In preparing to update my monthly FINRA Cases of Note for http://RRBDLaw.com, I just came across the case of David Francis Brochu (Principal) and Jill Schlesinger (Principal) AWC/2006005242501/March 2009. Letters of Acceptance, Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions and to the entry of findings.
Let me know if you are as annoyed with this outcome as I am.
Here's What FINRA Says Happened
Brochu and Schlesinger sold Class B units pursuant to a private placement memorandum (PPM) containing inaccurate financial projections. Brochu and Schlesinger worked on the PPM, and Brochu supervised registered representatives who worked on the memorandum's financial projections. FINRA states, and this is verbatim:
Brochu discovered inaccuracies in the financial projections contained in the memorandum and reported them to firm managers, but incorrectly determined that the inaccuracies were not material and did not disclose them to customers who had purchased the securities. The findings also included that Schlesinger accepted the determination that the inaccuracies were not material and should not be disclosed. FINRA found that Brochu and Schlesinger continued to use the inaccurate private placement memorandum to sell additional units.
Moreover, acting through Brochu, a member firm failed to establish, maintain and enforce a reasonably designed supervisory system and written procedures regarding its registered representatives' private securities transactions.
Here's what I get out of FINRA's reported facts. Brochu actually read the PPM. Bravo! Too few registered persons bother to perform this task today and the effort should be applauded. More to Brochu's credit, he didn't just thumb through the memo but apparently took out a pen and paper and checked out some things. Kudos again. At some point, Brochu must have scratched his head and said, gee, hmm, dunno, this doesn't seem right--it's not like anything major but it's still not right. We've all been there and done that. Of course, next is the big decision: Do you get up from your chair and pester some boss with your revelation--some boss who generally doesn't like such interruptions and probably isn't going to be thrilled by your discovery. Okay, even with all that urging him to keep his mouth shut, Brochu brings the mistake on the PPM to senior management. If ever a regulator should want to encourage and reward behavior, this would be a perfect example.
Despite taking steps to do the right thing, Brochu doesn't appear to have gotten the memo -- no, not the PPM but the one from management telling him that he was correct and that everyone should shut down sales of the private placement immediately. My guess is such a head's up was never sent by management to Brochu or anyone at the firm. My guess is that Brochu likely didn't hear back from anyone in management and, partially in consideration of that silence, probably figured that he has uncovered a minor glitch. Do I know this for certain? No. Why not? Well, for one thing, FINRA doesn't tell us any of that; and for another thing, because FINRA doesn't tell us. FINRA doesn't set forth the precise nature of the inaccuracy, and doesn't inform us what, if anything, management did with Brochu's findings. Okay, I'll make that a bit clearer: I made it up because FINRA thought such facts were apparently immaterial to our understanding of this case. Maybe, in retrospect, the regulator made a mistake in judgment and should have told us more. You know, sort of like what I think Brochu did.
Okay, so then what does FINRA do to Brochu and Schlesinger:
Here's What FINRA Does to Brochu and Schlesinger
David Francis Brochu (Principal): Fined $20,000; Suspended 15 business days in all capacities
Jill Schlesinger (Principal): Censured; Fined $10,000 Bill Singer's
Here's My Rant
Brochu is fined a whopping $20,000 and suspended for half a month because he found a mistake, told his firm, and mistakenly assumed that the goof was immaterial. C'mon -- since none of this appeared to be intentional, why the hell did FINRA load up on this guy? And don't even begin to get me started as to why Schlesinger got fined $10,000.
Bottom line: Why wouldn't a simple cautionary letter have been just as meaningful as the dollars and downtime in this specific case, with these specific facts. An unintentional mistake is not going to be prevented by such a fine or suspension. This just strikes me as an excuse to ring the cash register and act like a tough guy.
STREET'S LEADING ONLINE COMMUNITY