An irreverent Wall Street Blog
by Bill Singer
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Written: November 21, 2014

Yeah, I know . . . I’m getting older and grouchier and if I were nominated for Curmudgeon of the Year, I would probably complain about that accolade and then refuse to attend the award ceremony. In keeping with that spirit, I’m no fan of the proliferation of forums, roundtables, conferences, break-out sessions, and all sorts of get-togethers at which government and private sector types interact. Why, you might ask?  (And if you didn’t ask, humor me, ask). Because it’s just a colossal waste of time and resources. We all know how this crap works. You recycle the same old folks with the same old connections round and round and round at these confabs.  At one year’s meeting, they speak out for the private sector. At the next year’s, they are high-minded public servants attending for the government. At the following year’s session, they often criticize the very positions that they had earlier espoused.  

In the end, we get the White Paper. That makes its way to Congress and to various agencies. It gets sliced. It gets diced. It gets eviscerated. It may or may not get proposed as some legislation, but if it does, it will likely die in committee. And in the rare event that something – anything – ever emerges from this inefficient dynamic, it often proves an indecipherable and unworkable bit of legislation that takes on an after-life as an equally corrosive rule on some agency’s books.

In that uplifting spirit, I see that there was a 2014 Securities and Exchange Commission Government-Business Forum on Small Business Capital Formation. Mind you, this is the 33rd such iteration of that forum.  READ the details in the official program 

A letter to all forum participants from the SEC’s Chief of the Office of Small Business Policy, Sebastian Gomez Abero, states, in part:

The Securities and Exchange Commission has conducted this forum annually since 1982. The event provides small businesses, their advisors, and their investors with an opportunity to share perspectives and views on a variety of topics important to them. This is an effective way for the agency and its staff to learn more about the important capital formation issues that the small business sector is facing and helps us take a practical and effective approach in our rulemaking and interpretation.

With all due respect, I think it’s pretty obvious that I don’t view these interactions as an “effective way” for the SEC and its staff to learn about anything. Frankly, it tends to smack of yet another way for influential players in the private sector to spend some quality time with influential players at the SEC, who, over time, often become influential players in the private sector and the door spins round and round, ad infinitum.  You’d sort of think and hope that those regulating the capital markets would already be aware of the “important capital formation issues” and would maintain regular communication with participants in the small business sector. Similarly, if these forums were, in fact, effective, then how is at that after 33 years of holding this particular small business forum that the SEC’s track record is anything but “practical and effective” in terms of its rulemaking and interpretation in this sector?  Oh, sure – just give ‘em one more year and it will all get better.

Finally, the more you read the itineraries of SEC Chairs, Commissioners, and Staff, the more you note the globetrotting and jet-setting nature of their jobs.  Which may explain why there are so many inexplicable delays in starting investigations, completing investigations, initiating charges, conducting hearings and trials, pursuing appeals, and deliberating on so many pending matters.  Personally, it seems to me that taxpayers are funding far too many trips and seminars for folks at the SEC who should be spending more time in their chairs, at their desks, and protecting the public and preserving the markets.  But, as I said earlier, I’m just a cranky bastard to start with. I also recently filed a complaint with the SEC's Office of Inspector General because I can't get a straight answer about how much longer it will take for a particular department to act on a matter involving a client.  The department at issue would likely have me believe that it is under-staffed, over-worked, under-budgeted, and doing the best it can. I don't buy it.

On a recent trip to Los Angeles’s “Silicon Beach,” I had the privilege of visiting a technology venture accelerator at University of Southern California’s Viterbi School of Engineering called the Start-Up Garage. The people I met, as well as their ideas, were truly exciting. I think there actually might be one or two of you here with us today.

I guess it’s worthwhile for one of the four sitting SEC Commissioners to leave Washington, D.C. and visit a college “technology venture accelerator.”  I’m not sure what the jargon actually means but, then again, we do live in an age where it’s important to make up terms to describe things that were once known by simpler descriptions but for the fact that you didn’t seem like an insider unless you used an edgier, newer bit of argot. You like that word “argot?” Hey, some folks say that I am a “thought leader” and a “disruptor.” That sounds much better than Bill Singer, that cranky, pain-in-the-ass.

I took great comfort from Commissioner Stein’s comment that:

At the same time, I also share Commissioner Aguilar and others’ concerns about the practical realities and risks when dealing with smaller issuers and less liquid (especially retail over-the-counter) markets. We have to be smart, practical, and willing to both experiment and adapt as we see issues emerge.

It’s nice that a sitting SEC commissioner recognizes the need to be “smart” and “practical” and willing to experiment and adapt.  I’m sure those were meaningful revelations to the forum’s attendees. I’m certain that those observations were deemed truly exciting by those in the private sector. Of more pith, were Commissioner Stein’s comments:

In short, I am very focused on working through the issues you’re discussing today. As part of that effort, I want to see the Commission move quickly toward finalizing three very important rules related to capital formation — crowdfunding, the new Regulation A (or “Reg A+”), and certain investor protections under Rule 506.

Moreover, as I’ve said before, we should be able to walk and chew gum at the same time: even as we work to rationalize and improve the entire system, we should move as quickly as possible to finalize the proposals that are before us. These rules arise from laws passed two and a half years ago, and Congress is looking to us to get them done.[3] Congress worked hard to make sure that the Commission had authority to establish appropriate protections around new ideas like crowdfunding, so that they could blossom into healthy, durable markets.[4] I hope we can move quickly on these and on all of our Congressionally mandated obligations. Quite frankly, I don’t think we’re very far away on some of these rules. Let’s get them done.

Yeah, okay, let’s get ‘em done!  Let’s all walk and chew gum at the same time. As to the hardcore characterization of our goals, why, they are as well-defined as one would expect from such an intersection of government and private sector types. We have to work towards rationalizing and improving the entire system. Not just part but the entire system! On top of that we must move “as quickly as possible to finalize the proposals.” Nothing like finalizing proposals, but for the fact that we never seem to be able to quite agree on drafting any proposals but so much for details. In the end, however, if we can just all get along and walk and chew gum in unison, we will pave the way for “healthy, durable markets.” Who wouldn’t want that?

In addition to Commissioner Stein, Commissioner Daniel Gallagher also weighed in with his own remarks.  As Gallagher has amply demonstrated during his relatively brief tenure, he’s not a big proponent of going along for the sake of getting along. He is a regulator with strong opinions and prejudices, as he clearly asserts here:

Moreover, there’s a long-standing need for better, more liquid markets for smaller post-IPO companies. We should consider better scaling of the periodic reporting regime for small companies, to match commonly-accepted market definitions of “microcap” and “nanocap.” Venture Exchanges or exchanges with similar scaled listing standards may help here as well. Companies barely clinging to a NASDAQ or NYSE listing could fit more comfortably at a Venture Exchange, and companies currently trading OTC may be willing to up their game if the hurdle to become exchange-traded wasn’t so insurmountable.

Finally, I wanted to touch briefly on the second panel today, regarding changes to the accredited investor definition. Frankly, I have yet to be persuaded that this is an issue that we should be taking up at this time. Dodd-Frank’s removal of the value of the primary residence for purposes of the net worth test was already a significant change to the accredited investor definition. But more fundamentally, I am baffled by continued insistence from some quarters that we need to significantly revise the accredited investor definition. Why should we spend limited Commission resources “protecting” the wealthiest 2-3% of investors in this country? This obsession with “protecting” millionaires—potentially at the cost of hindering the wildly-successful and critically-important private markets—strains logic and reason. Millionaires can fend for themselves. That additional government paternalism could also negatively impact the availability of capital for small companies is a double whammy, and rather than pressing our luck, we should be yelling “stop”—and instead spend our time focusing on actually facilitating capital formation.

Kudos to Commissioner Gallagher!  Finally, someone at the SEC recognizes that there are limited resources that must be allocated in an effective manner.  There are only so many dollars and so many men and women on staff.  Imagine, a regulator who is mindful of "logic" and "reason."  Perhaps there is hope?

In the end, Commissioner Gallagher isn't one of those government types who drinks the Kool-Aid. As even he concedes:

As I don’t want to take any more time away from what I hope will be a great discussion today, I will conclude with a final thought. This Forum has advanced some truly excellent recommendations in the past, and I’m sure will continue to do so in the future. And yet there is at least a perception that these recommendations are not given their due. So I hope that, going forward, we can commit to respond to each Forum recommendation in writing, as a way of validating that the proper attention has been paid to your voices. If the Commission cannot make that commitment, at least this Commissioner will.

As we in the private sector are always mindful, when there is a problem, someone must own it. In an age of finger pointers, it's nice to see that someone, particularly a federal regulator, is prepared to pull the emergency brake and try to get things under at least a semblance of control. Moreover, Commissioner Gallagher says that he will take responsibility and make a personal commitment. Assuming that's more than so much chatter, that is a refreshing posture.


Written: November 21, 2014

Few battles on Wall Street become more pitched than those involving disputes over a registered person's commissions, fees, or bonuses.  Typically, the stockbroker or trader feels short-changed. The numbers don't add up. You didn't give me credit for that deal. You promised to pay me more. In today's Blog, we consider claims about unpaid commissions and the calculation of deferred compensation.

Case In Point

In a Financial Industry Regulatory Authority (“FINRA”) Arbitration Statement of Claim filed in November 2013, Claimant Kelly asserted breach of contract attendant to Respondent SagePoint’s alleged failure to pay him commission compensation and Respondents purportedly improper calculation and valuation of his deferred compensation. Initially, Claimant sought $364,000 in actual/compensatory damages plus punitive damages, interest, attorneys’ fee, and costs; however, at the hearing, the compensatory damages were reduced to $178,627.92. In the Matter of the FINRA Arbitration Between Patrick Kelly, Claimant, vs. SagePoint Financial, Inc. f/k/a AIG Financial Advisors, Inc., SAI Deferred Compensation Holdings, Inc. and American International Group, Inc., Respondents – AND -- SagePoint Financial, Inc. f/k/a AIG Financial Advisors, Inc., Counter-Claimant, vs. Patrick Kelly, Counter-Respondent (FINRA Arbitration #13-03278, November 13, 2014).


Respondent SagePoint Financial, Inc., generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim asserting contractual indemnity. Specifically, 
Respondent SagePoint cited its costs in defending 
  • a previously filed civil action in Hennepin County District Court (no citation provided in the Decision) that was purportedly abandoned by Claimant Kelly; and 
  • the FINRA arbitration reported here. 
Counterclaimant SagePoint sought $95,233.92 in actual/compensatory damages.

Cuttin' 'em Loose

The FINRA Arbitration Panel declined to adjudicate any claims against Respondents SAI Deferred Compensation Holdings, Inc. and American International  Group, Inc. because those entities are not FINRA members, they did not enter into any contract to submit to arbitration, and are not subject to FINRA jurisdiction. 


The FINRA Arbitration Panel found Respondent SagePoint liable to and ordered it to pay to Claimant Kelly $17,572.51 in compensatory damages with 4% interest from January 1, 2008, until the Award is paid.

SagePoint’s Counterclaim was denied and dismissed with prejudice. 

Bill Singer's Comment

Regular BrokeAndBroker Blog readers know that I HATE these types of FINRA Arbitration Decisions, which tease us with an interesting fact pattern, make short shrift of meaningful facts, and then pronounce in conclusory fashion an Award.  

The Kelly Arbitration is a relatively rare intra-industry commission/compensation dispute that made it all the way to verdict. The bulk of these matters tend to get settled . . . quietly. Consequently, it would have been nice if this FINRA Arbitration Panel had provided us with more meat on these bones in terms of the underlying dispute and the rationale for the award. As I often gripe, we needed more content and context.

For starters, the Decision offers us virtually no background beyond a useless regurgitation of the allegations by Claimant Kelly that he had not been paid commissions and that his deferred comp was not properly calculated. Similarly, the Decision offers no insight about Counterclaimant SagePoint's assertion that it had incurred unnecessary costs in some prior civil litigation.  I mean, seriously, couldn't these arbitrators offered us some further explanations?

Finally, just what the hell are we supposed to make of a verdict that awarded Claimant Kelly about $17,500 in damages as against his last demand for nearly ten times that amount? How was that dollar amount calculated?  What was the Panel's rationale for awarding a relative pittance versus what was demanded?

In the end, we are left with far too many unanswered questions.  Certainly, this can't be the best that FINRA Dispute Resolution can offer to the industry and the public concerning the adjudication of disputes.


Written: November 20, 2014

First: Study. 
Second: Study more. 
Third: Take the test. 
Fourth: Pass the test.  

Four simple steps you need to follow in order to pass Wall Street's various registration examinations. But what would life be without those characters who prefer a short-cut?

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, Suzanne Ellen Meserve submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Suzanne Ellen Meserve, Respondent (AWC  #2014041741801, November 13, 2014).

If At first . . . at second . . . at third

As part of her attempted entry in the brokerage industry, Respondent Meserve filed her initial Uniform Application for Securities Industry Registration or Transfer (“Form U4”) on July 25, 2013, through FINRA member firm UBS Financial Services, Inc. Respondent then pulled off a dubious trifecta by failing her Series 7 examination on October 24, 2013, December 30, 2013, and April 30, 2014. 

Getting Centered

Before each examination at a Prometric Test Center, Meserve was purportedly provided with a copy of the FINRA Test Center Rules of Conduct (which she certified as having read, understood, and agreed to). Among various admonitions in those rules, were two that warned test takers that they could not: 
  • receive or attempt to receive any form of assistance during the exam; and 
  • access a locker that had been provided during any breaks. 
SIDE BAR: According to an online FINRA document, the self-regulatory organization imposes the following test center regulations:

Prohibition Against Assistance, the Use of Study Materials or Misconduct
The purpose of this notice is to make sure you understand and acknowledge the FINRA Rules of Conduct. You are required to agree to the following rules before starting your examination or Continuing Education (CE) session.
Test center personnel are NOT authorized to grant exceptions to any of these rules.
Personal Items
For the duration of my examination or CE session, I will not use or attempt to use any personal items, such as:
Mobile Devices or Cameras
Cellular Phones
Handheld Computers
Any Communication or Recording Devices
Personal Notes
Study Materials

I will store all personal items in the locker provided by the test vendor prior to entering the test room. 
I acknowledge that if I bring a personal item into the test room, I will cooperate with the Test Center Staff in the inspection of the item(s). I further acknowledge that these items may not be returned to me.
I will not engage in any conduct that is disruptive, disrespectful or threatening. Further, I will not engage in any conduct that creates a disturbance or interferes with Test Center operations. 
Unscheduled Breaks
I understand and acknowledge that unscheduled breaks are permitted only for restroom use. If I take an unscheduled break during my session, I will not access my locker or leave the building, and I will not receive additional time to complete the examination or CE session. Repeated or lengthy departures from the test room for unscheduled breaks will be reported to FINRA for investigation. 
I will not receive or attempt to receive assistance related to examination or CE content from any person for the duration of my session. 
I will not provide or attempt to provide assistance related to examination or CE content to any other person for the duration of my session.
I acknowledge that examination and CE materials are the property of FINRA and/or the organization(s) that developed the materials. I will maintain the confidentiality of these materials, including the questions and my answers to the questions. 
I will not remove or attempt to remove, whether through physical means, a recording device or otherwise, any written, printed, electronic or recorded materials from the Test Center ("Test Center Material") other than the score report provided by the Test Center Staff. 
I will not electronically capture or attempt to capture any examination or CE content from my computer screen. 
I will not reproduce or attempt to reproduce examination or CE materials through memorization or any other means. This prohibition includes but is not limited to discussing, posting or disclosing such content via email, social media or other Internet presence, or otherwise. I understand that this disclosure prohibition applies before, during and after my session. 
I will not disclose or discuss with anyone, including training instructors, information about the items or answers in my examination or CE session.
Attestation/Candidate Agreement
I am the person I represent to be for this session.  
If I do not follow these rules or I am suspected of cheating or tampering with the score report, the incident will be reported to FINRA and will subject me to possible disciplinary action by FINRA, another self-regulatory organization, the Securities and Exchange Commission, or any other regulator (government or private) that has jurisdiction over my activities and could result in my being barred from employment/association within the financial services industry and forfeiture of my session results.
I understand I will be monitored at all times during the session to ensure that strict adherence to security measures is maintained by all persons. Monitoring may include audio and video recording.

From Locker To Restroom

During her April 30,2014, Series 7 registration examination, the AWC alleges that Respondent Meserve took an unscheduled break during the exam, at which time she purportedly went to her locker and removed her handwritten notes. Armed with those notes, the AWC alleges that Meserve left the confines of the testing center and went to a restroom, where a proctor observed her reviewing the notes. The proctor confiscated the notes. 

To The Curb

The AWC asserts that on May 9,2014, UBS filed Uniform Termination Notice of Securities Industry Registration (“Form U5”) at Respondent Meserve was “Discharged” on May 1, 2014 because she “Did not complete licensing requirement."

FINRA asserted that by obtaining access to unauthorized written materials containing information relevant to the content of the examination, Respondent Meserve violated FINRA Rule 2010. In accordance with the terms of the AWC, FINRA imposed upon Respondent Meserve a Bar from association with any FINRA member in any capacity

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