FINRA's Hearing Officers Are 70% Former FINRA and 30% Former SEC

August 2, 2019

On August 1, 2019, we ran an anonymous Guest Blog "GUEST BLOG: FINRA Hearing Process . . . BIAS . . . Real Or Perceived???" Among some of the criticisms voiced by the author about FINRA's disciplinary system was this:

[S]o, who makes up the Panel? Well, it starts with the Hearing Officer. The Hearing Officer is akin to a Judge in a trial. He/She is responsible for ruling on exhibits being presented, ruling on objections raised, and basically keeping the hearing on track. Sounds like the same role as a Judge in a trial, right? Not so fast, there are some key differences between the Hearing Officer and a Judge. The Hearing Officer is a FINRA employee. That's right, the person that is supposed to be completely impartial is a FINRA Employee. But wait, there is more! In many cases the Hearing Officer is also a former Enforcement attorney. Now FINRA argues an Enforcement Attorney becoming a Hearing Officer is no different than a Prosecuting attorney, or District Attorney, becoming a Judge. I would agree with that statement, except for one big glaring difference . . .  A Judge does not sit in with the jury during the deliberations. A Judge does not have a voice as to whether or not a person is innocent or guilty. A Judge is not allowed to have Ex-Parte conversations with the Jury. The Hearing Officer is both the "Judge" and one member of the three person "Jury". The Hearing Officer often times has lunch and/or dinners with the other panelists during the course of the hearing where discussions regarding the case are the main focus. Hmmm . . . does this sound like a potential for a Hearing Officer to influence the other panelists, especially if the Hearing Officer is ex-Enforcement? Let's hold that thought for a minute while we learn about the other two panelists involved in this procedure in an effort by FINRA to show this is a fair and impartial proceeding. In order to serve as a Panelist, you must be either a current or past committee member (District Committee, SFAC, NAC, or BOG). Past committee members are many times individuals who are retired from the industry and may not be up to date on current rules & regulations. In most cases, the Industry Panelists are not attorneys, but are/were compliance officers, or firm executives.

I'm sure that some folks believe that the anonymous author over-stated the case. In order to provide further content and context to the author's allegations, let me offer some background about FINRA's 10 Hearing Officers, as noted in the following extracts from FINRA's online "Hearing Officer Biographies" [Ed: highlighting added]:

Maureen A. Delaney
Chief Hearing Officer
Financial Industry Regulatory Authority

Maureen Delaney is the Chief Hearing Officer at FINRA. She has been a Hearing Officer in FINRA's Office of Hearing Officers since 2009. Prior to joining the Office of Hearing Officers, she served as Senior Counsel in FINRA's Department of Enforcement in Washington, D.C. . . .

Matthew Campbell
Hearing Officer
Financial Industry Regulatory Authority

Matthew Campbell has been a FINRA Hearing Officer since December 2008, after serving as Counsel in the Legal Section of FINRA's Market Regulation Department. Before joining FINRA, he was a prosecutor in the Office of the State's Attorney first in Montgomery County and then Howard County, Maryland. . .

Carla Carloni
Hearing Officer
Financial Industry Regulatory Authority

Before joining the Office of Hearing Officers, Carla Carloni served for 24 years as legal counsel to FINRA's National Adjudicatory Council ("NAC"). She advised the NAC in adjudicated matters, including appeals of Hearing Panel decisions, statutory disqualification determinations, membership cases, and exemption request denials. Ms. Carloni also represented FINRA as legal counsel before the SEC and in other appeals. She drafted appellate briefs and other pleadings on behalf of FINRA. . .

Michael J. Dixon
Hearing Officer
Financial Industry Regulatory Authority

Before joining the Office of Hearing Officers, Michael Dixon was a Senior Counsel in FINRA's Department of Enforcement for five years and Counsel in the Legal Section of the Department of Market Regulation for seven years. . .

David M. Fitzgerald
Hearing Officer
Financial Industry Regulatory Authority

David M. FitzGerald serves as a Hearing Officer under contract with FINRA. From 2009 through 2014, he was the Chief Hearing Officer for the Public Company Accounting Oversight Board. From 1997 until 2009, he was a Hearing Officer in FINRA's Office of Hearing Officers, retiring in January 2009 as Senior Vice President and Deputy Chief Hearing Officer. Earlier in his career, he served as law clerk to an appellate judge, was in private practice, and spent 20 years as a litigator and litigation manager for several federal agencies, including the Federal Trade Commission and the Resolution Trust Corporation. . . 

Lucinda O. McConathy
Hearing Officer
Financial Industry Regulatory Authority

Prior to becoming a FINRA Hearing Officer in 2011, Lucinda O. McConathy was a partner at a law firm where she represented plaintiffs and defendants in securities fraud litigation and respondents in SEC and FINRA enforcement matters for more than 10 years. Prior to that, she was a senior appellate litigator for the Securities and Exchange Commission, dealing with the securities laws, arbitration, and administrative law before federal courts of appeals. She also worked with the Office of the Solicitor General on U.S. Supreme Court cases involving the SEC or the securities laws. Ms. McConathy also was a partner at a law firm practicing antitrust law. . .

Jeffrey D. Pariser
Hearing Officer
Financial Industry Regulatory Authority

Jeffrey Pariser has approximately 25 years of litigation experience, in both private practice and in the FINRA disciplinary forum. Prior to joining the Office of Hearing Officers, Mr. Pariser served as Chief Litigation Counsel for FINRA's Department of Enforcement. He also served as a Director and Senior Litigation Counsel in the Department of Enforcement.. .

Richard Simpson
Hearing Officer
Financial Industry Regulatory Authority

Richard Simpson began his service as a FINRA Hearing Officer in November 2015. Before that, he was a litigation and trial attorney for 26 years in the Division of Enforcement of the Securities and Exchange Commission. . .

David R. Sonnenberg
Hearing Officer
Financial Industry Regulatory Authority

David R. Sonnenberg joined FINRA's Office of Hearing Officers in 2013, after spending the previous 17 years in FINRA's Department of Enforcement. While in Enforcement, Mr. Sonnenberg held various senior positions including Vice President/Head of Litigation and Chief Counsel. Before joining FINRA, he was a litigation partner in private practice and also served as a staff attorney for the Securities and Exchange Commission's Division of Enforcement. . .

David Williams
Hearing Officer
Financial Industry Regulatory Authority

Before joining the Office of Hearing Officers, David Williams most recently served as an Assistant Chief Litigation Counsel in the Division of Enforcement of the Securities and Exchange Commission (the "SEC"). In his 11 years at the SEC, he investigated and litigated enforcement actions in federal courts and in administrative proceedings. Prior to coming to the SEC, he served as a Trial Attorney with the U.S. Department of Justice, in the Criminal Enforcement Section of the Tax Division . . .

Bill Singer's Comment

I want to be clear -- very clear -- there is NOTHING whatsoever wrong or improper with having an individual leave service as a regulator/prosecutor and transition to the private sector, or vice versa. I am a former regulatory lawyer with both the American Stock Exchange and NASD (FINRA's predecessor), and I also worked in-house at broker-dealers, investment advisors, and a mutual fund complex -- and for the last 28 years, in the private practice of law. I also served for one year as a Hearing Officer for the New York City Environmental Control Board, and have chaired several arbitration panels. I was a better regulator for having worked on the Street, and a better defense lawyer for my regulatory stints. Additionally, in my roles representing defrauded public customers and whistleblowers, my panoramic experience has better equipped me to know what's going on behind the scenes and has provided me with wonderful instincts and intuition. Additionally, I've been married to a career federal prosecutor for nearly four decades. Consequently, I do not denigrate those who move from the public to the private sector (or vice versa) because it often produces better informed staff in both camps. When the back-and-forth becomes a revolving door, however, that is unacceptable and weakens the effectiveness of the regulatory and criminal justice systems.

Notwithstanding my ambivalence noted above, the biographies of FINRA's Hearing Officers are troubling when viewed in the aggregate. Of the 10 FINRA Hearing Officers, 7 had some FINRA employment prior to their hearing officer role. As to the remaining three previously-non-FINRA-affiliated Hearing Officers, each of them was employed by the SEC. Again, such prior roles in self- or federal-regulation do not disqualify anyone from serving as a FINRA Hearing Officer, nor does such prior employment (in and of itself) render an individual biased or conflicted. On the other hand, it is the appearance of bias or conflict that justly prompts complaints such as those raised by the anonymous Guest Blogger. To make the point, imagine if 7 of the Hearing Officers were former in-house counsel at Wells Fargo or JP Morgan, and the other 3 were former lawyers at major law firms representing financial services firms. In that latter scenario, PIABA and other public advocates would scream bloody murder -- and with justification.

If you're not quite seeing the big picture here, let me offer you another example:

It's game 7 of the American League Championship Series, and the New York Yankees are playing the Boston Red Sox. 

The final game of the ALCS is being played at Fenway Park in Boston. 

The roster of six ALCS umpires and the Replay Official comprises 

  1. a former Red Sox pitcher,
  2. a former Red Sox catcher, 
  3. a former Red Sox short-stop, 
  4. a former Red Sox coach, 
  5. a former Red Sox broadcaster,
  6. a former Boston Celtics forward, and 
  7. a former Boston Bruins goalie. 

Welcome to Beantown!

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