West Point Graduate Blows Up Wall Street Career

February 10, 2021

Today's blog is a sad tale. It's about the loss of promise. It's about how one bad choice can derail a career. It's about the fear of failure. It's about taking short-cuts that take you to dead ends. Your response to today's blog will likely mirror mine: anger mixed with sadness. 

Case In Point

Travis Scott Hughes has an impressive background. How he wound up representing himself before a FINRA Office of Hearing Officers Panel is as much a baffling tale as it is sad. FINRA Department of Enforcement, Complainant, v. Travis Scott Hughes, Respondent (OHO Hearing Panel Decision, Disc. Proc. No. 2019064416201 / February 3, 2021). 
https://www.finra.org/sites/default/files/fda_documents/2019064416201
%20Travis%20Scott%20Hughes%20CRD%207136761
%20OHO%20Decision%20va.pdf
As set forth in part in the OHO Decision [Ed: footnotes omitted]:

After studying at the United States Military Academy in West Point, NY, Hughes joined the United States Army on active duty in September 2012. He served in the Army until August 2016. Hughes worked briefly at two jobs in the private sector before enrolling at Columbia University, where he graduated with a Bachelor of Arts degree in May 2019.

Hughes associated with Houlihan Lokey Capital, Inc. ("Houlihan Lokey") in June 2019, when he joined the firm's financial restructuring group as an analyst. Several weeks later, in early July 2019, Hughes submitted a Uniform Application for Securities Industry Registration or Transfer (Form U4) to register through Houlihan Lokey. Houlihan Lokey terminated Hughes's association with the firm on November 1, 2019

at Page 2 of the OHO Decision

How could such a promising career go awry? Again, this is not the stuff of great frauds or crime but, to the contrary, more of a lack of judgment -- an ethical lapse that seems to have mushroomed  into a thermonuclear event.

The Qualifications Deadline

As the OHO Decision relates, in May 2019, following his job offer from Houlihan Lokey, Hughes was required to pass three examinations (within a four-month deadline of his June 2019 start date) in order to discharge his investment banking roles:
  1. Securities Industry Essentials ("SIE"), 
  2. Uniform Securities Agent State Law Exam ("Series 63"), and 
  3. Investment Banking Representative Exam ("Series 79").
Cheat Sheets

At first, things went well for Hughes. In August 2019, he passed the SIE and the Series 63. Unfortunately, Hughes failed his Series 79 in August and again in September 2019; and he scheduled a third exam date with the Prometric Test Center for October 11, 2019. At this point, the Hughes started down a slippery slope:

Before the exam, Hughes started to prepare "cheat sheets." When he was at Columbia University, Hughes testified, he found that making "very, very small" notes helped him remember what he was writing. So in the morning before the exam, he "took every key concept" in the Series 79 exam "and wrote it all very small." He then cut up his notes so that he could hide and take them into the exam. He also had another typed page of notes reflecting SEC rules and regulations relevant to the Series 79 exam.

at Page 3 of the OHO Decision

Alas -- and we should add a "sigh" here -- Hughes arrived at the test center with his cheat sheets hidden "in each leg of his shorts. . . [H]ughes wore shorts to the exam because it would be easier to pull the notes out of his underwear." at Page 4 of the OHO Decision. The Test Center Administrator (the "TCA") reminded Hughes of the rules against bringing personal notes/study aids in the test room, and the TCA "searched Hughes with a wand and checked his sleeves, pockets, and the hood of the sweatshirt he was wearing." at Page 4 of the OHO Decision. Given that we're referencing a Hearing Decision, it's obvious that Hughes' cheating went awry [Ed: footnotes omitted]:

Shortly after starting the exam, Hughes removed a sheet of paper from each leg of his shorts. One sheet contained his handwritten notes of formulas, valuation metrics, and ratios. The other sheet was a printed reference guide for SEC rules and regulations. Both sheets contained information that was relevant to the Series 79 exam. Hughes hid the sheets under the dry-erase boards on his desk.

Hughes repeatedly reviewed both sheets of paper during the exam. He removed the notes from under the dry-erase boards, looked at the notes, and then covered them back up with the dry-erase boards. Hughes did this 30 times. At one point, Hughes looked at his notes for a full minute.

After about 50 minutes, a TCA noticed and seized the sheet of handwritten notes that Hughes had placed beneath one of his dry-erase boards. The TCA directed Hughes to speak with her in the reception area of the test center. Hughes did not tell the TCA that he had another page of notes under a second dry-erase board. Before leaving his test station, Hughes removed the second page of notes and concealed it in his shorts.

In a brief discussion outside the testing area, Hughes asked the TCA not to report him. He told the TCA that it was his third time taking the test and he would be fired if she reported him. Hughes testified that he was "freaking out about what the rest of [his] life would look like." After the discussion with the TCA, Hughes resumed the exam.  

About an hour after he resumed the exam, Hughes took an unscheduled break. When he returned from the break, Hughes was confronted by the TCA, who had reviewed video footage of Hughes taking the exam. The TCA asked Hughes for his second page of notes, which Hughes gave to her.  Hughes again tried to persuade the TCA not to report him for potential cheating. He told the TCA that he had suffered concussions while in combat in the Army, and that he did not learn until the day before the exam that he could have requested a testing accommodation.  

Hughes completed the exam but missed passing by one point. According to Hughes, his notes were "worthless" because "[t]he test was completely different than what I had prepared for[.]" Because Hughes failed the Series 79 exam for the third time, Houlihan Lokey terminated his employment. Before his employment was terminated, Hughes told only one other person at Houlihan Lokey that he cheated on the October exam: a manager who allegedly told Hughes earlier that he had cheated on his FINRA exam by concealing notes in his underwear.

at pages 5 - 6 of the OHO Decision

Several months after having failed the third Series 79 exam, after losing his job, after FINRA was furnished by Prometric with a report about Hughes' exam misconduct, FINRA questions him on-the-record and under oath  ("OTR") [Ed: footnotes omitted]:

During his OTR, Hughes disclosed, for the first time, that he also brought notes into his second attempt to pass the Series 79 exam, in September 2019. But Hughes claimed that he could not remember whether he used his notes during the exam. This testimony prompted FINRA to request from Prometric the surveillance video of Hughes during the September 2019 exam.  

at Page 6 of the OHO Decision

OHO Hearing

It may be that Hughes would not agree to a reasonable settlement. It may be that FINRA did not offer a reasonable settlement. It may be that despite being offered a reasonable settlement, Hughes insisted upon his day in court. We are left to speculate as to why and how this investigation ended up at a OHO hearing rather than a settlement via an AWC. What we do know is that in its Complaint, FINRA charged Hughes with having violated FINRA Rules 1210.05 and 2010, and that he requested a hearing to contest the Department of Enforcement's proposed sanction of a Bar.

SIDE BAR: FINRA Rule 1210: Registration Requirement:

.05 Rules of Conduct for Taking Examinations and Confidentiality of Examinations. Associated persons taking the SIE shall be subject to the SIE Rules of Conduct. Associated persons taking any representative or principal examination shall be subject to the Rules of Conduct for representative and principal examinations. A violation of the SIE Rules of Conduct or the Rules of Conduct for representative and principal examinations by an associated person shall be deemed to be a violation of Rule 2010. If FINRA determines that an associated person has violated the SIE Rules of Conduct or the Rules of Conduct for representative and principal examinations, the associated person may forfeit the results of the examination and may be subject to disciplinary action by FINRA.

Individuals taking the SIE who are not associated persons shall agree to be subject to the SIE Rules of Conduct. If FINRA determines that such individuals cheated on the SIE or that they misrepresented their qualifications to the public subsequent to passing the SIE, they may forfeit the results of the examination and may be prohibited from retaking the SIE.

FINRA considers all of its qualification examinations content to be highly confidential. The removal of examination content from an examination center, reproduction, disclosure, receipt from or passing to any person, or use for study purposes of any portion of such qualification examination or any other use that would compromise the effectiveness of the examinations and the use in any manner and at any time of the questions or answers to the examinations shall be prohibited and shall be deemed to be a violation of Rule 2010. An applicant cannot receive assistance while taking the examination and shall certify that no assistance was given to or received by him or her during the examination.

Let's Go to the Tape

Among the puzzling aspects of Hughes' decision to take FINRA's charges to a contested hearing was how he planned to explain his cheating. After all, notwithstanding his best explanations and excuses, it was likely that FINRA would confront him with the videotaped evidence.[Ed: footnotes omitted]:

At the hearing, Hughes admitted that he had notes hidden in his shorts during his second attempt to pass the Series 79 exam. After he was shown the surveillance video, he also admitted that he looked at the notes during his second attempt. At one point during the exam, Hughes consulted his notes for about a minute. Hughes looked at his notes 19 times over approximately 70 minutes of the exam, according to an associate principal examiner at FINRA who reviewed the entire surveillance video. Hughes never told anybody at Houlihan Lokey that he had also cheated on his second attempt to pass the Series 79 exam.

at Page 7 of the OHO Decision

A Matter of Mitigation

The old maxim is that when the law is on your side, argue the law; when the facts are on your side, argue the facts; but when neither the law nor the facts are on your side, just argue. While that quip often brings a smile to folks' faces and an all-too-knowing nod from veteran lawyers, the "just argue" approach to litigation rarely proves a winner. Perhaps Hughes recognized that the only chance he had to retain his reputation and possibly salvage his career was to offer mitigating circumstances. If the best settlement offer that FINRA proposed before issuing its Complaint was a Bar, Hughes may have felt that he should embark upon one last-ditch defense and argue his case, in the flesh, before an OHO Panel. [Ed: footnotes omitted]:

While Hughes accepted responsibility for his misconduct, his acceptance was limited and belated. When a TCA caught him using a page of notes during the October 2019 exam, he concealed his second page of notes, which he relinquished only after the TCA reviewed surveillance video and saw the second page.  After he was caught, he implored the TCA not to report him. Once FINRA began its investigation, he equivocated on whether he cheated on the September 2019 exam, claiming in his OTR that he could not remember whether he used his notes during his exam.  And he never acknowledged that he cheated on either exam to anyone at Houlihan Lokey other than a manager who allegedly advised Hughes on how to cheat on the exam. This undercuts the mitigation attributable to Hughes's acceptance of responsibility. 

Hughes also testified that various adverse circumstances led him to cheat on the exam. Before joining Houlihan Lokey, he had "no prior training or any of the base knowledge that is required to be in investment banking[.]"  He felt enormous pressure to pass the exam, he testified, because this was his first "real job" after leaving the military, and he had moved to Houston where he had "no friends," and "no support system."  According to Hughes, this pressure was compounded by an "abusive associate" at Houlihan Lokey, who forced him "to work numerous days until 3 - 4am while [he] should have been studying" for his first two attempts to pass the Series 79 exam. Houlihan Lokey terminated the abusive associate and gave him about a month to study for his third attempt, Hughes acknowledged. But his best friend died during that time, Hughes testified, which "devastated" him, and required him to travel home for the funeral, interrupting his studies. And the tutor that he hired at his own expense to help him on his third attempt ultimately proved "worthless."

These problems were exacerbated by a cognitive disability stemming from multiple
concussions that he incurred before and during his military service, Hughes testified.
According to Hughes, "memorization is a major issue" for him and if he is "not writing things down actively" he forgets them. In his time at Columbia, he "routinely required more time on exams and expressly avoided classes that required a lot of memorization to pass exams.

at pages 9 - 10 of the OHO Decision

Personal Problems Versus Aggravating Factors

The OHO Panel conceded that personal problems may be mitigating, but the Panel drew a line: only if they "interfered with an ability to comply with FINRA rules . . ." at Page 10 of the OHO Decision. The types of personal problems for which FINRA affords more weight were characterized, in part, as involving clinical depression, chronic sleep disorder, and chronic fatigue syndrome. [Ed: footnotes omitted]:

Even by his own account, Hughes's personal circumstances and health issues did not prevent him from complying with FINRA Rules. Hughes admitted that he could have passed the exam without cheating if only he had more time to study. But he never asked Houlihan Lokey for more time to study because he did not want to be the "squeaky wheel" in his "first corporate job." He never requested any other type of accommodation for the exam, despite communications from both Houlihan Lokey and FINRA telling him that was an option. Instead, Hughes testified, he decided to "suck it up and just drive on." As Hughes put it, he faced a choice: his integrity or his job. He chose his job.

And there  are aggravating factors that outweigh these personal circumstances and health issues. His cheating consisted of premeditated and intentional acts. Before the exam, he prepared notes in small writing that he cut up and rolled into his underwear, in an area that he knew the TCAs were unlikely to search. He used this method to cheat during two separate exams, over a period of two months, thus establishing a pattern of misconduct. He tried to conceal his misconduct when he asked the TCA not to report him for cheating. He ignored many warnings from FINRA and Prometric that FINRA's Rules prohibited bringing personal study materials into the exam.

at Pages 10 - 11 of the OHO Decision

OHO Sanctions

For the reasons noted above, the OHO Panel found that Hughes had violated FINRA Rules 1210.05 and 2010 and imposed a Bar upon him, and he was ordered to pay $750 in administrative fees and $2,216.76 for the transcript.