August 17, 2019
In today's blog we consider two nearly identical FINRA public-customer arbitrations. In both cases, the FINRA member firms were left holding the bag when the customers left debits in their accounts. The brokerage firms appeared at the arbitration hearings. The customers didn't. You'd expect the same result in each case. Ahhh . . . life is filled with surprises! Sometimes you have a wide-open slam dunk and you jam it through; other times, you choke and the ball clangs off the rim.
Day after day, FINRA rolls out bull-shit notices to members about initiatives, about seminars, about retrospective rule reviews. Absent from that spew of self-serving crapola is anything addressing the firing of compliance officers who report their concerns to FINRA. You'd sort of like to think that FINRA would want to draw a line in the sand when it comes to retaliation by its member firms against those who blow the whistle. You'd sort of like to think that FINRA appreciates the need to bolster Wall Street's first line of defense; namely, the industry's compliance staff. Instead, FINRA caters and panders to its powerful industry interests. What rank hypocrisy! What worse condemnation could there be of the inherent failure of Wall Street self-regulation then to see its largest self-regulatory-organization stand silent and impotent in the face of retaliation against compliance staff who are protecting the investing public and preserving whatever shreds of integrity remain on Wall Street. In a recent federal lawsuit, FINRA member firm Purshe Kaplan Sterling Investments, Inc. was sued by a former compliance officer, who alleged, in part, that she had been fired for whistleblowing to FINRA. It may be that the Plaintiff's concerns were wrong. It may be that she was dead-on. We'll leave that final determination to the courts. Regardless, as you read through the court's opinion, you realize that FINRA is largely absent from the unfolding events. Be that as it may, the federal court's initial concern is not with FINRA's action or inaction but with determining whether the compliance officer filed a Complaint that stated a claim and presented the basis for jurisdiction against her former employer and associated firms and individuals.
Some litigants jump the gun in an effort to improve the so-called "optics" of litigation. In situations where two parties each have claims against the other, there's a sense that it's better to be cast in the role of the Claimant than of the Respondent. The theory is that it's better to frame the lawsuit in the language of the aggrieved rather than as the alleged malefactor. In a recent FINRA arbitration, a public customer representing himself pro se sought to recover hundreds of thousands of dollars in put-sales losses. In response to his claims, the respondent brokerage firm counterclaimed for a couple of hundred thousand in its own claimed damages.
FINRA's brilliant strategy for fighting elder financial abuse starts with a Regulatory Notice replete with questions seeking answers, and then waiting two months for comments. After this assessment phase winds down (often with an extension for the two-month comment period), FINRA starts an "action phase, " which envisions nothing more than FINRA engaging "in its usual rulemaking process to propose amendments to the rules based on the findings." Then there's the expensive-to-attend conference with networking opportunities and paid exhibitors. Apparently, FINRA figured out that the longer it takes to conduct a retrospective rule review followed by an assessment phase and an action phase, the more elderly will die in the interim and, hey, problem solved!