by Bill Singer
One Errant E-Mail Gets Stockbroker Fined And Suspended
August 22, 2012
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, Amir E. Permeh submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Amir E. Permeh, Respondent (AWC 2011028277301, August 20, 2012).
Permeh first became registered as a General Securities Representative in 2010 and from June 7, 2010 to September I, 2011, he was registered in that capacity with Morgan Stanley Smith Barney. The AWC asserts that he had no prior FINRA disciplinary history.
One EMail And A Whole Lot Of Trouble
Bill Singer
On June 6, 2011, Permeh allegedly sent an email to over 1,000 potential customers regarding an investment opportunity in the common stock shares of a closed-end management fund. Among the statements in that message were:
"[i]f you purchase these share [sic] during this new issue, there will be ‘NO COMMISSIONS"
"[t]he shares are $20 each and the return will be around 6.5% annualized"
Down The Slippery Sales Lit Slope
Rather than merely the free-spirited ramblings of a motivated stockbroker, FINRA characterizes the subject email as sales literature under NASD Conduct Rule 2210: Communications with the Public, which offered the following:
NASD Conduct Rule 2210 (a)
(a) Definitions
For purposes of this Rule and any interpretation thereof, "communications with the public" consist of:
. . .
(2) "Sales Literature." Any written or electronic communication, other than an advertisement, independently prepared reprint, institutional sales material and correspondence, that is generally distributed or made generally available to customers or the public, including circulars, research reports, performance reports or summaries, form letters, telemarketing scripts, seminar texts, reprints (that are not independently prepared reprints) or excerpts of any other advertisement, sales literature or published article, and press releases concerning a member's products or services.
SIDE BAR: First thing to keep in mind: What you think is merely an inoffensive email may be far more. If your electronic communication is generally distributed to customers or the public it may fall under the ambit of "sales literature," and such communications typically require prior approval and must satisfy a whole host of regulatory proscriptions.
Principal Approval
In considering the circumstances and content of Permeh's email, the AWC alleged that it was not approved by a registered principal in violation of NASD Conduct Rule 2210(b)(1);
NASD Conduct Rule 2210(b):
(b) Approval and Recordkeeping
(1) Registered Principal Approval for Advertisements, Sales Literature and Independently Prepared Reprints
(A) A registered principal of the member must approve by signature or initial and date each advertisement, item of sales literature and independently prepared reprint before the earlier of its use or filing with NASD's AdvertisingRegulation Department ("Department").
(B) With respect to debt and equity securities that are the subject of research reports as that term is defined in Rule 472 of the New York Stock Exchange, the requirements of paragraph (A) may be met by the signature or initial of a supervisory analyst approved pursuant to Rule 344 of the New York Stock Exchange.
(C) A registered principal qualified to supervise security futures activities must approve by signature or initial and date each advertisement or item of sales literature concerning security futures.
(D) The requirements of paragraph (A) shall not apply with regard to any advertisement, item of sales literature, or independently prepared reprint if, at the time that a member intends to publish or distribute it:
(i) another member has filed it with the Department and has received a letter from the Department stating that it appears to be consistent with applicable standards; and
(ii) the member using it in reliance upon this paragraph has not materially altered it and will not use it in a manner that is inconsistent with the conditions of the Department's letter.
Triple Threat
The AWC further alleged that Permeh's email omitted any discussion of risks, and, as a consequence, failed to provide the reader with a sound basis for evaluating an investment in the referenced closed-end fund, in violation of NASD Conduct Rule 2210(d)(1)(A). Also, the email was found to contain misleading statements, in violation of NASD Conduct Rule 2210(d)(1)(B). Finally, FINRA deemed that the content included an improper price projection, in violation of NASD Conduct Rule 2210(d)(1)(D).
NASD Conduct Rule 2210(d)
(d) Content Standards
(1) Standards Applicable to All Communications with the Public
(A) All member communications with the public shall be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or type of security, industry, or service. No member may omit any material fact or qualification if the omission, in the light of the context of the material presented, would cause the communications to be misleading.
(B) No member may make any false, exaggerated, unwarranted or misleading statement or claim in any communication with the public. No member may publish, circulate or distribute any public communication that the member knows or has reason to know contains any untrue statement of a material fact or is otherwise false or misleading.
. . .
(D) Communications with the public may not predict or project performance, imply that past performance will recur or make any exaggerated or unwarranted claim, opinion or forecast. A hypothetical illustration of mathematical principles is permitted, provided that it does not predict or project the performance of an investment or investment strategy. . .
Untimely Response
Pursuant to FINRA Rule 8210, Permeh was asked in November and December 2011 to provide responses to FINRA Staff's questions regarding the e-mail, but he failed to respond until April 30, 2012, which the AWC alleged was untimely in violation of FINRA Rules 8210 and 2010.
Sanctions
In accordance with the terms of the AWC, FINRA imposed upon Permeh a $10,000 fine and a seven-month suspension from association with any FINRA member in any capacity
Bill Singer‘s Comment
One lousy email cost Permeh a $10,000 fine and a seven-month suspension - well, to be fair, he also got slapped for foot dragging with his replies to FINRA. On the other hand, let's keep in mind that the Staff's initial requests came smack dab during the Thanksgiving, Christmas, and New Year's holidays and this big regulatory to-do is over one errant email. Does any of that warrant a four month or so delay in providing answers to the regulator's questions? No - by almost any consideration Permeh's delay is excessive barring extenuating circumstances (which are not indicated in the AWC). Still - Permeh certainly got whacked. I'll leave it to you to be the judge as to whether the dollars and months are reasonable.
Amazing though, isn't it, that the full weight of FINRA comes down upon an individual stockbroker who sent out one improper email but the big Wall Street players seem to get to dance around indefinitely as FINRA and other regulators pursue (or don't) far more troubling misconduct with far less apparent zeal.
A decade of miscues with Madoff. Years of wasted time with Allen Stanford. Fumbling and bumbling as Bear Stearns, Lehman, and others vaporized before our eyes. How nice that Wall Street's regulators are all huffy when it comes to regulating the Permehs and their email. As to whether such regulation is consistent, consider these "Street Sweeper" articles:
- Goldman Sachs: Senator Levin Slams Department of Justice's Inaction Against Goldman Sachs;
- Merrill Lynch: Bounced Personal Checks Get Merrill Lynch Broker Suspended By FINRA;
- Deutsche Bank: Feds Slam Deutsche Bank But Next Day FINRA Nominates Executive To Its Board; and
- Citigroup: Judge Rakoff's Wall Street Zombies Arise In FINRA Citi Settlement.
It would be nice if Permeh was typical of how fast things move in regulation on Wall Street. From my perspective, Permeh only underscores the disparity of regulation and does not advance its purported virtues; see, for example: FINRA CEO Ketchum's Dear Jon (Corzine) Moment.
One last shot, if you will. Please read Deleted AOL Mail Lands Stockbroker In FINRA Trash Folder involving a recent FINRA case concerning emails that were deleted during an on-site FINRA examination and explain to me - please, explain to me - why the respondent in that case got a $5,000 fine and a two-month suspension but Permeh got a $10,000 fine and a six-month suspension.