July 11, 2020
FINRA member firm Sharemaster and its principal Howard Feignbaum battled for 11 years about the firm's 2009 audit. A battle that involved FINRA, the PCAOB, the SEC, and the 9th Circuit. A battle that wasted time. Wasted money. As FINRA hemorrhages money, and as FINRA's Small Firm community inexorably evaporates under the onslaught of COVID and the rising costs of compliance/regulation, Sharemaster should serve as an alarm about all that's wrong with self regulation. But it won't. As Will Rogers famously asked about the Great Depression: "If stupidity got us into this mess, why can't can't it get us out?"
As Aegis Frumento, Esq. warned, the United States Supreme Court left a ticking time bomb right in the middle of Wall Street. Well, figuratively speaking a bomb but a bomb nonetheless. As Aegis saw it, the Court's Kokesh decision reserved judgment on whether the SEC even had the power to order disgorgement. Last month the timer stopped ticking, there was a loud click, everyone stood back in anticipation of the shock wave, but . . . a dud? A delayed fuse? That sort of depends upon how you view the Supreme Court's Opinion in the recently decided Liu case.
A recent FINRA regulatory settlement shines a harsh light on problems involving the delicate interplay between investment banking and research. As most Wall Street professionals know, there's supposed to be a wall of sorts separating those two functions. It's not a real wall like President Trump is trying to build. It's more of a theoretical wall. The thing is, theoretical walls aren't always that good at dividing things because, well, hey, you can literally walk through a theoretical wall and like who's gonna know, right?
You work directly for a subsidiary but enter into an Employment/Non-Solicit Agreement with the parent. Things are fine until they're not. You leave. There is an allegation that you violated the non-solicit agreement. You get sued by the parent with whom you executed the agreement. What happens if the subsidiary lacks diversity jurisdiction in order to obtain a TRO in federal court? That's an interesting question. If you need to retain a lawyer to argue the point for you, it's also an expensive question. In a recent case, that interesting and expensive question gets answered in what proves to be a painful manner.
VOTE FOR STEPHEN KOHN for 2020 FINRA Small Firm Governor
On August 7, 2020, the Financial Industry Regulatory Authority ("FINRA") will conduct its annual meeting, at which time the self-regulatory organization will elect one Small Firm Member Governor (1 to 150 registered representatives). Pursuant to FINRA's rules, member firms may only vote for a nominee from their respective sized firm. A proxy was mailed to each eligible firm's Executive Representative. Proxies may be submitted by "any lawful means," which include telephone, mail, or Internet. "Notice of Annual Meeting of FINRA Firms and Proxy" (Election Notice, July 8, 2020).
https://www.finra.org/rules-guidance/notices/election-notice-070820 In order to ensure that the voice of FINRA's small firm community is heard, it is critical that your firm's proxy is promptly submitted by your firm's Executive Representative.
A personal message from Bill Singer, Esq.,
publisher of the
Securities Industry Commentator and the BrokeAndBroker.com Blog
Stephen A. Kohn, President/CCO of DMK Advisor Group, Inc, is one of three candidates for the 2020 FINRA Small Firm Governor seat. For some two decades, Stephen has advocated for industry reform and effective, fair regulation. Stephen seeks re-election as the 2020 FINRA Small Firm Governor in order continue the fight for the legitimate needs of FINRA's besieged small firms.
Stephen Kohn has complained about the lack of a Small Firm Governor on five or FINRA's eight Standing Committees (non-representation highlighted in red below):
Finance, Operations & Technology Committee
Management Compensation Committee
Nominating & Governance Committee
Regulatory Policy Committee
Regulatory Operations Oversight Committee
Pointedly, Stephen Kohn cites the disgraceful absence of even one Small Firm Governor on FINRA's powerful and influential Management Compensation Committee and Nominating & Governance Committee. How important are those two Committees to the operation of FINRA? Why is the Small Firm community's lack of representation so outrageous? Consider these descriptions from FINRA's website:
Management Compensation Committee
The Management Compensation Committee reviews and recommends changes to FINRA's compensation policies, programs and practices, with the primary objective that FINRA attract, develop and retain high performing individuals who are capable of achieving FINRA's mission of ensuring market integrity and investor protection. The Committee also reviews the plans for the development, retention and succession of key executives of the Corporation and its subsidiaries.
Nominating & Governance Committee (Nominating Committee)
The Nominating and Governance Committee is responsible for nominating persons for appointment or election to the FINRA Board, as well as nominating persons to fill vacancies in appointed or elected governor seats on the Board. The Committee also nominates Industry and Public members for positions on FINRA's National Adjudicatory Council.
The Committee is responsible for periodically reviewing and recommending changes to standing committee charters and, in consultation with the CEO, nominates the members and chairs of each standing committee of the Board. Also in consultation with the CEO, the Committee develops and recommends to the Board guidelines for effective corporate governance. In addition, the Committee reviews and approves appointments to each of FINRA's advisory committees and changes to the advisory committee enabling resolutions.
As I recently observed:
[F]INRA's Board of Governors is a non-representative entity nurtured by an indefensible system of gerrymandering whereby over 91% of the organization's member firms (those designated as "Small" and defined as having at least 1 but no more than 150 registered representatives) are restricted to only 3 of 24 seats (less than 13% of the organization's membership). Worse, FINRA's Nominating and Governance Committee, which nominates candidates for Governors, does not have one Small Firm Governor among its seven member committee https://www.finra.org/about/governance/standing-committees
With the exception of Small Firm Governor Stephen Kohn, who is now seeking re-election to a second term, I know of no current Governor who is aggressively supporting efforts to seat a Small Firm Governor on the Nominating Committee.
Given FINRA's social engineering of its Board and key Committees, and given the ongoing demise of FINRA's overall membership, I refuse to afford this so-called self-regulatory-organization any legitimacy and continue to call for its decertification. Consequently, while I welcome the election of Eileen Murray as Chair, I urge her to rectify the outrageous lack of fair representation on FINRA's Board and Committees.
at "Securities Industry Commentator" July 1, 2020
The re-election of Stephen Kohn as one of only three FINRA Small Firm Governors will ensure that the Small Firm community retains a bulwark against the ongoing erosion of their voice and interests. The small firms constitutes over 91% of the organization's member firms, which makes the marginalization of that group outrageous and ominous. I have been a vocal critic of this social engineering by FINRA to suppress its Small Firms' influence and to artificially constrain their proper role in fashioning the self-regulatory-organization's agenda.
In the past, Stephen Kohn joined me in seeking redress of FINRA's unfair fine and excessive term of suspension imposed upon military veteran Richard Botkin, read: "Stephen Kohn and Hugh Hewitt Champion Richard Botkin's FINRA Appeal" (BrokeAndBroker.com Blog, July 14, 2017) http://www.brokeandbroker.com/3526/botkin-finra-awc/. A testament to Stephen's character and dedication was revealed when he immediately reached out to me and offered his assistance on Botkin's behalf. Moreover, Stephen took the initiative and contacted FINRA to press for reconsideration of Botkin's sanctions.
Also, in response to "FINRA Baseball Caps, Rice Krispies Treats, Hiring Spree, And ZOOM OTRs" (BrokeAndBroker.com Blog, May 1, 2020)
http://www.brokeandbroker.com/5197/finra-zoom-otr/, Stephen Kohn investigated the use (and potential abuse) of ZOOM video by FINRA for On-the-Record regulatory interviews ("OTRs") and arbitration hearings during the onslaught of the COVID-19 pandemic. Stephen's active advocacy for issues that truly matter is in marked contrast to the posturing of many former and current Governors.
Time and time again, Stephen Kohn steps forward when other Governors hang back.
Time and time again, Stephen Kohn speaks up when other Governors remain silent.
As a 38-year industry veteran and a founder of the NASD and FINRA Dissident Movement (See, "THE MARKETS; Two Independents Are Elected To Serve on N.A.S.D.'s Board" (New York Times, December 22, 1998) https://www.nytimes.com/1998/12/22/business/the-markets-two-independents-are-elected-to-serve-on-nasd-s-board.html, I have tired of far too many candidates for FINRA elective office who talk the talk but won't walk the walk. Following his election as the 2017 FINRA Small Firm Governor, Stephen Kohn pressed for a number of meaningful reforms. Too often it was Stephen and only Stephen who fought for the small firms. Despite his lonely advocacy, Stephen persisted. If re-elected in 2020, Stephen will remain a passionate voice in raising the legitimate grievances of the small firm community. READ about Stephen's activism during his 2017 - 2020 term as Small Firm Governor
I urge all Securities Industry Commentator, RRBDLaw, and BrokeAndBroker.com Blog readers to press their FINRA Small Firm's Executive Representative to cast a proxy in support of Stephen Kohn's candidacy for the 2020 FINRA Small Firm Governor and
Stephen Kohn's Biography
Stephen A. Kohn
DMK Advisor Group, Inc.
7114 W. Jefferson Ave., Ste. 305
Lakewood, CO 80235
I have been employed in the financial services industry since 1984, to which I have devoted most of my working life. Founded in 1996, I owned and operated a FINRA, member firm, Stephen A, Kohn & Associates, Ltd. ("SAKL") located in Lakewood, Colorado. SAKL has recently had a change of ownership and is now DMK Advisor Group, Inc. ("DMK"), still a small, still a full service, independent broker/dealer, catering to the needs of forty-five independent representatives and their clients, with office locations in eight states and Puerto Rico, registered in forty-five. I remain with DMK as its President and CCO.
I have been twice elected to the National Adjudicatory Council ("NAC") by FINRA's small firms, first in 2009 and again in 2014. The NAC is FINRA's appellate division, hearing appeals to enforcement decisions and other issues.
While on the NAC, I was appointed to, and served on the NAC's Sanction Guideline Review Sub-Committee. This sub-committee was convened to review and revise the guidelines, ensure that sanctions in appeals that are upheld by the NAC are fair and appropriate and to recommend revisions to the Sanction Guidelines as needed. I am also an Industry Arbitrator.
I hold the following securities licenses: Series, 7, 24, 53, 63, 72, 73, 79 and 99. I graduated from C.W. Post College of Long Island University in 1964 with a BA degree and have also served in the U.S. Coast Guard.
I have been, and will continue to be, your outspoken voice, fighting for serious recognition as a more than viable asset to the investing public.
In 2017 you elected me to the FINRA Board of Governors, representing our small firm community. I have worked tirelessly, oftentimes behind-the-scenes to preserve and promote issues that have a direct effect on us all as well as defend us on issues I feel will have negative implication on our business.
In an environment of rapidly changing technology, the small Broker/Dealer provides a real, live voice on the other end of the line, to the investing public. We service the investors with whom the "big guys" consider a bother and waste of time. Yet, we're not taken as a serious force in the industry even though we are over 90% of FINRA's membership.
Things will not change overnight or, perhaps, ever. But the only promise I can make to you is that, on your behalf, our voices will be heard and, hopefully, make a difference in the misguided perception that we are orphans, waiting to be adopted, or give up and go away.
There are issues that are unresolved upon which I have been working and it's imperative that I am able to see them to completion or they may die for lack of support.
I am asking for your vote to make that happen.
The need for regulation is necessary now, more than ever. But it must be meted out with an even hand. We cannot be held to the same standard as those "too big to fail" institutions. We must be judged relative to who we are and the services we provide.
The "Regulators" will never know who we really are until they've walked a mile in our shoes and judge us accordingly.
Your vote will bring me to where I can deliver our message to those who control our destiny.