June 13, 2018
Today's BrokeAndBroker.com Blog presents a "Guest Blog" reprinted from an email, which was sent to us by an individual who prefers to maintain his anonymity and has asked to be known only as "A Former NASD Employee." It is a powerful and heart-wrenching story about a former regulator who became an industry compliance officer. Tomorrow, our publisher Bill Singer will offer his comments. For today, we let the email speak for itself.
Readers are invited to submits their thoughts -- in private or for publication -- by submission to firstname.lastname@example.org
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A Suicide on Wall Street
by "A Former NASD Employee"
In light of the recent suicides of Anthony Bourdain and Kate Spade, I thought about a friend who recently committed suicide. I wanted to share his story with someone but could not think of who to tell or who would care enough. I read Broke And Broker and thought that you and your readers would be perfect to share his story with. I believe you and I may have spoken in the past. Or at the very least we know of each other. I have been a follower of your website - and interesting columns - over the years. Specifically, any criticisms levied against the regulators for their aggressive, over-reaching tactics are of great interest to me.
I would like to tell you a story, briefly, about a good friend who committed suicide. This friend, who will remain nameless at this point, was a former colleague of mine when we both worked as Examiners at the old NASD. As most former NASD guys had done, we all eventually left to earn a higher income on the retail side as Compliance Directors or some such related position. My friend was the most decent, honorable and knowledgeable person I knew in the business. Unfortunately he spent the years after NASD working at the smaller b/d's overseeing brokers while trying to enforce procedures - an almost impossible task. I say this from experience as I had gotten into this world as well.
But I digress. My friend was employed at a firm that conducted mostly on-line trading. I remember the last time I spoke with him we traded war stories and he explained that the trading activity had a lot to do with Chinese clientele. A few years ago FINRA charged him with "failure to supervise" and failing to implement satisfactory written supervisory procedures as they pertained to Anti Money Laundering. Now I realize the importance of cracking down on the illegal movement of money from nefarious sources, and I don't mean to minimize its necessity. But FINRA has been using this requirement (which was implemented right after 9/11) in a manner that I can only describe as coercive. In my opinion FINRA is often out of control - and without mercy - when it comes to enforcing some of its rules. My friend had been acting in a compliance capacity without a blemish on his record for 22 years. There was nothing that would come close to a dishonest, or dishonorable bone in his body. And yet FINRA went for the jugular. They went formal and ultimately forced him to settle for $15,000 and a 45 day suspension. I can only imagine what my friend must have gone through in dealing with this monstrosity and my hunch is that this entire incident is what caused a downward spiral for him..
It was always my experience that the owners of these small b/d's would place all the supervisory responsibilities on the compliance director. Every place I was employed at always designated myself as the "AML Administrator" It's a formality and rubber stamped designation without any seriousness as to its implementation. But it places incredible responsibility on the individual so designated. What I also found early on is the fact that the small b/d owners would hire former NASD employees just so it would look good to the regulators. And then the owners would designate all responsibility to the compliance director thereby taking the owners off the hook for everything. The whole thing is a game and the Compliance person is caught in the middle. I can't tell you how many times I was hired within 15 minutes of meeting the owners. All they needed to know was that I was a former NASD Examiner. It was a meal ticket for the privilege of sitting at the wrong table.
I can tell you from own experience that the fine and suspension on my friend's record was a mark that would forever stick and would negatively impact his career going forward. I should know. Back in '90s FINRA found that I had failed to supervise as it regarded the electronic disclosure of customer complaints, and written supervisory procedures that didn't address continuing education. They also threw something in about the untimely disclosure of a legacy issue that had been disclosed on the firm's Form U-6 but NASD had determined that it hadn't been disclosed within the proper allotted time. Now, mind you, I had not been aware of the settlement, nor was I aware of the disclosure (another authorized employee of the firm had filed the disclosure). Because I was the firm employee who usually filed disclosures, NASD charged me as the individual who had failed to file in a timely manner. The problem was that when the formal complaint was issued, I was no longer with the firm and had no way to defend my case. The firm, by the way, was expelled about 1 year after I quit.
FINRA forced me through a process that took over a year and finally resulted in me accepting terms without admitting or denying the allegations of a $7500 fine and having my Series 24 license revoked. In other words taking away my meal ticket for future employment. In my case I was able to have a firm sponsor me and I successfully completed the 24 exam. But the damage was done. My license had a "mark" on it which went with me whenever I applied to a "real" firm. As a result, my career was spent bouncing from one shithole to another. Check my Brokercheck history and you will see that about 75% of the firms I was associated with were expelled but to my credit I had gotten out before they were expelled because I saw the handwriting on the wall. So it's a testament to myself that the only mark I have on my license is the incident from '90s.
But this is what is going on with Wall Street regulators today. They go after individuals such as myself and my friend. I have many former colleagues from NASD that have similar stories. But when you are dealing in the world of small brokerage firms, a compliance director is at the mercy of unscrupulous brokers, mostly crooked owners and aggressive regulators. One slip up, or a question about your oversight of the endless regulatory requirements, and you, the compliance person, is basically toast. You learn quickly that in every instance you have to CYA. Any circumstances that arise you need to memorialize in the event you will be grilled at some point. In many cases when you bring a particularly egregious incident to the firms' owners, it will ultimately lead to your termination by those bosses.
The problem here is that FINRA puts compliance staff in its crosshairs. Compliance professionals are not making the kind of money that the brokerage staff is making. And yet FINRA will come down with fines as though we have wheelbarrows of cash back home. They throw out these monetary fines that are financially devastating. FINRA could literally fine you an entire year of salary.
In my friend's case he was fined $15000. Let me repeat: $15000! My friend had a wife and three kids. I'm sure this was a setback that devastated him. And this was a guy who was the salt of the earth. Loved his kids and wife. Always posting pictures of ski trips they would go on. Or other some such outdoor activity. He was not a criminal. This was not a multi-millionaire. This was a person who looked at the world of compliance as a way to provide a living for himself and his family.
The thing I find so distressing about this is the fact that the last two firms my friend worked for before he killed himself, one b/d has over 20 disclosable items and the other firm has over 150 and paid a couple of hundred thousand in fines. What I'd like to know is why either of these firms are still in business. But I have a sense that these types of firms are cash cows to the regulators. If they are so bad, why are they allowed to stay in business? And then the regulators have the gall to go after a compliance director for a failure involving AML procedures!
To close this out, I can tell you that I left the business for these very reasons and currently find myself unable to find work on Wall Street. I know the demoralizing impact this business can have for people like myself and my friend. People who are trying to do the right thing and who are treated as some type of criminal by the regulators.
I truly believe that FINRA could have handled this differently as far as my friend is concerned. They should know the terrible strain they place on people who find themselves in his position. There's a reason why I never became a stockbroker - because I never wanted to become like them. And I know that each guy I worked with back at NASD are of the same mindset. They are decent and honorable people who are looking to earn a living for themselves. And then FINRA goes on a search and destroy mission and ultimately"eats their own". As far as I'm concerned they have blood on their hands involving my friend and the more I think about this the more furious I get.
They need to understand how they destroy the lives of people who are trying to do the right thing. The fact that there might have been an issue regarding AML procedures (a first time offense, mind you) should be the basis for guidance - not the basis for a $15,000 fine. I mean, what other industry operates this way?
Thanks Bill. I hope you were able to read through this. But I could tell you stories. If you ask me FINRA could care less about the lives they destroy. They only care about a feather in their caps. I remember from my days at NASD, people were rewarded and promoted for their "findings" that resulted in formal complaints. I've seen it from both ends and the view stinks.
A Former NASD Employee
NOTE: The views expressed in this Guest Blog are those of the author and do not necessarily reflect those of BrokeAndBroker.com Blog.
The Human Factor On Wall Street (BrokeAndBroker.com Blog)
"A Former NASD Employee" shoves our faces in the toilet bowl and makes us hold our breath as we struggle. It's not a pretty picture. We have an industry where good people often find themselves at bad firms. Some say that's part of the problem. Good folks shouldn't work at bad firms. Good folks shouldn't rationalize how they are furthering fraud. Good folks shouldn't prop up dishonest firms and low-life stockbrokers.