by Bill Singer WEEK IN REVIEW

August 8, 2015

UPDATE: Former Stockbroker Sues FINRA Over Online Disclosure Of 18 Year Old Settlement

This article updates a February 2015 Blog. This UPDATE references a Petition for Writ of Certiorari filed with the United States Supreme Court on behalf of the respondent in the FINRA AWC.

In 1997, a registered representative settled allegations of industry misconduct pertaining to 1994 acts. He took a sit-down for 30 days and paid a fine. Perhaps he didn't care all that much because in 1996, he left the biz, never to return. Fast forward a couple of decades and, lo and behold, that former respondent does care because he finds the allegations against him permanently archived online. He sues.  How did it turn out?  READ

This is an update of an October 16, 2014, Blog: "Wells Fargo Compliance Consultant Charged By SEC In Altered Inside Information Review."  This update features a Securities and Exchange Commission Administrative Law Judge's Initial Decision involving allegations that a veteran compliance person tasked with performing insider trading reviews had altered her logs and records to present the appearance of her having engaged in a more thorough analysis than was the case. In assessing the various factors in this matter, the ALJ offered this observation:

The evidence showed that Wolf, a seasoned compliance consultant who had been in the securities industry for over thirty years and held four securities licenses, was well trained and aware of the importance of keeping scrupulously accurate records for Wells Fargo, a regulated entity. Although Wolf's $61,000 salary is not indicative of a high-level employee, in practice Wolf exercised a key compliance function, having sole responsibility for conducting insider trading reviews and discretion on whether to escalate such reviews or not. Thus, Wells Fargo relied on Wolf to serve as the gatekeeper for detecting insider trading, a crucial role within the compliance department.

Page 16 of the Initial Decision

Frankly, it's not everyday that an ALJ or even any regulator seems willing to acknowledge the realpolitik of Wall Street; namely, that much of what passes for in-house compliance involves over-worked and under-paid employees subject to many layers of explicit and implied threats to their mission. What the regulatory community and industry management would have the public believe is that those engaged in compliance at member firms are high-level employees with commensurate incomes and permitted to operate with appropriate impunity. Yeah, sure.

The SEC case under consideration in today's Blog is a stunning example of what happens when a regulatory professional refuses to accept the crap that is being shoveled. The ALJ has issued a thoughtful, edgy, and ultimately, profoundly powerful Decision. No -- you may not agree with the ALJ's conclusions or ruling. That's okay. What I ask you to consider is the painstaking effort at crafting a compelling statement of facts and rationale. For anyone who is a Wall Street legal, regulatory, or compliance professional, I urge you to read this article and the linked SEC documents. READ

Morgan Stanley Hit With Punitive Damages In Customer Arbitration

After a nearly three-year battle, the public customers in a FINRA arbitration against Morgan Stanley and other respondents emerge victorious. No . . . the customers didn't get every penny that they sought but, nonetheless, the dollars add up to an impressive total. And, for good measure, the arbitrators tossed in punitive damages. Also, there is an interesting issue involving whether a proposed expert was conflict and otherwise disqualified from testifying. READ


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FINRA Bars Top Producer For Charging Commissions Instead Of Fees 

The war continues between those advocating the registered investment advisor model and those proponents of the broker-dealer model. One battleground brings into play the dynamics of charging customers a transaction-based commission versus an assets-based fee. On another battlefield, we witness volleys over whether industry professionals should be handling customer accounts according to the dictates of the Suitability Rule versus the Fiduciary Rule. In a recent FINRA regulatory settlement, we see one registered representative waive the white flag in the face of the regulator's frontal assault on his position to conduct a largely commission-only business when it seems that a fee structure would have been fairer to many of his customers. READ