September 29, 2018
In a recent FINRA regulatory settlement, we come across a Wells Fargo registered person who allegedly engaged in nearly 400 unauthorized discretionary trades over a three-year period. FINRA resolved the case with a fine and suspension. Frankly, the sanctions seem measured and deserved. Be that as it may, the self-regulatory-organization's resort to yet another fine-and-suspend settlement with yet another of the industry's human being employees prompts BrokeAndBroker.com Blog publisher Bill Singer to ask why that "and" doesn't get applied with equal fervor to the industry's large member firms. How is it -- who came up with the half-assed regulatory approach -- that the too-big-to-fail are also too-big-to-be-suspended? Why is any form of suspension for large FINRA member firms such a sacrosanct no-go for Wall Street's broker-dealer regulators but not for those who regulate banks?
The SEC runs the country's best lottery. You have a 1-in-350 chance to win overall, and a 1-in-40 chance if you make the first cut, which a good lawyer can help you do. Now the SEC is looking to raise the minimum prize to $2 million for as many as 16% of the winners. And every year, a few hit jackpots in the tens of millions of dollars. No state or national lottery gives you better odds. I'm talking, of course, of the SEC's whistleblower program.
The path of least resistance does not always take those who journey on it along a straight and narrow route. Sometimes, what's quickest and most expedient is wrong. In a recent FINRA regulatory settlement, we come across a stockbroker who seems to have found it easier to simply write out a check for his customers' alleged losses. But that it was all that simple. It ain't. In the end, after the check was cashed and the money spent, the customers still sued and the stockbroker was fined and suspended by FINRA.
Most reasonable folks -- and, admittedly, that's becoming a rare population -- but, just the same, most reasonable folks would agree that if you are amenable to arbitrate your disputes with me, and I'm amenable to arbitrate my disputes with you, and we write down the terms of how we will conduct any arbitration, and we sign that written agreement, and then, just for good measure, we shake on it, well, you know, you should be able to hold me to what I signed and vice versa. Unfortunately, we got lots of money on Wall Street and we got lots of folks with too much time on their hands and, thankfully for me, we also got lots of lawyers. All of which might explain how Wall Street's version of so-called "Mandatory" arbitration came into being. According to the rules of the Financial Industry Regulatory Authority ("FINRA"), parties subject to a written agreement to arbitrate must arbitrate all covered disputes. Yeah, that much is okay. In the absence of a written arbitration agreement, however, FINRA's rules provide for mandatory arbitration if "requested" by any customer and the subject dispute is between a customer and a FINRA member firm or an associated person of such a firm, and the dispute arises in connection with the firm's or person's business. Sure, you might think that this "request" form of mandatory arbitration is straightforward and fairly obvious. Trust me, it ain't. For starters, battles and wars have been waged over the definition of "customer," "member firm," "associated person," and "in connection with" a brokerage firm's or stockbroker's business. Strap on your helmet and meet me at today's front-lines for the most recent attack and counterattack in Wall Street's arbitration trenches.
They say that news isn't when a dog bites a man but when a man bites a dog. If that's the case, we start today's BrokeAndBroker.com Blog with a news story: Stockbrokers sue customer in a FINRA arbitration. From there, it's less about news and more about an epic battle among various contenders. In Round Two, the Customer sues. In Round Three, the New York State Supreme Court throws out one of the arbitrations and remands. In Round Four, one of the brokerage firms sues its former associated persons. We got Rocky. We got Apollo Creed. We got Drago. We even got some wise words from Mickey Goldmill.