February 16, 2019
If nothing else, Wall Street is a place that lives and dies with its predictions. You got those folks who have predicted 12 of the last two recessions. You got those folks who insist that yesterday's loss was only a "head fake," and urge you to double-down and load-up -- which you only regret a week later when the company declares bankruptcy. What's an investor to do? Does anyone out there know what they're talking about? Should you blindly follow an investment professional's advice? Is Wall Street like major league baseball where you can enter the Hall of Fame if you only get three hits for every ten times at bat? In today's featured FINRA Arbitration case, we are asked to consider the extent to which making what turns out to be a wrong investment is the stuff of a black mark on one's career, or simply the odds with which investors and their advisers are saddled. Flip a coin as often as you want. It won't matter. There's always, at best or worst, a 50/50 chance of heads.
A few weeks ago, I wrote about The DAO, and the Ethereum Hard Fork needed to prevent a smart-aleck coder from diverting a third of The DAO's assets to himself. The Hard Fork required ether holders to go through some software hoops to properly implement it. Back then, in 2017, QuadrigaCX goofed up the coding, resulting in $14 million of ether being locked up in the Ethereum blockchain with no way to access it. To fix it, QuadrigaCX took $14 million out of its profits to make its members whole. As far as fixes go, that one sort of looked okay until last December, when QuadrigaCX's founder and CEO, Gerald Cotten died. On top of that tragedy, critical passwords may literally have gone to the grave with Cotten.
In today's featured FINRA regulatory settlement, a former employee of an unnamed bank is barred because of her alleged misconduct at that unnamed bank, and, well, odd, but, Wall Street's fearless self-regulatory-organization seems fearful to name the bank by name. All of which conjures up the frightening visage of Lord Voldemort -- he who must not be named! Has the Dark Lord infiltrated the American banking system? Is FINRA cowering under his spell? Where is Harry Potter when Wall Street needs him?
In a recent FINRA expungement arbitration, we find FINRA member firm National Securities Corporation being sued by none other than its former President/CEO, who ran the place for some 16 years. As part of the absurd legal fiction that drives FINRA's expungement process, the former head honcho was forced to sue his former firm in an effort to get a customer complaint removed from his industry record. That complaint was the only apparent blot on a three-decade career in the biz. National didn't put up much of a fight over the requested expungement, but the firm appeared in quite a lather over being forced to pay Claimant's fees and costs of the proceeding. As it turned out, the assessed fees/costs against Claimant were a not-so-whopping $150.
Wall Street's regulations, rules, policies, and protocols often appear as a challenge for some stockbrokers. It's not that brokers don't understand the meaning of "NO." They do; however, they may smile at you and shrug, and then freely admit that they knew that they weren't supposed to do what they did but . . . It's that "but" that often alters a droll regulatory fine or suspension into a fascinating tale of misplaced human ingenuity and an epic example of one individual's unbridled but misdirected passion for finding short-cuts and detours in life and business. In today's featured FINRA regulatory settlement, we come across a Merrill Lynch iconoclast who aspired to fly beneath his firm's compliance radar. Sadly, his second-rate stealth protection failed and he was shot down by his firm's detection system -- plummeting back to earth in flames. A once bright career now in smoking ruins. The old crash and burn.