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FINRA CEO Ketchum's Dear Jon (Corzine) Moment
Written: November 24, 2011

I recently broke the story about the Financial Industry Regulatory Authority’s (“FINRA’s”) grant of two examination waivers to Jon Corzine, who is now at the center of a regulatory storm concerning his former firm MF Global Inc.“Did Someone At FINRA Do Corzine A Favor And Waive His Registration Requirements?” (“Street Sweeper” November 4, 2011). 

Registered Per Waiver

Some press coverage of my scoop about Corzine’s FINRA examinations waiver mistakenly suggested that Corzine was participating in the securities industry without a license(s). To the contrary, as a result of FINRA’s double waiver, Corzine was clearly registered.  So, let’s put that misunderstanding to bed.

Foolish Consistency

I have long argued that the qualifying exams and the continuing education protocol of Wall Street have little, if anything, to do with qualifying most registered representatives to sell financial products and services.  The whole examination/registration scheme is little more than a convenient excuse to generate revenues through the collection of exam fees. 

I never suggested that Corzine was unqualified to run MF Global because he had not taken the two disputed exams.  His industry background and attendant experience made him a perfect candidate for a waiver — particularly for what I view as relatively worthless exams.  It’s hard to imagine how a lifetime in the financial industry (coupled with public service that likely required Corzine to familiarize himself with financial services and products) would not better qualify an individual to understand his regulatory and professional obligations in contradistinction to the mere passing of an examination decades earlier and a fairly perfunctory biennial continuing education refresher.

Sadly, FINRA foolishly maintains a two-year registration window that begins to close when a registered person leaves an employing FINRA firm — be that voluntarily or discharged. This policy is absurd and cultivates inappropriate conflicts that inhibit a registered person’s independence and ultimately harms the investing public.

SIDE BAR: As a lawyer, once I passed the Bar exam (both a multi-state and state of admittance portions), my license to practice law never begins to expire if I leave a law firm or an in-house position.  As a lawyer, I am required to personally obtain admission in each jurisdiction where I intend to practice law, and to pay out of my own pocket for the cost of taking biennial legal continuing education credits, which are provided by independent third parties and not contracted for through any employer.  Do I feel that most legal continuing education courses are worthwhile or even remotely fulfill their intended purpose?  Absolutely not – but the law is the law and I comply. 

FINRA fails to see that its two-year policy and employer-centric registration process raises ethical and professional conflicts by making registered persons overly dependent upon the good-will and support of their employer member firm.

By vesting the sponsorship to take an exam solely with an employer, by solely arming employers with the  paperwork required to initiate and terminate the registrations of Wall Street employees,  by putting a two-year timer on the life of a registration, and by rejecting a system of independent continuing education divorced from an employer – FINRA forges stronger links that bind employee registered persons t0 their employer member firms and have chilling effects upon their independence and may deter whistleblowing. 

FINRA’s goal should be to instill maximum independence on the registered persons part from an employer, but all these foolish registration policies undermine that goal.  Until such time as men and women can directly apply to FINRA to take qualifying examinations and to obtain registered status independent of employment with a FINRA member firm; and until such time as those individuals can enroll in continuing education courses of their own choosing, divorced from their employer — we will only perpetuate the subservient status of financial professionals to their employers instead of building stronger fiduciary bonds between such professionals and their clients.

Jon and Bernie

On November 14, 2011, FINRA’s CEO Ric Ketchum and I were both keynote speakers at the National Association of Independent Broker Dealer’s (“NAIBD’s”) Fall Symposium in New York City.  When pressed by reporters at the NAIBD symposium to respond to my allegations about Corzine’s waivers, Ketchum was quoted as refusing to apologize. 

Ketchum should have apologized.  However, he should not have apologized for his organization’s speedy grant to Corzine of  two waivers but, rather, for the fact that such requests are not routinely granted to lesser luminaries with the same speed and confidence.  The inequity of the system isn’t in the swiftness of the favors  bestowed upon the powerful but about the beleaguered and grudging denial of similar favors to everyone else.  Yeah, I know, Ketchum still won’t apologize. 

SIDE BAR: What I would like someone in the financial press to do is confront Ketchum with his organization’s denials of waivers in Guzzone and Stegawskiand then see if FINRA’s CEO can fairly explain why the two latter applicants were denied waivers.

Inadvertently, Ketchum made my case when he replied to the press that:

“With respect to Jon, we went through exactly the same analysis we would do with respect to any experienced person who had substantial supervisory responsibility and then had gone into public service in the intermediate time,” Mr. Ketchum said today.

“Finra’s Ketchum ‘not apologetic’ about waivers or Corzine’s free pass” (Investment News, Bruce Kelly, November 14, 2011)

Ah,yes with respect to Jon . . . Note that it wasn’t in respect to Mr. Corzine or former Senator Corzine or former Governor Corzine – no, it was just plain old Jon.  How wonderful it must be to be on a first-name basis with one of the most powerful regulators on Wall Street. 

Which sort of reminds me of former Securities and Exchange Commission (“SEC”) Chair Arthur Levitt’s comments in December 2008 when the Madoff Ponzi story first broke. “Ex-SEC Boss: Not Me” (New York Post, Mark DeCambre and Kaja Whitehouse, December 16, 2008).

 ”At this point, I don’t see any evidence that the SEC dropped the ball,” Levitt, who’s now an adviser to private-equity shop Carlyle Group, told The Post.

The 78-year-old Levitt also denied allegations that he had a chummy relationship with Madoff, who last week was arrested on charges of having masterminded a $50 billion Ponzi scheme that has touched everything from hedge funds to charities to European banks

Some have suggested that Levitt and Madoff were close enough during the eight years that Levitt was SEC chairman that it might have skewed his oversight of the company. Additionally, Levitt said he’s never been ,an investor in Madoff’s advisory business.

“We were not socially friendly,” Levitt said. “I knew Bernie the way I know [former Citigroup CEO] Sandy Weill or [ex-Merrill Lynch chairman Dan] Tully. He received no special breaks from the commission.”

To Levitt’s credit he has since been quoted as acknowledging that, in retrospect,  he may have been too quick to defend the SEC’s handling of the Madoff affair — also, he was not an industry regulator at the time of his comments. Still, when the former head of the SEC refers to “Bernie” and the current head of FINRA refers to “Jon,” it only reminds us that not all folks are necessarily treated equal on Wall Street.    

In this age of one-name-only rock stars and Wall Street icons, regulators must be sensitive to the fact that it’s not whether you do a favor for Jon but whether all the folks who you either know only by their last names (or not at all) have the same doors held open for them and receive the same gracious greeting — and how about you also toss in validated parking?

For another example of Ketchum’s history of declining to apologize, read “Richard Ketchum and FINRA: Time to Answer for His Past? (, February 19, 2009).


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