Blog by Bill Singer WEEK IN REVIEW

October 22, 2016

It's a rare moment but Blog publisher Bill Singer is left speechless. As is sadly the case with most lawyers, Bill is rarely at a loss for words and tends to charge a princely sum for each one he utters on behalf of a client of his law practice. As such, enjoy the silence while it lasts. As to what has stunned Bill into silence, that is the topic of today's blog. Submitted for your consideration is a FINRA Arbitration between a public customer and industry parties. The dispute is somewhat complex and a fascinating issue as to a non-lawyer's role in representing the customer arises. On top of that, the sole FINRA Arbitrator who heard the case and drafted the Decision performed at such a high level that, well, like we said, our publisher is at a loss for words. READ

Performing feats of magic and mind-reading on our main stage is the Securities and Exchange Commission's ("SEC's") Division of Enforcement. Having filed a case alleging that several respondents had failed to conduct audits in accordance with standards promulgated by the Public Company Accounting Oversight Board ("PCAOB"), Enforcement filed a motion to exclude certain anticipated testimony. Ah yes, that old bugaboo of possible, maybe, likely, perhaps, anticipated testimony. Having dusted off the SEC's ever-reliable crystal ball and peered into the future, Enforcement has also divined that the anticipated testimony will constitute nothing more than an improper defense. How nice that our federal regulator has the psychic ability to read minds and the power to alter the future! READ

Today's Blog is a morsel for those who enjoy the occasional bite of some wonky bit of Wall Street regulatory analysis -- it's an acquired taste.  My name is Bill and I will be your server. Would you like regular or bottled water? The Chef's Special is a FINRA regulatory settlement, slightly baked, featuring an unfair ACAT charge and a side of not-so-prompt puree. That's $250. READ

With many FINRA arbitrations involving a member firm's collection efforts against former employees for balances on promissory notes, there is a sense of confidence that tends to imbue the claimant employer's initiation of litigation. Going by anecdotal evidence, FINRA member firms have a superb track record with such cases. Of course only those member firms get to vote on anything at FINRA, which is, after all, the organization providing the arbitration forum. To be fair, however, there are many dead-beats and dishonorable former employees who are hell bent on simply delaying the inevitable (and just) order to repay the outstanding loan balances. 

On the other hand, if you read enough FINRA Arbitration Decisions involving promissory note collection efforts, you note a disquieting line of cases where it appears that a former employer engaged in bait-and-switch when it lured top producers to its offices only to sandbag those new hires with policies and procedures that were never discussed during the interviews or seemed oddly tailored to frustrate the recent hires. 

You wouldn't think that anyone would want to run a business that way. Then you realize that the way some executives run some Wall Street brokerage firms is the reason why many of those firms didn't survive the Great Recession and why this country almost went down as collateral damage. 

In today's Blog, we consider the cage match between former employer Merrill Lynch, Pierce, Fenner & Smith, Inc. and two former employees. The battle starts as a fairly mundane dispute over nearly $1.6 million in alleged damages attendant to the employees' promissory notes. The match ends with the major brokerage firm battered, bleeding, and defeated.  READ

I have long criticized the Financial Industry Regulatory Authority ("FINRA") as being illegitimate because it disenfranchises hundreds of thousands of registered representatives from voting on its rule proposals or for its elective offices (said voting franchise having been arrogated solely to the organization's member firms). A classic example of the corrosive impact of this disenfranchisement is FINRA's indifference to arbitration decisions in which member firms are found to have improperly used the Uniform Termination Notice for Securities Industry Registration ("Form U5") as a mechanism for retaliation against a former employee or as a device to wrongly undermine a former employee's credibility. 

Consumer advocates rightly protest an overly accommodating expungement process because of fears that valuable customer complaint histories are wiped out. Such advocates also point a knowing finger at customer settlements that include an expungement quid-pro-quo. Although such bargained-for-expungements are now a regulatory violation, the desired outcome can still be reached through a variety of winks and nods. Unequivocally, consumer advocates raise legitimate expungement concerns that must be addressed within any regimen that proposes to delete such records.  On the other hand, and without minimizing the fears of consumer advocates, industry member firms have long misused regulatory filings as a way to retaliate against former employees; to preemptively discredit an individual who may plan on suing the firm or engage in whistelblowing; and, finally, as a cynical tool to impede a stockbroker's ability to timely re-register and to retain his or her customers.

In the absence of FINRA investigating member-firm misconduct involving the Form U5, registered representatives are forced to incur the costs of hiring lawyers to pursue these U5 cases in expensive and time-consuming FINRA arbitration; and, if the individuals  prevail, they must then incur further costs and delays when such matter require confirmation by a court. In today's Blog, we examine a recent iteration of this issue. READ

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I don't open attached files from unknown senders, so make sure that your pitch is in the text portion of the email. I welcome all views and perspectives, even when they erroneously conflict mine. Please do not send me puff or marketing pieces. I am looking for serious regulatory/legal/compliance commentary on important cases and developing issues. Also, I am seeking thoughtful observations about investing and market trends. Customer advocates and unrepentant industry apologists are all welcome. 

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If you can demonstrate a responsive audience for your musings, I will even consider a permanent column for you on my site. If you've got the writer's itch, scratch it at the Blog. Send submissions to: