September 7, 2019
Temptation is always there. It's how we respond to the siren's call that matters. In today's FINRA disciplinary settlement, we have the local head of a national organization, which, among other things, promotes ethical conduct among its members. We also have a debit card issued by that organization to said executive. As is the fact pattern with these tales of woe, the executive used the card to pay personal expenses but never timely reimbursed the organization. Worse, as is frequently the case, the inappropriate expenses amounted to peanuts.
Recently, the Business Roundtable adopted a new Statement of Purpose of a Corporation, which ordered the entity's obligations as first, to customers; second, to employees; third, to suppliers; fourth, to communities; and last, to shareholders. In response, the Council of Institutional Investors rang the alarm about corporate management trying to entrench behind the dubious refuge of so-called stakeholder governance and sustainability. In its riposte, the Council argued that it was the Government's role to define a corporation's social obligations, and managers should just focus on profits. It costs nothing to invite government regulation when you know it won't happen.
When it comes to regulatory documents, I'm a stickler for saying what you mean and meaning what you say. When I've finished reading a disciplinary decision or settlement agreement, it shouldn't end with a guessing game. I should understand the fact pattern. I should be persuaded by the rationale for sanctions. I should feel that justice was served by the end result. A recent FINRA regulatory settlement comes up short on a number of those aspects.
In Rocky XXIV, we come across a fighter who transitioned his fee-for-advice business to a new FINRA member firm after obtaining assurances that the firm would expeditiously arrange to handle his model. The firm paid a huge purse in the form of a six-figure promissory note. The fight didn't go the distance. Rocky refused to answer the bell for the third round claiming that his opponent was trying to bite off his ear -- or, in somewhat more mundane terms -- that the new firm wasn't timely delivering on its promises to provide support services. The promoter wants his purse back. Rocky calls for Adrian, calls for Creed, calls for Rambo (he was confusing movies), and then refuses to return the purse. Angered, the firm marches into a Texas state court. Rocky, still recovering from his shortened fight, climbs back into the ring and demands that any new bout be held before a FINRA arbitration panel. The bell rings for Round One . . .