Between 1987 and January 1995, Gregory L. Bowen was associated with four broker-dealers, including a stint with Government Securities Corporation ("GSC") from July 1987 to December 8, 1997, at which date the firm's Uniform Request for Broker-Dealer Withdrawal ("Form BDW") was deemed effective. Since 1999, Bowen has worked for various mortgage firms as a mortgage broker; and he currently conducts a mortgage origination business.
On October 27, 1999, the Securities and Exchange Commission (the "SEC") issued an Order Instituting Administrative Proceedings that resulted in Bowen's Bar from association with any broker or dealer, with the right to reapply for association after two years. Bowen was further ordered to pay a $33,664 disgorgement, $31,258 in interest, and a $5,000 civil penalty. ("1999 Bar Order").
The SEC had alleged that while employed with GSC from March 1989 through March 1994, Bowen willfully violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, by misrepresenting and omitting material information in his communications with clients in order to induce them to purchase high-risk collateralized mortgage obligations ("CMOs"). SeeExchange Act Release No. 42063 (Oct. 27, 1999). As a result of the 1999 Bar Order, Bowen was deemed statutorily disqualified under Section 3(a)(39)(B) of the Exchange Act.
SIDE BAR: Section 3(a)(39)(B) of the Exchange Act:
(39) A person is subject to a "statutory disqualification" with respect to membership or participation in, or association with a member of, a self-regulatory organization, if such person-
. . .
(B) is subject to-
(i) an order of the Commission, other appropriate regulatory agency, or foreign financial regulatory authority-
(I) denying, suspending for a period not exceeding 12 months, or revoking his registration as a broker, dealer, municipal securities dealer, government securities broker, government securities dealer, security-based swap dealer, or major security-based swap participant or limiting his activities as a foreign person performing a function substantially equivalent to any of the above; or
(II) barring or suspending for a period not exceeding 12 months his being associated with a broker, dealer, municipal securities dealer, government securities broker, government securities dealer, security-based swap dealer, major security-based swap participant, or foreign person performing a function substantially equivalent to any of the above;
(ii) an order of the Commodity Futures Trading Commission denying, suspending, or revoking his registration under the Commodity Exchange Act (7 U.S.C. 1 et seq.); or
(iii) an order by a foreign financial regulatory authority denying, suspending, or revoking the person's authority to engage in transactions in contracts of sale of a commodity for future delivery or other instruments traded on or subject to the rules of a contract market, board of trade, or foreign equivalent thereof; . . .
In response to and following its consideration of the submission of a Membership Continuance Application (the "MC-400″) concerning Bowen from First Liberties Financial, the Financial Industry Regulatory Authority ("FINRA") filed a notice containing an application ("Application") with the SEC seeking consent for Bowen to associate with First Liberties as a general securities representative. In the Application, FINRA and First Liberties represented that non-registered person Bowen would be employed as a general securities representative on the firm's institutional sales desk and compensated on a commission basis.
SIDE BAR: First Liberties, a FINRA member firm since 1983, services retail and institutional customers through its New York City home office and seven branches, where it employs 34 registered representatives and 13 registered principals.
In submitting its request to FINRA for permission to register Bowen, First Liberties proposed that:
In the Application, FINRA sought an order declaring that, notwithstanding Bowen's statutory disqualification, the SEC would not:
In seeking to ensure the SEC that First Liberties was prepared to meaningfully supervise Bowen's proposed activities, the Application represented, among other things, that:
The SEC Division of Trading and Markets (the "Division") reviewed theApplication and the record before FINRA, and the Division concluded that it was appropriate for the SEC to approve the Application, which was so approved. In the Matter of the Application of the Financial Industry Regulatory Authority, Inc. For An Order Granting the Approval of Gregory L. Bowen As A General Securities Representative With First Liberties Financial (ORDER APPROVING APPLICATION FOR RELIEF FROM A STATUTORY DISQUALIFICATION, Securities Exchange Act of 1934 Rel. #68266, November 19, 2012).
Wall Street's Scarlet Letters: the SD of statutory disqualification, also known as the regulatory sanction that keeps on giving. Long after certain underlying violations or administrative actions seems a dim shadow of ancient history, former industry participants find their re-entry to the biz blocked by the activation of 3(a)(39). Although that barred door of re-entry sometimes seems permanently closed, in fact, there are ways to knock and gain entrance.
During my three decades on the Street, if I haven't seen it all when it comes to SD, I've sure as hell seen a lot. As Bowen demonstrates, there are many factors that often come into play during applications for registration for disqualified individuals. First, there's the nature of the underlying disqualifying event and whether the subject individual has shown remorse and avoided recurrences of similar misconduct. Second is the consideration of how long ago the misconduct occurred. Then there is the nature of the SD's proposed business. Also under consideration is the pedigree of the sponsoring brokerage firm and the proposed supervisors. Finally, the regulators scrutinize how the whole shebang is likely to come together: where will the SD be located, how will oversight occur, who will be the supervisor, are there assurances of adequate time and assets set aside to supervise, and what restrictions will be in place from day one?
Is there life after the death of being deemed an SD? - according to this case and others, "Yes." On the other hand, the costs and perceived reputational risks associated with standing up on behalf of an SD are significant, and many broker-dealers are unwilling to incur that downside for anyone, no matter your explanations or the circumstances. Merrill Lynch, Morgan Stanely, UBS, JP Morgan, Goldman Sachs, Wells Fargo . . . good luck trying to get them to sponsor you on an MC-400. Impossible? No. Unlikely? Quite often. As you go to regionals and independents, you may find more flexibility; however, you may also be asked to cover the regulatory and legal costs of the MC-400 and subsequent steps. And if your path remains blocked after making the rounds of wirehouses, regionals, and indies, should you then dive into the cesspool and give it a shot with some pennystock shop or boiler room? Tell you what, look at the 18 undertakings set forth above and tell me how likely a banged up stockbroker's chances are of getting an MC-400 through if the sponsor BD has an extensive industry rap sheet and the proposed supervisor is walking wounded.