In today's BrokeAndBroker.com Blog, we have what I often refer to as a "yes, but" case. I'm sure you have encountered such ambivalence with many matters in your life. You get it why something was wrong. You may even agree with the punishment. On the other hand, your mind seems to prod you with "however" and "but," and you're left uneasy. Consider this recent FINRA AWC settlement in which a registered person is suspended by the self-regulator in 2015 for a 2011 loan made by a friend.
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, Raymond Sardina submitted a Letter of Acceptance,
Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Raymond
Sardina, Respondent (AWC #2013038581401,
March 19, 2015).
In 1998, Sardina entered the securities industry and in 2000
first became registered. In 2007, he was
registered as a sales assistant with FINRA member firm Raymond James &
Associates, Inc., where he eventually became a registered financial
advisor. The AWC asserts that Sardina
had no prior disciplinary history in the securities industry.
Friend AND Customer
The AWC asserts that in 2011, Sardina borrowed $10,000 from a
close friend, who was also a Raymond James customer -- when the loan was repaid in 2012, the lender was still Sardina's friend and a customer of the firm.
Matters of Disclosure
The AWC asserts that Sardina failed to notify Raymond James
that he had received the loan from a customer and further failed to obtain the
firm’s prior approval for the transaction. During the relevant times, the AWC
asserts that Raymond James prohibited its employees from borrowing money from
Additionally, the AWC asserts that on January 23, 2012, Sardina
falsely answered “NO” on Raymond James’ 2012 Annual Compliance Questionnaire to
a query asking whether he was involved in any outside business relationships
with customers including the giving or receiving of loans. At the time of his
answer, the AWC asserts that the loan was still outstanding.
The AWC asserts that:
On October 11, 2013, the Firm submitted to FINRA a Form 4530
reporting that Sardina had been fined $10,000 and would be suspended for one
week for receiving a customer loan.
FINRA deemed Sardina’s borrowing from a firm customer violated both Raymond James’ policies and FINRA Rules 3240 and 2010. Additionally, Sardin'as misrepresentation on the annual questionnaire was deemed a violation of
FINRA Rule 2010.
In accordance with the terms of the AWC, FINRA imposed upon
Sardina a one-month suspension from associating with any FINRA registered broker-dealer
in any capacity.
Bill Singer’s Comment
It is a question often asked of securities industry lawyers by clients not eager to fess up: If
they haven’t detected the violation by now, what’s the chance that they ever
Here is a perfect example of how a
false reliance on the passage of time can set you up for a very, very nasty
Sardina borrowed money in 2011 and fully repaid the loan in
2012. It was not until October 2013 that Raymond James notified FINRA that it
had internally fined him and also suspended him for one week. How did Raymond James learn about the
loan? Unfortunately the AWC doesn’t say.
Looking back we see the landmark events as being spread over about two years: from 2011's loan, through 2012's repayment, to 2013's in-house sanction. Then nothing happens for about a year and a half. Which brings us to March 2015, at which time FINRA
settles with Sardina and imposes a one-month suspension. To FINRA’s credit, the regulator did not impose a fine – I wish
that there were at least some acknowledgment in the AWC that the non-fining was
a byproduct of the imposition of a $10,000 fine by Raymond James but, as such,
that’s nothing more than my surmise.
What I’m not quite understanding is the
value or purpose of FINRA tacking on in 2015 a further one month suspension, which occurs nearly four years after the loan was made and three years after its repayment. It seems more ticky-tacky than sincere and, frankly, seems like a couple of punches to the kidney thrown underneath a pile of bodies on a football field after the whistle blows the play dead.
Moreover, just what the hell was FINRA doing
since October 2013 when it was on notice per Raymond James' regulatory report about the incident and the firm's in-house sanctions? If it takes FINRA that long to resolve what
most industry professionals would view as a slam-dunk case, no wonder the real
fraudsters seem to be having a field day out there.
Wall Street is supposed to be protected by smoke detectors in the
form of endless amounts of rules and regulations, massive volumes of written supervisory
procedures, and a legion of regulators and in-house compliance staff. Of course, as with all such alarm systems, you
have to make sure that you take the damn device out of the box, put the
batteries in, and properly install it in the right location. History suggests that this has not always been
the case for the financial services community. Consider this recent regulatory
settlement in which you have to wonder just what the hell was or wasn't going
on in terms of detecting and responding to warning
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, optionsXpress, Inc., (a subsidiary of Charles Schwab Corporation) submitted a Letter
of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In
the Matter of optionsXpress,
Inc.,Respondent(AWC #2012034190001, March 17, 2015).
The AWC asserts that in February 2012, an identity
thief gained wrongful access to an optionsXpress, Inc. (“OX”) customer's account and changed the email
address of record. In keeping with its protocol, OX emailed
address-change confirmations to both the old and new email
One PIN Left Standing
On several occasions in February and March 2012, the identity
thief unsuccessfully tried to re-set the account's personal identification
number ("PIN"). Having successfully changed the email address, the hacker seems to have encountered a problem climbing over the security wall behind which the PIN was hidden. If at first . . .
Despite having repeatedly failed to re-set the PIN,
sometime in March 2012, the identity thief somehow managed to answer certain
security questions. The AWC does not disclose what those questions were or how the hacker managed to obtain the answers.
Armed with the ability to circumvent OX's security, the thief was apparently able to re-set the PIN and then established a new
Automated Clearing House ("ACH") link, which permits the processing of electronic transactions among participating depository institutions. The new
ACH link allowed the thief to connect the victim customer's OX account to an
outside bank account purportedly under the thief's control.
On March 28, 2012, the thief effectuated a $9,100
ACH transfer from the customer's OX account to the linked outside bank account.
The AWC further alleges that during April 2012, the thief sold 24,000 shares in
the customer's account on two trade dates and effectuated a cumulative total of
an additional $443,000 in cash ACH transfers on five different
OX placed automated telephone calls confirming each
ACH transaction to the customer's cellphone. The AWC asserts, however, that OX
did not confirm the customer's receipt of those auto-calls. On top of that, emails confirming the
transactions were sent by OX to the address of record -- except that address
had previously been changed by the identity thief.
On April 30, 2012, the customer contacted OX and
informed the firm that the cited ACH activity was unauthorized, at which time
the firm froze the account. Thereafter, OX reimbursed the customer. The AWC does not explain what prompted the customer to contact OX; and although the instigation may have been the OX automated calls to the customer's cellphone, that is merely my conjecture and is not confirmed in the AWC.
The AWC alleged that during the relevant time, OX
generated a Large ACH Report, which appears to be an
exception run triggered by ACH transactions above a specified dollar threshold.
The AWC asserts that notwithstanding a protocol for reviewing the
Large ACH Report, OX lacked written procedures
responsible for performing ACH activity
how the reviews were to be performed;
what to do with any findings.
The Eyes Of
FINRA appears to have
determined that the victimized customer was an Illinois resident but that the
identity thief was communicating via a Texas-based Internet Protocol
("IP") address. That's an interesting discrepancy and one that the
AWC highlights. Many firms have already noted the importance of IP signatures and when the source changes from one historically used by the customer, the discrepancy will be noted in an alert and someone assigned to promptly investigate the matter.
The AWC notes the following circumstances involving the use of the Texas IP address during the relevant times when the unauthorized access was ongoing:
customer's online account was repeatedly accessed from what appeared to be a
Texas IP address;
the Texas IP
address was the source for the communications that changed the customer's email
address of record; and,
multiple failed attempts to reset the PIN from the Texas IP
In early April, 2012, while pretending to be the
customer, the identity thief telephoned OX's customer service center from a Skype phone
account and purportedly evidenced "a heavy Eastern European accent [and]
appeared not be able to understand English . . ."
Moreover, when asked to answer the security
question, the thief did not know the customer's mother's maiden
name. Inexplicably, the OX service center employee who handled the telephone
call did not escalate the matter to appropriate firm personnel.
SIDE BAR: At first glance, FINRA may be seen as being overly picky when admonishing OX about identifying the source of online access and telephone calls. On the other hand, I think that the self-regulator makes a compelling argument that supervisory and compliance staff at OX failed to properly consider emerging, troubling indications in the form of:
the Texas IP address,
the use of a Skype account,
the failed attempts to pass security questions,
the creation of new email addresses,
the implementation of an ACH link, and
strong suggestions that we may not have been dealing with someone from Illinois (which is not to suggest that Illinois residents may not have thick accents and a lack of fluency with English as a first language; but it is to suggest that you can't ignore cumulative red flags).
Are these the tapes of the identity thief with the Eastern European accent???
Large Report, Little
As to the five
April 2012 cash transfers noted on the Large ACH Report, two
of the displayed transfers were not accompanied by any disclosure of the previously failed
security questions and the changed email address. The AWC further questions why
the account's appearance on five daily Large ACH Reports in
less than a month did not trigger an internal review.
SIDE BAR: And now for a bit of theatrical fantasy courtesy of the esteemed but unknown playwright Bill Singer of the famed BrokeAndBroker.com Blog:
COMPLIANCE OFFICER: Is that the fire alarm?
SUPERVISOR: Sounds like it.
COMPLIANCE OFFICER: You think there's a fire?
SUPERVISOR: Nah, it's probably a false alarm or maybe they're testing the system.
COMPLIANCE OFFICER: Should we call someone and check?
SUPERVISOR: Waste of time. I'm sure it will stop soon.
COMPLIANCE OFFICER: You sure . . . maybe I'll just make a quick call downstairs?
SUPERVISOR: If you want to look like an idiot, go ahead; but don't get me involved. It's nothing.
COMPLIANCE OFFICER: I think I smell smoke.
SUPERVISOR: Didn't you just take a smoking break in front of the building?
COMPLIANCE OFFICER: Yeah, but . . .
SUPERVISOR: I don't smell nothing. You're just imagining things.
FINRA alleged that OX's conduct constituted
violations of FINRA Rule 2010; NASD Rule 3012(a)(2)(B)(i); and NASD Rule 3010. In
accordance with the terms of the AWC, FINRA imposed upon OX a
Censure and $150,000 fine. Additionally, OX agreed that
within 30 days it will certify in writing to FINRA's Department of Enforcement
that it has implemented written ACH transfer review procedures to address and
correct the violations described in the AWC.
Compliments to FINRA on an excellent AWC replete with a strong presentation of the underlying facts and some useful guidance for better compliance practices.
In 2006, after
suffering several miscarriages, UPS driver Peggy Young became pregnant; and, in consideration of her prior pregnancies, her doctor instructed her to not lift over 20
pounds during the first 20 weeks of her pregnancy (and, thereafter, to limit the lifting to 10 pounds). That medical advice was contrary to UPS's policy requiring its drivers to lift packages of up to 70 pounds or up to 150 pounds with assistance. In response to Young's doctor's advice, UPS told Young that she could not work. As a result, Young stayed home without pay and subsequently lost her medical coverage.
Young filed a federal lawsuit in federal District Court in Maryland against UPS , alleging that the employer had acted unlawfully in
refusing a workplace accommodation; and she alleged that the employer had accommodated other drivers with similar disabilities. Young said that her co-workers were willing
to help her with heavy packages. The District Court granted UPS' Motion of Summary Judgment, which was sustained on appeal by the United States Court of Appeals for the Fourth Circuit. Both the District and Circuit courts found that Young failed to establish a prima facie case for pregnancy discrimination because she could not prove that similarly situated UPS employees had received more favorable treatment
than she did. She appealed to the United States Supreme Court.
On March 25, 2015, the United States Supreme Court issued its Opinion in Young v. United Parcel Service, Inc. (Opinion, United States Supreme Court, Certiorari to the United States Court of Appeals for the 4th Circuit, No. 12–1226, March 25, 2015). Justice Breyer delivered the Opinion with Justices Roberts, Ginsburg, Sotomayor, and Kagan joining. Justice Alito concurred in the judgment. Justices Scalia filed a dissenting Opinion with Justices Kennedy and Thomas joining. Justice Kennedy also filed a dissenting Opinion.
Following is a verbatim extract of the Court's Syllabus:
The Pregnancy Discrimination Act added new language to the definitions
subsection of Title VII of the Civil Rights Act of 1964. The first
clause of the Pregnancy Discrimination Act specifies that Title VII’s
prohibition against sex discrimination applies to discrimination “because
of or on the basis of pregnancy, childbirth, or related medical
conditions.” 42 U. S. C §2000e(k). The Act’s second clause says that
employers must treat “women affected by pregnancy . . . the same for
all employment-related purposes . . . as other persons not so affected
but similar in their ability or inability to work.” Ibid. This case asks
the Court to determine how the latter provision applies in the context
of an employer’s policy that accommodates many, but not all, workers
with nonpregnancy-related disabilities.
Petitioner Young was a part-time driver for respondent United
Parcel Service (UPS). When she became pregnant, her doctor advised
her that she should not lift more than 20 pounds. UPS, however, required
drivers like Young to be able to lift up to 70 pounds. UPS told
Young that she could not work while under a lifting restriction.
Young subsequently filed this federal lawsuit, claiming that UPS acted
unlawfully in refusing to accommodate her pregnancy-related lifting
restriction. She brought only a disparate-treatment claim of discrimination,
which a plaintiff can prove either by direct evidence that
a workplace policy, practice, or decision relies expressly on a protected
characteristic, or by using the burden-shifting framework set forth
in McDonnell Douglas Corp. v. Green, 411 U. S. 792. Under that
framework, the plaintiff has “the initial burden” of “establishing a
prima facie case” of discrimination. Id., at 802. If she carries her
burden, the employer must have an opportunity “to articulate some
legitimate, non-discriminatory reason[s] for” the difference in treat-ment. Ibid. If the employer articulates such reasons, the plaintiff
then has “an opportunity to prove by a preponderance of the evidence
that the reasons . . . were a pretext for discrimination.” Texas Dept.
of Community Affairs v. Burdine, 450 U. S. 248, 253.
After discovery, UPS sought summary judgment. In reply, Young
presented several favorable facts that she believed she could prove.
In particular, she pointed to UPS policies that accommodated workers
who were injured on the job, had disabilities covered by the Americans
with Disabilities Act of 1990 (ADA), or had lost Department of
Transportation (DOT) certifications. Pursuant to these policies,
Young contended, UPS had accommodated several individuals whose
disabilities created work restrictions similar to hers. She argued that
these policies showed that UPS discriminated against its pregnant
employees because it had a light-duty-for-injury policy for numerous
“other persons,” but not for pregnant workers. UPS responded that,
since Young did not fall within the on-the-job injury, ADA, or DOT
categories, it had not discriminated against Young on the basis of
pregnancy, but had treated her just as it treated all “other” relevant
The District Court granted UPS summary judgment, concluding,
inter alia, that Young could not make out a prima facie case of discrimination
under McDonnell Douglas. The court found that those
with whom Young had compared herself—those falling within the on-the-job,
DOT, or ADA categories—were too different to qualify as
“similarly situated comparator[s].” The Fourth Circuit affirmed.
1. An individual pregnant worker who seeks to show disparate
treatment through indirect evidence may do so through application of
the McDonnell Douglas framework. Pp. 10–23.
(a) The parties’ interpretations of the Pregnancy Discrimination
Act’s second clause are unpersuasive. Pp. 12–20.
(i) Young claims that as long as “an employer accommodates
only a subset of workers with disabling conditions,” “pregnant workers
who are similar in the ability to work [must] receive the same
treatment even if still other nonpregnant workers do not receive accommodations.”
Brief for Petitioner 28. Her reading proves too
much. The Court doubts that Congress intended to grant pregnant
workers an unconditional “most-favored-nation” status, such that
employers who provide one or two workers with an accommodation
must provide similar accommodations to all pregnant workers, irrespective
of any other criteria. After all, the second clause of the Act,
when referring to nonpregnant persons with similar disabilities, uses
the open-ended term “other persons.” It does not say that the employer
must treat pregnant employees the “same” as “any other persons” who are similar in their ability or inability to work, nor does it
specify the particular “other persons” Congress had in mind as appropriate
comparators for pregnant workers. Moreover, disparate treatment
law normally allows an employer to implement policies
that are not intended to harm members of a protected class, even if
their implementation sometimes harms those members, as long as
the employer has a legitimate, nondiscriminatory, nonpretextual reason
for doing so. See, e.g., Burdine, supra, at 252–258. There is no
reason to think Congress intended its language in the Pregnancy
Discrimination Act to deviate from that approach. Pp. 12–14.
(ii) The Solicitor General argues that the Court should give
special, if not controlling, weight to a 2014 Equal Employment Opportunity
Commission guideline concerning the application of Title
VII and the ADA to pregnant employees. But that guideline lacks
the timing, “consistency,” and “thoroughness” of “consideration” necessary
to “give it power to persuade.” Skidmore v. Swift & Co., 323
U. S. 134, 140. The guideline was promulgated after certiorari was
granted here; it takes a position on which previous EEOC guidelines
were silent; it is inconsistent with positions long advocated by the
Government; and the EEOC does not explain the basis for its latest
guidance. Pp. 14–17.
(iii) UPS claims that the Act’s second clause simply defines sex
discrimination to include pregnancy discrimination. But that cannot
be right, as the first clause of the Act accomplishes that objective.
Reading the Act’s second clause as UPS proposes would thus render
the first clause superfluous. It would also fail to carry out a key congressional
objective in passing the Act. The Act was intended to
overturn the holding and the reasoning of General Elec. Co. v. Gilbert,
429 U. S. 125, which upheld against a Title VII challenge a
company plan that provided nonoccupational sickness and accident
benefits to all employees but did not provide disability-benefit payments
for any absence due to pregnancy. Pp. 17–20.
(b) An individual pregnant worker who seeks to show disparate
treatment may make out a prima facie case under the McDonnell
Douglas framework by showing that she belongs to the protected
class, that she sought accommodation, that the employer did not accommodate
her, and that the employer did accommodate others “similar
in their ability or inability to work.” The employer may then
seek to justify its refusal to accommodate the plaintiff by relying on
“legitimate, nondiscriminatory” reasons for denying accommodation.
That reason normally cannot consist simply of a claim that it is more
expensive or less convenient to add pregnant women to the category
of those whom the employer accommodates. If the employer offers a
“legitimate, nondiscriminatory” reason, the plaintiff may show that it is in fact pretextual. The plaintiff may reach a jury on this issue by
providing sufficient evidence that the employer’s policies impose a
significant burden on pregnant workers, and that the employer’s “legitimate,
nondiscriminatory” reasons are not sufficiently strong to
justify the burden, but rather—when considered along with the burden
imposed—give rise to an inference of intentional discrimination.
The plaintiff can create a genuine issue of material fact as to whether
a significant burden exists by providing evidence that the employer
accommodates a large percentage of nonpregnant workers while failing
to accommodate a large percentage of pregnant workers. This
approach is consistent with the longstanding rule that a plaintiff can
use circumstantial proof to rebut an employer’s apparently legitimate,
nondiscriminatory reasons, see Burdine, supra, at 255, n. 10,
and with Congress’ intent to overrule Gilbert. Pp. 20–23.
2. Under this interpretation of the Act, the Fourth Circuit’s judgment
must be vacated. Summary judgment is appropriate when
there is “no genuine dispute as to any material fact.” Fed. Rule Civ.
Proc. 56(a). The record here shows that Young created a genuine
dispute as to whether UPS provided more favorable treatment to at
least some employees whose situation cannot reasonably be distinguished
from hers. It is left to the Fourth Circuit to determine on
remand whether Young also created a genuine issue of material fact
as to whether UPS’ reasons for having treated Young less favorably
than these other nonpregnant employees were pretextual. Pp. 23–24.
707 F. 3d 437, vacated and remanded.
Following is an extract from the Court's Opinion:
We note that statutory changes made after the time of
Young’s pregnancy may limit the future significance of our
interpretation of the Act. In 2008, Congress expanded the
definition of “disability” under the ADA to make clear that
“physical or mental impairment[s] that substantially
limi[t]” an individual’s ability to lift, stand, or bend are
ADA-covered disabilities. ADA Amendments Act of 2008,
122 Stat. 3555, codified at 42 U. S. C. §§12102(1)–(2). As
interpreted by the EEOC, the new statutory definition
requires employers to accommodate employees whose
temporary lifting restrictions originate off the job. See 29
CFR pt. 1630, App., §1630.2(j)(1)(ix). We express no view
on these statutory and regulatory changes.
Page 10 of the Opinion
Under this interpretation of the Act, the judgment of the
Fourth Circuit must be vacated. A party is entitled to
summary judgment if there is “no genuine dispute as to
any material fact and the movant is entitled to judgment
as a matter of law.” Fed. Rule Civ. Proc. 56(a). We have
already outlined the evidence Young introduced. See Part
I–C, supra. Viewing the record in the light most favorable
to Young, there is a genuine dispute as to whether UPS
provided more favorable treatment to at least some employees
whose situation cannot reasonably be distinguished
from Young’s. In other words, Young created a
genuine dispute of material fact as to the fourth prong of
the McDonnell Douglas analysis.
Young also introduced evidence that UPS had three
separate accommodation policies (on-the-job, ADA, DOT).
Taken together, Young argued, these policies significantly
burdened pregnant women. See App. 504 (shop steward’s
testimony that “the only light duty requested [due to
physical] restrictions that became an issue” at UPS “were
with women who were pregnant”). The Fourth Circuit did
not consider the combined effects of these policies, nor did
it consider the strength of UPS’ justifications for each
when combined. That is, why, when the employer accommodated
so many, could it not accommodate pregnant
women as well?
In today's BrokeAndBroker.com Blog, we have what I often refer to as a "yes, but" case. I'm sure you have encountered such ambivalence with many matters in your life. You get it why something was wrong. You may even agree with the punishment. On the other hand, your mind seems to prod you with "however" and "but," and you're left uneasy. Consider t... Read On