November 20, 2017
A FINRA regulatory settlement presents the case of a CEO, CCO, and FINOP who was fined and suspended for classifying his personal expenses and business expenses. That's a lot of titles for one person. Last month, his brokerage firm's FINRA registration was terminated. All of which makes for some interesting reading and raises some provocative questions.
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, Bufus Outlaw, Jr. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Bufus Outlaw, Jr., Respondent (AWC 2017052210001, November 15, 2017).
The AWC asserts that Outlaw first became registered in 1992, and between March 1998 and April 2015, he was registered with FINRA member firm BOE Securities Inc. The AWC further asserts that:
Outlaw first became registered with FINRA in November 1992. Between March
1998 and April 2015, Outlaw was registered with FINRA through an association
with BOE Securities Inc. (BD No. 4L3486) ("BOE'' or the "Firm") in various
capacities including as a Financial and Operations Principal, General Securities Principal, General Securities Representative, Limited Representative Investment Banking, Operations Professional, and Research Principal. On April 6, 2015, BOE filed a Uniform Termination Notice for Securities industry Registration terminating Outlaw's registration with the Firm. Shortly thereafter, on June 12, 2015 Outlaw once again became registered with BOE in each of the above-listed capacities.
On October 30, 2017, BOE terminated its FINRA membership and Outlaw ceased to be registered with a FINRA member firm. . .
Under the heading "PRIOR DISCIPLINARY HISTORY," the AWC asserts:
In 2015. Outlaw entered into an AWC with FINRA in which he agreed to a two-month. all-capacities suspension and $5,000 fine for his failure to timely disclose a state tax lien.
During the relevant period from August 2013 to March 2017, the AWC asserts that Outlaw had served as BOE's Chief Executive Officer, Chief Compliance Officer, and Financial and Operations Principal ("FINOP"). The AWC alleges that in his role as FINOP, Outlaw was responsible for preparing/maintaining BOE's books and records.
Books and Records
FINRA Rule 4511: General Requirements
(a) Members shall make and preserve books and records as required under the FINRA rules, the Exchange Act and the applicable Exchange Act rules.
(b) Members shall preserve for a period of at least six years those FINRA books and records for which there is no specified period under the FINRA rules or applicable Exchange Act rules.
(c) All books and records required to be made pursuant to the FINRA rules shall be preserved in a format and media that complies with SEA Rule 17a-4.
This is the verbatim allegation in pertinent part of alleged wrongdoing set forth in Outlaw's 2017 AWC:
[O]utlaw classified his personal expenses as business expenses of the Firm, which caused BOE's books and records to be inaccurate. By virtue of the foregoing. Outlaw violated FINRA Rules 4511 and 2010
In accordance with the terms of the AWC, FINRA imposed upon Outlaw a deferred $5,000 fine and a 30-business-days suspension from associating with any FINRA member firm in any capacity. As explained in the AWC, the deferred fine shall be:
due and payable either immediately upon reassociation with a member firm, or prior to any application or request for relief from any statutory disqualification resulting from this or any other event or proceeding. whichever is earlier.
Bill Singer's Comment
Not Registered for Two Months
As set forth in Outlaw's 2017 AWC:
On April 6, 2015, BOE filed a Uniform Termination Notice for Securities industry Registration terminating Outlaw's registration with the Firm. Shortly thereafter, on June 12, 2015 Outlaw once again became registered with BOE in each of the above-listed capacities.
As I initially understood the above termination and re-registration (and as I think most readers would first receive the facts), BOE terminated Outlaw for about two months in 2015 and re-registered him thereafter. Pointedly, the AWC provided no direct explanation for that odd circumstance of the off-again-on-again-two-month-termination-of-registration. It's an odd situation given all the senior-level registrations that Outlaw held.
2015 Outlaw AWC
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, Bufus Outlaw, Jr. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Bufus Outlaw, Jr., Respondent (AWC 2014039993801, March 4, 2015). As set forth in pertinent part in 2015 Outlaw AWC:
In April 2013, the State of New Jersey Department of the Treasury (Division of Taxation) entered judgment against Outlaw in New Jersey Superior Court in the amount of $257,141.36 for unpaid income taxes. Outlaw learned about the judgment in or about May 2013.
When Outlaw learned about the judgment, he was registered with FINRA through his association with BOES. Accordingly, he should have answered "Yes" to question 14M and disclosed the judgment. Outlaw did not disclose the judgment until April 2014. Outlaw satisfied the judgment in May 2014.
By failing to timely disclose the judgment, Outlaw violated Article V, Section 2(c) of the FINRA By-Laws, and FINRA Rules 1122 and 2010.
The 2015 Outlaw AWC fact pattern certainly raises a question -- and all the more so from the vantage of 2017 -- as to why FINRA had not charged Outlaw with "willful" failure to timely disclose the tax judgment. Assuming that "Outlaw learned about the judgment in or about May 2013," there is no explanation provided in the 2015 AWC as to why he only first disclosed the tax judgment in April 2014, which was nearly one year after purportedly learning about it. FINRA failed to explain why the 2015 Outlaw AWC did not allege a "willful" failure to timely disclose the tax judgment, which is overwhelmingly the charge in other cases involving similar facts. Which is NOT to suggest -- not even remotely and I pointedly disavow and such intent -- that Outlaw had, in fact, engaged in a "willful" non-disclosure. Pointedly, that was NOT the case because it was not charged. Unfortunately, as I often admonish in the BrokeAndBroker.com Blog's analysis of FINRA AWCs, when the self-regulator plays hide-and-seek with its facts and rationale, it does no service to the investing public or the industry and, frankly, invites second-guessing as to the regulator's motives and diligence.
Say What You Mean and Mean What You Say
Yes . . . there is a reference in the 2017 Outlaw AWC to his having a prior disciplinary history for which FINRA had suspended him for two months but we're not told which two months. As it turns out, the 2015 Outlaw AWC was dated "March 4, 2015," so there's a very strong likelihood that he was suspended in from the above-referenced April 6, 2015, through June 12, 2015, and that would likely explain the period of his termination and re-registration at BOE. Be that as it may, if, in fact, Outlaw's registration was pulled for two months because of his suspension, then an AWC strikes me as the perfect place to enunciate that fact.
BO . . .E?
All of which got me to thinking about BOE Securities, Inc., which online FINRA BrokerCheck records as of November 20, 2017, confirms was established on February 20, 1997, and "terminated or withdrew registration on" August 31, 2017 (in contradistinction to the 2017 Outlaw AWC's assertion that said date was October 30, 2017). I did a bit more research and found on Bloomberg.com the following "Background:"
A very impressive resume indeed! Bufus Outlaw Jr. founded BOE some 20 years ago. Accoridng to his BrokerCheck file, he was also an owner of the FINRA member firm. This wasn't merely some guy who was hired to run the shop.
Mr. Bufus Outlaw Founded BOE Securities, Inc. in 1997 and serves as its Principal and Chief Executive Officer. Mr. Outlaw serves as the Chief Executive Officer at The BOE Group, Inc. Mr. Outlaw has more than 20 years of experience in investment research, management, strategy, and corporate finance. From 1990 to 1997, he served as Principal and Director of Research for a leading minority-owned investment management and brokerage firm. He began his career with 3M Corporation, where his duties included business planning, capital budgeting, and profit and loss analysis. Mr. Outlaw joined First Bank Systems as a Corporate Finance Associate where he assisted in structuring bank financing proposals and designing financial products. Subsequently, he served at Ryder System where he led corporate planning and acquisitions and divestiture projects. He is Series 7, 24, 27 and 63 licensed. Mr. Outlaw earned his BBA degree in Accounting from Howard University in 1982 and his MBA in Finance from the University of Chicago.
At some point, it sort of hit me that the "BO" in "BOE" could stand for "Bufus Outlaw," but that's merely a guess -- maybe the "E" was for something like "Enterprises"? Given that the allegations in the 2017 Outlaw AWC center of the respondent's wrongful classification of personal expenses as business expenses, I find Outlaw's role as the member firm's founder and an owner as meaningful facts that should have been presented in the 2017 Outlaw AWC. Further, given that Outlaw was fined and suspended for mis-classifying expenses, it's a bit bizarre that the AWC failed to allege what the dollar amounts of those challenged expenses were and whether Outlaw reimbursed the firm for those challenged expenses.