March 30, 2021
In the midst of a pandemic, FINRA got out its hammer and its tongs, and went after a Respondent, who had decided not to invest in a company and prepared to engage in a business that never materialized. Sort of like pretending that we launched a satellite into orbit despite the fact that the rocket exploded on the launching pad. I'm sure that you and I will both sleep safer tonight knowing that Wall Street's self-regulatory-organization is so vigilant and walking the industry beat.
Case In Point
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Chad T. Crawford submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Chad T. Crawford, Respondent (FINRA AWC 2020068470001)
The AWC alleges that Chad T. Crawford was registered with Sigma Financial Corporation from August 2000 to October 2020 and with Parkland Securities, LLC from December 2006 to October 2020 -- the AWC asserts that "Sigma and Parkland are affiliates." The AWC alleges that Crawford "has no relevant disciplinary history."
Hand Sanitizer Biz
During his association with Sigma and Parkland, Crawford's primary responsibility was performing audits of branch offices. In discharging that role, Crawford would confirm registered representatives' compliance with the disclosure rules pertaining to outside business activities ("OBAs"). What, then, was the misconduct that brought Crawford low? What dastardly acts had come to FINRA's attention? Ahhh . . . prepare yourself to be shocked and dismayed and, perhaps, sanitized. As alleged in part in the AWC:
Crawford performed several such audits of the branch office where one registered representative worked. As Crawford knew, the registered representative had a disclosed outside business activity. Starting in April 2020, after the coronavirus pandemic began, the registered representative told Crawford that he was using equipment from his disclosed outside business activity to produce hand sanitizer.
Crawford decided not to invest in the registered representative's company, but instead decided to purchase hand sanitizer directly from the registered representative, which Crawford could then resell to the general public. Crawford recruited a friend to join him in purchasing the hand sanitizer from the registered representative, each contributing $50,000 to the purchase. Crawford and his friend paid this amount to the registered representative to purchase empty bottles, fill them with hand sanitizer, and return the filled bottles to Crawford. Crawford conducted market research and identified potential buyers. Crawford and his friend then took steps to prepare to sell the hand sanitizer to the public at a profit. The registered representative, however, never produced bottles of hand sanitizer to Crawford or his friend. As a result, neither Crawford nor his friend sold any hand sanitizer to the public.
Crawford had a reasonable expectation of compensation through his hand sanitizer venture, which was outside the scope of his relationship with Sigma and Parkland. Crawford did not provide prior notice to Sigma or Parkland, written or otherwise, of his involvement in the hand sanitizer venture, and neither firm approved it.
To the contrary, in October 2020, during an internal investigation regarding the registered representative, the firms' chief compliance officer specifically asked Crawford about his relationship with registered representative and his outside business activities. Crawford initially denied that he was involved in any outside business activities with registered representative, although he ultimately admitted his involvement in the hand sanitizer venture.
Online FINRA BrokerCheck records as of March 30, 2021, disclose that Sigma Financial Corporation "discharged" Crawford on October 27, 2020, based upon allegations that:
The representative violated firm policy by failing to obtain prior approval for a promissory note arrangement in which he lent money to an unaffiliated privately held company.
In accordance with the terms of the AWC, FINRA found that Crawford violated FINRA Rules 3270 and 2010; and the self regulator imposed upon him a $5,000 fine and a two-month suspension from associating with any FINRA member in all capacities.
Bill Singer's Comment
Lemme see if I got this.
Sometime around April 2020, with the onset of the Covid pandemic, the AWC alleges that a registered representative "told Crawford that he was using equipment from his disclosed outside business activity to produce hand sanitizer." That's fascinating but for the fact that the AWC also informs us that "Crawford decided not to invest in the registered representative's company, but instead decided to purchase hand sanitizer directly from the registered representative. . . ."
Omigod! No!! A rep was using equipment -- how outrageous!!! And that rep was using said equipment to produce, of all things, hand sanitizer!!!! I'm shocked, shocked I say!!!!! Worse, upon learning of the rep's hand sanitizer production, can you believe, would you have ever imagined, that Crawford decided not to invest in the rep's company !!!!!! Making matters worse, far worse, Crawford decided to directly purchase hand sanitizer from said rep !!!!!!!
I dunno 'bout you but the AWC's revelations about the rep and his hand sanitizer production and Crawford's decision to not invest in the rep's company but to only buy sanitizer from him was of such an epic proportion that it took my breath away and, geez, I made a beeline for my personal stash of hand sanitizer and deluged myself with the disinfectant. Thank god that FINRA is on the hand-sanitizer ramparts and protecting you, me, and all of us from the likes of Crawford.
Alas, I diligently read and re-read the AWC but couldn't find any assertion that Crawford was approached by the rep about investing in the rep's business, so I'm not sure that it's of any consequence that Crawford decided not to. Similarly, there's nothing in the AWC alleging that Crawford had decided not to invest in a face mask business or a surgical glove business. There's also nothing in the AWC about whether Crawford decided not to swallow hand sanitizer rather than rub it into his hands. In light of the fact that Crawford decided not to make an investment in the rep's company, and there is no assertion that he was asked to make said investment, and, as even the AWC concedes, he never invested in the rep's company -- then what's the point of dredging all that up?
After deciding not to invest in the rep's company, Crawford and a friend purchased $100,000 worth of hand sanitizer from the rep; or as the AWC alleges "to purchase empty bottles, fill them with hand sanitizer, and return the filled bottles to Crawford."
Talk about beating a dead horse to death just for the sport of it.
Perhaps sensing the sheer stupidity of its case against Crawford, FINRA couldn't just alleged that he and the friend purchased hand sanitizer. Course not. That doesn't quite gild the lily or beat the dead horse further into death. With so much of Wall Street self-regulation about piling on and getting in a few kidney shots under the pile, FINRA does its best to honor that tradition. In that spirit, there was no mere purchase of hand sanitizer. There was a purchase of empty bottles. Then there was the purchase of the filling of said bottles. Followed by the return of said empty-now-filled bottles from the vendor to the purchasers.
According to FINRA, I didn't just walk into a McDonalds to buy a burger. No, I paid about $4 for a Big Mac so that McDonald's could arrange to have a rancher raise a steer and then sell it to a slaughterhouse, where the cow would be stunned and butchered, and, thereafter, the beef would be sold to a packer, who would prepare quarter-pound patties, which would be sold to McDonalds, who would then box them and ship them out to their many, many restaurants, where they would be cooked and placed on buns unless the store was closed because of Covid or they wouldn't let me handle anything unless I doused myself in hand sanitizer and placed the order wearing a mask. That's FINRA's version of buying a Big Mac.
Can you imagine if I needed to use a bathroom after I ate my Big Mac? Imagine what that description would look like if FINRA drafted the narrative!
The AWC alleges that Crawford, the Great Hand Sanitizer Entrepreneur, worked with his friend to "prepare to sell the hand sanitizer to the public at a profit." Just what horrific risk does the preparation of the sale of hand sanitizer pose to the investing public? Note that the AWC alleges that Crawford merely prepared to sell hand sanitizer but, in truth, never did:
The registered representative, however, never produced bottles of hand
sanitizer to Crawford or his friend. As a result, neither Crawford nor his friend sold any
hand sanitizer to the public.
A number of words come to mind when I contemplate FINRA's investigation and ensuing regulatory settlement:
- Jackassery (not sure if that's a real word but I'll throw it in here just to make a point)
About 31 million Americans have been stricken with Covid with over 550,000 deaths. And all of this suffering presents FINRA with an opportunity to go after some shlub who invested $50,000 from his own pocket (and a friend invested another $50,000) into the purchase of hand sanitizer, but the sanitizer "was never produced," and the two would-be hand sanitizer middlemen never sold a drop of sanitizer to the public. Y'all couldn't just send Crawford a Letter of Caution? What a shame that FINRA allocates time, funds, and staff to such crap.