An irreverent Wall Street Blog
by Bill Singer
Join BrokeAndBroker blog on Facebook  Follow the BrokeAndBroker blog on Twitter  Connect with BrokeAndBroker on LinkedIn  Join Bill Singer on Google+  Subscribe to RSS Feed

Written: March 27, 2015

In today's 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 customers.

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.

In-House Sanctions

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 Sanctions

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 will?  

Here is a perfect example of how a false reliance on the passage of time can set you up for a very, very nasty surprise.

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.

READ: for a detailed analysis of the FINRA Borrowing Rule.


Written: March 26, 2015

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 signs.

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, 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). 

Address Changed

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 addresses.

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 . . .

ACH Ache

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 dates.

OX Vox

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.

Goin' Large

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 detailing:

  • who was responsible for performing ACH activity reviews;
  • how the reviews were to be performed; or
  • what to do with any findings.
The Eyes Of Texas

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: 

  • the Illinois 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,
  • there were multiple failed attempts to reset the PIN from the Texas IP address,

Moose And Squirrel

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 Follow-Up

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 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?


SUPERVISOR: I don't smell nothing. You're just imagining things.

FINRA Sanctions

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.

Bill Singer's Comment

Compliments to FINRA on an excellent AWC replete with a strong presentation of the underlying facts and some useful guidance for better compliance practices. 


Written: March 25, 2015

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 “persons.” 

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?

Page 23 of the Opinion

Topics: Young  UPS  ADA  Disparate Treatment  Pregnancy    

Email Bill Singer Connect with Bill Singer on Facebook Follow Bill Singer on Twitter Link up with Bill Singer on LinkedIn Join Bill Singer on Google+