How Long Has This Been Going On? A Case of Delayed FINRA Regulation

September 26, 2017

How long is too long? That's a very fair question to ask of any Wall Street regulator when it comes to the amount of time that elapses between when they are on notice of misconduct and until such time as they either settle their case or file charges. In a recent FINRA regulatory settlement, we are left with troubling questions about why Wall Street's self-regulator apparently sat on its butt for some four years after a member firm had fired a registered rep for several instances of regulatory and compliance violations.

Case In Point

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, Sharon Melinda Kwan submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Sharon Melinda Kwan, Respondent (AWC 2013038528501, September 19, 2017).

The AWC asserts that Kwan was first registered in 1995, and that by April 2009, she was associated with FINRA member firm National Planning Corporation.

Getting Real (Estate)

The AWC asserts that during the relevant period between April 2009 and April 2013, Kwan had participated in real estate activities with two firm customers (who were also personal friends) involving two residential properties. The AWC asserts that Kwan did not disclose her real estate activities to NPC until April 2013; and, further, that she provided inaccurate annual firm compliance attestations regarding her outside business activities ("OBA") between 2009 and 2012.

FINRA deemed Kwan's involvement with the cited real estate activities to constitute OBA violations of NASD Rule 3030 and FINRA Rule 2010 between April 2009 and December 14, 2010; and FINRA Rules 3270 and 2010 for her involvement between December 15, 2010 and April 2013.

Joint Accounts

The AWC asserts that during the relevant period between April 2009 and April 2013, Kwan opened and maintained two joint bank accounts with a firm customer in June 2009 in furtherance of their real estate activities. The AWC further alleges that between June 2009 and February 2013, Kwan's customer deposited almost $1.4 million into the two accounts.

During the period when Kwan had opened and maintained the accounts, the AWC asserts that NPC's written supervisory procedures prohibited "customer funds from being deposited into any account owned by or under the control of a registered person." In contravention of her firm's policies, Kwan allegedly failed to disclose the joint accounts and NPC did not approve them. Moreover, the AWC asserts that between 2009 and 2012, Kwan provided "inaccurate annual firm compliance attestations regarding her joint bank accounts. . ."

FINRA deemed Kwan's opening and maintaining the cited joint bank accounts without the requisite disclosure or approval, and her inaccurate attestations to constitute violations of FINRA Rule 2010.


Online FINRA BrokerCheck records as of September 26, 2017, disclose under the heading "Employment Separation After Allegations" that NPC "discharged" Kwan on September 25, 2013, based upon allegations that:



In accordance with the terms of the AWC, FINRA imposed upon Kwan a $15,000 fine and a four-month suspension from associating with any FINRA member in any capacity.

Bill Singer's Comment

Lost in the presentation of facts and sanctions in this case is the passage of time. The underlying events cited by FINRA took place between 2009 and 2012. That's between five to eight years ago. Okay, fine, FINRA is entitled to say that it was only first put on notice of Kwan's conduct in 2013. We'll give the self-regulator that much. Even so, NPC fired Kwan on September 25, 2013. We just celebrated the fourth anniversary of her termination. If you read NPC's BrokerCheck termination disclosure, it's clear that the employer fired its employee failing for failing to disclose a bank account shared with a client. So, you tell me, what the hell took nearly four years for FINRA to investigate and settle? 

What value is there in imposing a lousy $15,000 fine and a four-month suspension four years after a registered rep was fired for misconduct that took place five to eight years prior? No . . . I am NOT suggesting that Kwan didn't violate any rules, be those regulatory or in-house compliance ones. No . . . I am NOT arguing that she avoid any fine or suspension for her apparent misconduct. I am simply asking . . . making the point, as it were . . . that FINRA is failing as a regulator when it fails to timely police the industry and timely protect the investing public. 

In cases where a rep takes extensive steps to hide misconduct or where a member firm's disclosures are obtuse, I fully understand that a regulator may be prevented from detecting misconduct and imposing sanctions. But in FINRA's regulatory settlement with Kwan, all the facts at issue were publicly disclosed no later than September 25, 2013, in NPC's regulatory filings. Consequently, the imposition of a $15,000 fine years after the violations were known comes off as nothing more than a revenue-enhancing scheme. As to the four-month suspension, I mean, really, what's the point of that after so much time has elapsed? Look at it this way, 12 four-month periods have already come and gone since NPC fired Kwan in September 2013. 

The smoke alarms went off. The security guard simply figured that the alarm was ringing because the battery was dying. He didn't do anything until he saw the flames. At that point, he ran like hell and stood outside watching the building burn down. What's the point of having alarms if no one timely responds to them? Is FINRA pursuing effective regulation or is it all nothing more than a scheme to generate fines and give the mere appearance of oversight? How does that lyric go?

Well, your friends with their fancy persuasion
Don't admit that it's part of a scheme
But I can't help but have my suspicion
'Cause I ain't quite as dumb as I seem