An irreverent Wall Street Blog
FINRA Doesn't Like Dinar Time
September 29, 2017
Sometimes, ten people read the same thing but only
one spots the typo or notices an inconsistency. Today's
BrokeAndBroker.com Blog offers insights into how our
publisher Bill Singer, Esq., sees things and interprets them differently than
others. It's a fun and interesting exploration of how a veteran industry lawyer
dissects regulations and interprets purported facts. For some of you, it may
all come off as little more than nit-pickin'. That's okay, Bill enjoys his
gadfly role as a fastidious pain in the ass. For others, the vivisection of a
recent FINRA Outside Business Activities settlement may open
your eyes and give you pause before throwing in the towel and agreeing that you
are guilty as charged.
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, Darrell S.
Pope submitted a Letter of Acceptance, Waiver and Consent ("AWC"),
which FINRA accepted. In the Matter of Darrell S. Pope,
Respondent (AWC 20150483034, September 8,
2017).
The AWC asserts that Pope
entered the securities industry in 2003, and by April 2006, he was registered
with FINRA member firm U.S. Bancorp Investments, Inc. The AWC asserts that he
had no prior "disciplinary history with the Securities and Exchange Commission,
FINRA, any other self-regulatory organization or any state securities
regulator."
SIDE BAR: Read about the variations in FINRA AWCs pertaining to the presentation of a respondent's background: "FINRA's Foolish Inconsistency" (BrokeAndBroker.com Blog, June 9, 2017).
10
Sellers
As set forth in the
"Background" section of the
AWC:
Between April and October 2015 (the "Relevant Period"), while associated with the Firm, Pope engaged in an outside business activity outside the scope of his employment with the Firm. Pope attempted to secure a buyer for 10 sellers (the ''Sellers") of Iraqi Dinar (''Dinar") currency in anticipation of a finder's fee. Pope did not notify the Firm about this outside business activity, in violation of FINRA Rules 3270 and 2010.
SIDE BAR: Please note that the AWC "Background" alleges that Pope attempted to find a single buyer for ten (count 'em, 10) sellers of dinars. Hold that thought for later.
A
Customer (as in
"one")
As set forth under
the "Facts and Violative Conduct" heading of the AWC, during the relevant period
between April and October 2015:
[A] customer of U.S. Bancorp., a bank affiliated with the Firm, asked Pope whether the bank could assist him with selling dinars. After the bank informed Pope that it declined to assist, Pope engaged in efforts outside of his employment with the Firm to find a buyer for the Sellers' Dinars. He had a company established in order to conduct this activity and used his personal email address to communicate with the Sellers and potential buyers about the potential terms of a sale. Pope also conducted due diligence on potential buyers, prepared transaction-related documentation, and made arrangements to facilitate a potential currency sale. Pope expected to receive compensation in the form of a finder' s fee in the event of a sale.On October 8, 2015, Pope stated on a Firm annual compliance form that he agreedto notify the Firm about any outside business activity. However, Pope did notnotify the Firm about his outside business activity
SIDE BAR: According to the "Facts and Violative Conduct" portion of the AWC we got a single customer of U.S. Bancorp. (the affiliated bank) -- NOT a customer of U.S. Bancorp Investments, Inc. (a FINRA member firm broker-dealer). Also note that the bank customer's request was for the bank to assist him. Also, hold this thought for later.Magically and without any explanation, the AWC transformed the one bank customer who requested that U.S. Bancorp. "assist him with selling dinars" into the plural "Sellers." Was there one seller or multiple? Are any of the sellers customers of Pope's FINRA member firm or merely of the affiliate bank or not even customers of the bank and/or the brokerage firm? Hold this thought for later too -- you might want to get a small bag and start using it to hold your thoughts in.
Termination
The AWC asserts that FINRA
member firm U.S. Bancorp Investments filed a Uniform
Termination Notice for Securities Industry
Registration ("Form U5") reporting that it
had:
terminated Pope's employment on December 4, 2015 for "[p]oor judgment and failure to follow company policy regarding outside business activities."
Online FINRA
BrokerCheck records as of September 29, 2017, disclose under
the heading of "Employment Separation After Allegations" that FINRA member firm
U. S. Bancorp Investments had "discharged" Pope on December 4, 2015, based upon
allegations of:
Failure to report outside business activities pursuant to FINRA Rule 3270 and firm policies.
Sanctions
FINRA deemed Pope's conduct to
constitute violations of FINRA Rule 3270 and Rule 2010. In accordance with the
terms of the AWC, FINRA imposed upon Pope a $7,500 fine and a four-month
suspension from association with any FINRA member in any and all
capacities.
Bill Singer's
Comment
Exchange
Rate
In case you were wondering, as
of September 29, 2017, one Iraqi Dinar was quoted at the rate of .00086 US Dollars;
or, put another way, 1 US Dollar is worth 1,170.78 Iraqi
Dinars.
Dinar Time versus Dinner Time
Oh my! What have we hear? U.S. Bancorp Investments terminated Pope, in part, for "poor judgment." Holy crap -- that's now a basis for firing someone on Wall Street? Hallelujah!!! Boy, am I going to be one busy lawyer representing wrongfully terminated industry employees. What was that item I was reading about involving U.S. Bancorp's judgement when it came to some of its employees? Oh yeah, I remember:
"US Bancorp Inks $7M Class Wage Deal With Calif. Workers" (Law 360, May 8, 2017)[A] California federal judge on Friday preliminarily approved a $7 million class action settlement between U.S. Bancorp and workers who claimed the bank stiffed them on meal break periods and itemized wage statements, bringing the more than three-year-old litigation closer to an end . . .
One, singular
sensation
I don't like this AWC, in large part, because is terribly drafted and lacks internal
consistency. For example, consider this language from the
AWC:
Pope attempted to secure a buyer for 10 sellers (the ''Sellers") of Iraqi Dinar (''Dinar") currency in anticipation of a finder's fee.. . .During the Relevant Period, a customer of U.S. Bancorp., a bank affiliated with the Firm, asked Pope whether the bank could assist him with selling dinars.. . .Pope expected to receive compensation in the form of a finder' s fee in the event of a sale.
Ummm . . . which
is it? Was there only one bank customer asking Pope to help sell his dinars or
were there 1o sellers and what was their customer status? Did Pope "anticipate" a fee or did he "expect" one?
Anticipation versus
Expectation
As to Pope's purported finder's fee, the general assertion
by the AWC that Pope had "anticipated" a fee doesn't necessarily mean
that he was offered such a payment by the seller(s). Pointedly,
FINRA
Conduct Rule 3270: Outside Business Activities of
Registered Persons states in pertinent
part [Ed: highlighting added]:
No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm.
I'm not going to
get into the semantics of the subtle differences between
"anticipate"(as used in the AWC) and "expect" (as used in
the Rule and another portion of the AWC), but the two words are not always used to convey the same sense of
things. More to the point, there is a difference between hoping or believing
that someone will do right by you versus having an expectation that someone
will not breach an agreement. Regardless of whether you personally distinguish
between "anticipate" and "expect," the simple fact is that
there is a formal FINRA rule that is premised upon either the completed act
of compensation or, in its absence, the "reasonable
expectation" of compensation. As to the supposed finder's fee, the AWC
fails to indicate whether Pope was offered such a payment by the 10 sellers
and/or by the one bank customer. Further, there is no assertion as to when Pope
formed a belief that he would be paid a finder's fee. It may well be that after
U.S. Bancorp declined to exchange the Dinars that Pope merely made inquiries on
behalf of the bank customer and simply believed that his efforts would be
compensated by a fee if and when he could locate a buyer, which was not a
certainty.
Maximum
Effort
I have long criticized FINRA's
Outside Business Activities Rule as requiring far too much
inference by registered representatives and for assuming that the concept of an
outside business activity ("OBA") is self-evident. In fact, many
violations of FINRA's OBA Rule result from a Respondent's
flawed understanding of what constitutes a:
- "business" activity in contradistinction to a mere outside activity, which is not proscribed by the Rule; and
- outside business "activity" in contradistinction to outside business conduct that does not rise to the level of an "activity."
[E]ngaged in efforts outside of his employment with the Firm to find a buyer for the Sellers' Dinars.
FINRA Rule 3270 pertains to
outside business activities and not
efforts. If there is no difference between an activity and
an effort, then use the term in the Rule. Don't blame me if I am doing my job
as a lawyer and insisting upon precision when charging my client. You
don't get to make up the terms of a rule as you go along, although, as many of
us know, FINRA Staff has a penchant for such creativity.
Do Me A
Favor
In the case of Respondent Pope,
one may well ask whether his "efforts" to merely "find" a
buyer absent more constituted a "business" activity rather than
merely doing a favor for a customer. If, for example, the same bank customer
had asked Pope for help in selling his second-hand car and, in response, Pope
engaged in "efforts outside of his employment with the Firm to find a
buyer for" the seller's car, would that run afoul of his firm's and
FINRA's rules? If you concede that there are "favors" that a
financial professional can do for a customer, where do we draw that bright-line
of distinction between the end of doing a favor and the start of engaging in an
OBA? I would concur that a fair delineation would be when there is a
"promise" of a finder's fee. If the bank-customer-seller had negotiated
terms of a finder's fee with Pope, they are not stated in the AWC.
Establishing a
Company and Using Personal
Email
Also consider this allegation in
the AWC, that Pope:
had a company established in order to conduct this activity and used his personal email address to communicate with the Sellers and potential buyers about the potential terms of a sale.
What the hell does it mean that Pope "had a
company established?" Does that mean that Pope had previously established
a company and used it as a convenience for his purported Dinar-buyer-finding
efforts? All of which makes me wonder just how or why Pope even needed to
use a "company" to seek out buyers of Dinars. I mean, think about it: "Hi, my name is Joe Blow and I have a company and I was wondering if
you would have any interest in buying some Iraqi Dinars?" If Pope's
company played some material role in his OBA, then the AWC should have
explained what that was.
A
simple explanation of Pope's use of his personal email is that he viewed this
entire episode as merely doing a favor for a bank customer
and did not want to commingle this bank relationship with his FINRA member
firm conduct. A simple question for you to ask is why should Pope have
communicated with his bank customer via the broker-dealer's email platform?
If there is no securities business being conducted, and there is no such
allegation in the AWC, what's wrong with Pope's use of a personal email platform?
As quoted
immediately above, the AWC refers to Pope's email communications with
"potential buyers about the the potential terms of a sale." The AWC concedes that Pope was not communicating
with buyers but only with "potential" ones, and he wasn't finalizing
terms of any sale but only "potential" terms. Again, that doesn't
sound like Pope was engaged in an outside business activity as much as he was
exploring one or considering one or making preparation for same. Moreover,
consider this assertion in the AWC:
Pope also conducted due diligence on potential buyers, prepared transaction-related documentation, and made arrangements to facilitate a potential currency sale.
Isn't there a significant difference between
inquiry/investigation, on the one hand, and engaging in a business, on the
other? Don't many of us say "let me look into it" before we actually
commit to doing something? Is doing a background check on a
potential buyer for the potential sale of currency
an outside business activity? There are myriads of folks who call me asking
about a particular legal problem and inquiring about my hourly rate. I don't
view those who make such calls as "clients." After someone signs my
Retainer and pays the initial fee, then they become a "client." Y'all
ever hear of the term "window
shoppers?"
Timing In Life Is
Everything
Given that Pope
sealed the deal by finding a buyer for the sellers and managed to exchange
Dinars into Dollars, how much was he actually paid and when? Go look it up in
the AWC. I'll wait here while you're doing that. Here's the link: In
the Matter of Darrell S. Pope,
Respondent (AWC 20150483034,
September 8, 2017).
Hi . . .
how are you . . . nice to have you back.
What's that you
say? You can't find out how much Pope was paid? What are you mumbling there?
Speak up, I can't hear you. Oh . . . you couldn't even find any statement in
the AWC that Pope actually found a buyer or arranged for the sale of one Dinar?
Oddly, there is no assertion in the AWC that Pope sold a single
dinar to any buyer on behalf of any seller. So, he was fined $7.500 and
suspended for four months for what? Oh, yeah, we're back to that crap about his reasonable expectation of a finder's fee on a transaction that apparently never happened involving buyers who seemingly failed to materialize.
Sleeping
in the Bed He
Made
Finally, I will reiterate what I
always acknowledge with any AWC that I criticize. Pope apparently had a lawyer
representing him during his settlement negotiations with FINRA. Pope signed off
on this settlement and, as such, accepted the recitation of facts and the
imposition of the sanctions; and he waived his right to appeal. For those of
you who think that I am glossing over those issues, I am
not.
When all is said and done, if
this AWC was signed off on by Pope, then it's not my
place to question his motivation -- and I have not and do not. It may well be
that more damning findings were kept out of the AWC by Pope's lawyer as part of
the bargain. Accordingly, I don't know what I don't know and FINRA may well
have an air-tight case against Pope if I only knew what was not set forth in
the AWC.
That being said,
other industry participants may consult the Pope AWC for guidance concerning their
own similar predicament. I hope that my commentary gives them pause if some of
my concerns resonate with them. Although I would like to believe that that
FINRA will consider my points when drafting future versions of similar OBA
settlements, I don't really have any "expectation" (and I'm not
"anticipating") any such regulatory
enlightenment.