Blog by Bill Singer, Esq. WEEK IN REVIEW

October 21, 2017

Absurd Unexplained Public Customer FINRA Arbitration Decision Blog's publisher Bill Singer, Esq. ain't always a popular guy. There are those who view him as an annoying gadfly, a blowhard, and an attention seeker. A lot of that comes from Wall Street interests and industry apologists because Bill isn't shy about criticizing the brokerage community and its regulators when they engage in misconduct -- yeah, you read that right, he also goes after Wall Street's cops. In fairness, Bill also criticizes public customers who fail to do due diligence or choose to believe that's what's too good to be true isn't too good to be true. 

In today's blog, Bill takes on the Financial Industry Regulatory Authority for what he views as an idiotic FINRA Arbitration Decision involving the dispute of two public customers against a member firm. Bill is not criticizing the three FINRA arbitrators who signed off on the Decision because they are following the dictates of the FINRA Code of Arbitration. What comes within Bill's cross-hairs is FINRA for its tolerance of a policy of non-disclosure and its contentment with a lackluster approach to quality control over many of its published materials. READ

Brokerage Customer Says That What Looks Like A Complaint Wasn't So Intended

You tell me: What constitutes a "Complaint." 

Okay, fine, let's go with your definition. 

Now, what happens if a brokerage firm customer sends a letter to the firm indicating that he was disappointed in his account's performance? Using your definition of a complaint, is that customer's letter a "Complaint?" 

Next, what happens if you are a compliance officer at the brokerage firm and you read the customer's letter questioning his account's performance? Should that compliance officer deem the letter as constituting a reportable customer complaint? 

No, don't go anywhere, I got one more twist for you, what happens if the customer says that the letter was never intended to be viewed as a "formal" complaint? 

Today's Blog tackles the fascinating issue of whether a letter from a customer that seems to be a "complaint," is, in fact, a complaint in light of the customer's renunication of any such intent.  READ

Rep Defends Herself Against Ameriprise EFL Arbitration

Another day and another former registered representative is caught in a lawsuit with a former FINRA member firm over her alleged failure to repay a Promissory Note (also known as an Employee Forgivable Loan or EFL). In today's Blog, we consider a demand by Ameriprise Financial Services for repayment of an EFL balance due of over $400,000. In response to that demand, we have a plucky registered rep who represented herself and fought back with a host of pre-hearing motions and doesn't seem to have yielded much during the evidentiary hearing. One way or the other, she was going to get her day in court . . . in arbitration, to be more precise. 

In the end, Ameriprise pretty much has its way and rings up the old cash register. Would the Respondent have done better with a lawyer? Could the Respondent have even afforded a lawyer? Did the Respondent obtain the best possible outcome by going pro se? Who knows but you are free to ponder and resolve as you will. READ

Among FINRA's more lucrative fine-generating violations is FINRA Rule 3280: Private Securities Transactions of an Associated Person, or, in industry jargon, the FINRA PST Rule. Contrary to what some might believe, I fully appreciate the motivation for this rule and support some form of restriction on a registered representative's outside securities transactions. The problem for me is not the justification for a PST Rule but the fact that FINRA's version isn't particularly well written. Frankly, that definition isn't much of a definition but, at best, an example of circuitous logic.

During my 35 years on Wall Street in compliance, regulation, and as a lawyer in private practice, I have had many discussions with registered representatives about PST violations. Okay, sure, many of those folks simply didn't give a crap about the prohibition and figured that no one would find out -- and, of course, that gambit didn't play out particularly well. On the other hand, I have spoken to many -- far too many folks -- who simply misunderstood what constituted a "securities transaction" or a "private securities transaction."

If you re-read FINRA Rule 3280(e), you should immediately spot some sources of confusion; for example, just what is "outside" an associated person's "regular" course or scope of employment? And while you're pondering that bit of statutory vagueness, just what is the difference between the "course" and the "scope" of employment? If there is no meaningful difference between those two ideas, then why include both in a rule? Using different terms such as "course" and "scope" to suggest different ideas without a statutory definition of either is a perfect example of how poorly drafted rules confuse those who are expected to follow them. Yes, we should expect that those regulated by FINRA have commonsense but that does not give the self-regulator license to draft its rules with vague terms and amorphous concepts and then file disciplinary charges based upon the false premise that everyone reading the rulebook draws the same inference and reaches the same understanding. When your audience is left dazed and confused after reading a rule, you haven't done a great job of drafting! 

I must congratulate my younger 2015 self! Apparently, I was right on target when I opined that we had likely not heard "the final gasp in this contention matter. I fully expect that this whole mess will find itself, yet again, before a federal Circuit Court . . ."

Notwithstanding that in 2015, the DC Circuit had remanded Saad's case back to the SEC to address his claims of mitigating evidence, Saad petitioned the Court arguing that the SEC had failed to fairly consider the mitigating factors he had already presented. John M.E. Saad, Petitioner, v. Securities and Exchange Commission, Respondent (D.C. Circuit Opinion, No. 15-430, October 13, 2017) (the "2017 DC Opinion"). As succinctly set forth in the 2017 DC Opinion's syllabus:

John M.E. Saad, a broker-dealer, unlawfully misappropriated his employer's funds on two separate occasions, and then spent the next seven months misleading investigators in an effort to cover up his wrongdoing. After a lengthy review process, the Securities and Exchange Commission sustained a decision of the Financial Industry Regulatory Authority ("FINRA") permanently barring Saad from membership and from working with any of its affiliated members. Saad challenges the Commission's decision as insufficiently attentive to mitigating factors and argues that the permanent bar is impermissibly punitive rather than remedial. We hold that the Commission reasonably grounded its decision in the record, which extensively evidenced Saad's acts of misappropriation, his prolonged efforts to cover his tracks through falsehoods, and his repeated and deliberate obstruction of investigators. With respect to the permanent bar on Saad's registration with FINRA and affiliation with its members, the court remands for the Commission to determine in the first instance whether Kokesh v. SEC, 137 S. Ct. 1635 (2017), has any bearing on Saad's case. Accordingly, Saad's petition for review is denied in part and remanded to the Commission in part.

The "denied in part" is fine. On the other hand, omigod!!!, "remanded to the Commmission in part"????? Will this never end?  READ