminal charge, a criminal conviction or plea, a bankruptcy, a lien, a compromise with creditors, a civil judgment, a customer complaint, an outside business activity, a private securities transaction . . . and that's merely touching on FINRA's ample checklist of things that the industry's men and women don't accurately disclose and for which they are censured, fined, suspended, or barred.
The nuclear option in FINRA's arsenal when it comes to punishing registered reps for failures to disclose is when the self-regulatory organization deems the misconduct to have been undertaken in a willful manner: Such a finding often results in the statutory disqualification of the respondent. The rationale behind that ultimate sanction is that the regulatory community depends upon the accurate filing of various disclosures and any intentionally inaccurate filing could dangerously subvert the investigative process. As far as rationales go, that one makes a lot of sense in theory. In practice, the rationale is often rank hypocrisy by which regulators destroy a man or woman's career while often looking askance when similar conduct is taken by larger broker-dealers. It's all part of the disparate treatment afforded to the small fry versus the big fish.
Keeping in mind that Valencia v. JP Morgan Securities is a FINRA arbitration and not a FINRA regulatory matter, we should still ask the tough questions and demand something more from FINRA the self-regulatory organization than the mere verisimilitude of integrity. I'm not quite sure where on the spectrum between "inadvertence" and "willful" FINRA-the-SRO would place the term "reckless disregard." Depending upon the judicial or regulatory setting, "reckless disregard" is sometimes deemed the same as or sometimes a shade less severe than "willful." In FINRA's lexicon, however, I note that many of its published settlements or decisions use the phrase "willful and reckless disregard," which strongly suggests that the self-regulatory organization views the two forms of misconduct as one and the same or intimately linked.
To best understand what's at stake here, consider how Valencia would have fared during a FINRA regulatory investigation if the regulator believed that he had "recklessly disregarded" the accuracy of his Form U4 and had failed to timely disclose or to ever disclose any number of events. My guess is that FINRA would have interpreted Valencia's conduct as warranting at least a charge of "willfulness" and would press its case on that point. Although "negligence" often engenders considerations of misunderstanding or inadvertence and would not necessarily rise to "willfulness," in contradistinction to mere negligence, when someone "recklessly disregards" a regulatory obligation, the implication is that they knew that there was an issue that might require disclosure but just didn't give a damn about it and didn't give a damn about the ramifications of such non-disclosure. Given those latter considerations, will FINRA investigate the alleged reckless disregard of JP Morgan's approach to at least one Form U5's accuracy -- and, you know, maybe see if this is an isolated, one-off thing or a more pervasive policy?
Punies But No Comps
Moving on to another aspect of this FINRA Arbitration Decision, how are we to reconcile Claimant Valencia's request for at least $1.4 million in damages with the arbitrators' denial of any compensatory damages but ordering a $100,000 punitive award? After some 32 years as an admitted lawyer, I can offer up a nuanced explanation of that oddball result. Yes, there are reasons for such an outcome; however, all the legalese in the world can't explain how or why the FINRA arbitrators denied compensatory damage but slapped the Respondent with a $100,000 punitive damages award for engaging in "reckless disregard" of an obligation to essentially be truthful when communicating with regulators. Seems to me, a FINRA Arbitration Panel should have ordered at least $1 in compensatory damages when awarding punies. The Valencia arbitrators may well have a sound basis for their unusual award notwithstanding the lack of rationale explaining it. I would have appreciated just a tad of explanation for this unusual dichotomy.
Ask And You Might Receive
Then there was the Panel's proposed revised language to the U5 that left my jaw agape, my eyebrows arched, and my head shaking in some disbelief. Three arbitrators awarded a respondent $100,000 in punies yet proposed the amendment -- an amendment, I say -- of his Form U5 to disclose that he had "requested and received excessive and unreasonable bank account fee reversals." Excessive and unreasonable. Notwithstanding the wad of punitive-damages cash in his pocket (minus likely attorneys' fees and attendant costs and expenses), Valencia could hardly walk away from this litigation feeling great about the Panel's proposed new language. At the end of the day, he initiated the lawsuit and his industry record will now be revised to assert that he asked for "excessive and unreasonable" fee reversals.
You know those moments in life when something seems to make sense but when you start giving it some thought and also try to explain it to someone, it doesn't? Welcome to one of those moments.
Valencia asked for bank account fee reversals. Umm, whose account -- his or a customer's or what? Valencia received the reversals -- as in more than one request, and as in he "asked" someone and that second party was empowered to grant or den y request. How could there possibly be anything wrong with "asking" for something if it's not within your power to grant the request -- and assuming that you didn't misrepresent what you were asking for (and no such allegation was made by the arbitrators in Valencia). After all, isn't Wall Street about asking for the Sun and settling for the Moon? When FINRA engages in settlement discussions with its respondents, doesn't the self-regulatory Staff initiate discussions by demanding what many view as "excessive and unreasonable" fines, suspensions, or bars, only to subsequently accept a much lesser package of sanctions?
As best I understand the Panel's proposed Form U5 revised disclosure, it will state that Valencia was somehow terminated because he asked for excessive and unreasonable fee reversals. If those requests were both excessive and unreasonable, then why the hell did JP Morgan grant them and apparently on multiple occasions? Given that this huge FINRA member firm was found to have been "reckless" in its approach to the accuracy of regulatory disclosures by three independent arbitrators, why should we also not assume that it was reckless in considering Valencia's fee reversal requests and, as such, victimized the employee by falsely creating the impression that his requests were neither excessive nor unreasonable?
As was recently attributed the JP Morgan Chief Executive Officer Jamie Dimon, he said that