Cause something is happening and you don't know what it is. Do you, FINRA?

January 8, 2020

Yet again, another dubious bit of silliness finds its way into FINRA's published annals. To be clear, it's not silliness for the associated person Claimant; to the contrary, it's about as critical an issue as there is. The Claimant wants to clear his name. He wants something expunged from his industry record. That being said, we walk into the FINRA Dispute Resolution hearing room (with the Dylanesque pencil in our hand) but we emerge not knowing what the hell is going on. Frankly, there ought to be a law against you coming round.

Something Happened

In a FINRA Arbitration Statement of Claim filed around June 18, 2018, associated person Claimant Yang sought the expungement of what he deemed to be a false/defamatory disclosure on his Central Registration Depository record ("CRD").  FINRA member firm Respondent Credit Suisse generally denied the allegations and asserted various affirmative defenses. In the Matter of the Arbitration Between Kevin Yang, Claimant, v. Credit Suisse Securities (USA) LLC, Respondent (FINRA Arbitration Decision 18-02246)

Expungement Denied

The sole FINRA Arbitrator denied Claimant Yang's requested expungement and offered this rationale:

Claimant's request for expungement of the information on his Form U5 depends on the meaning of "investment related" misconduct. The context here is a bit unusual as he held a license that he did not use as part of his employment as an analyst and had no involvement with retail customers. With many years of experience supervising brokers and retail branch offices, Claimant's expert witness offered a narrow meaning of "investment related" in keeping with his experience on the sales side. However, with the laudable goal of providing disclosure to the public, those regulating the securities industry prefer a broad meaning as evidenced by the multiple court cases, FINRA disciplinary actions, and consent letters cited by Respondent. Hence the Arbitrator found that Respondent made appropriate and accurate entries on the Form U5 and Claimant's request must fail.

Bill Singer's Comment

As set forth in FINRA's online BrokerCheck records, in August 2014, Yang passed the Series 79 Investment Banking Registered Representative examination and, thereafter, on June 4, 2018, he passed the "SIE" Securities Industry Essentials examination. BrokerCheck discloses his status as "not currently registered." Notwithstanding that Yang sought the expungement of his CRD/U5, there is no disclosure item posted on Yang's BrokerCheck record. Whatever the CRD/U5 irritant is for Yang, he filed his FINRA Arbitration Statement of Claim about 14 days after he passed his SIE, so perhaps the dispute is attendant to some aspect of that event. As explained in part on FINRA's Series 79 webpage

Series 79 - Investment Banking Representative Exam

The Series 79 exam - the Investment Banking Representative Exam - assesses the competency of an entry-level registered representative to perform their job as an investment banking representative.

The Series 79 exam measures the degree to which each candidate possesses the knowledge needed to perform the critical functions of an investment banking representative, including advising on or facilitating debt or equity securities offerings through a private placement or a public offering and mergers and acquisitions.

Candidates must pass the Securities Industry Essentials (SIE) exam and the Series 79 exam to obtain the Investment Banking Representative registration. For more information about the SIE and Series 79 exams, refer to FINRA Rule 1210 and FINRA Rule 1220(b)(5).

Upon passing the Series 79 examination, FINRA notes that:

Permitted Activities

Covered activities include advising on and/or facilitating the following:
    • Debt and equity offerings (private placement or public offering)
    • Mergers and acquisitions
    • Tender offers
    • Financial restructurings
    • Asset sales
    • Divestitures or other corporate reorganizations
    • Business combination transactions
Pointedly, FINRA admonishes that Series 79 Investment Banking Representatives would:

not include persons who actively market the offering and interact with investors or potential investors, such as a person who is engaging in road show activities. Such a person would also need to be registered as a General Securities Representative (SIE + Series 7 exam) or Private Securities Offerings Representative (SIE + Series 82 exam) depending on the type of offering being made.

. . .

If you are only engaged in selling the offering or actively marketing the offering to investors or potential investors, the General Securities Representative (Series 7) registration is sufficient. However, if you want to engage in activities such as preparing a marketing plan or advising on a marketing plan prepared by a sales team or developing and/or contributing information for marketing materials, you would also need to be registered as an Investment Banking Representative by passing the Series 79 exam.

See: "Key Questions" #2 and #3 at

So . . . what the hell did Yang want expunged and why? 

I dunno.

Do you?

As best I can infer, by June 2018, Yang had passed both the SIE and the Series 79, but not the Series 7. Individuals who actively market an offering and "interact with investors or potential investors" would need to be registered as both an SIE and a Series 7 (the latter of which Yang lacked). Yang could function as a Limited Representative-Investment Banking but not as a General Securities Representative or a Private Securities Offerings Representative. For all we know, Yang didn't need the Series 7 because he may not have engaged in any offering marketing or investor interaction. Yet again, we don't know what we don't know and we're not told enough to know what we don't know or what we do know -- you got that? . . . really??

Perhaps Yang functioned or attempted to function in a capacity in which he deemed himself registered but Credit Suisse did not ? Frankly, that's as much a guess as anything given the lack of content and context in the FINRA Arbitration Decision. In fairness to Yang and the sole FINRA Arbitrator, however, it may well be that the actual facts are not spelled out in the Decision on purpose because they are not particularly substantive and their disclosure might largely add insult to injury. Which sort of prompts the question as to why FINRA evens bothers posting these largely meaningless expungement decisions if the final product is more tease than substance.

As set out in the FINRA Arbitration Decision, Yang's requested expungement apparently involved whether or not something placed on his Form U5 was properly characterized as "investment related." As defined in FINRA's online "Form U5 Explanation of Terms" (starts at Page 5 of the online document), the term "investment related" means:

Pertains to securities, commodities, banking, insurance, or real estate (including, but not limited to, acting as or being associated with a broker-dealer, issuer, investment company, investment adviser, futures sponsor, bank, or savings association). 

Although the Arbitrator asserts that Yang's expungement rises and falls on the meaning of "investment related" misconduct, there is no explanation as to any specific allegations pertaining to same -- which leaves us suspended in mid-air without a parachute or safety net. Even more frustrating, the Arbitrator teases us by conceding that Yang:

held a license that he did not use as part of his employment as an analyst and had no involvement with retail customers. 

In response to Yang's request to expunge disclosures about which we know nothing and of which no parameters of substance are offered, the Arbitrator rejects the purportedly narrow definition of "investment related" expounded upon by Yang's expert witness; and the Arbitrator opts for the:

laudable goal of providing disclosure to the public, those regulating the securities industry prefer a broad meaning as evidenced by the multiple court cases, FINRA disciplinary actions, and consent letters cited by Respondent. . .

Narrow? Broad meaning? Investment related? License not used? No retail? We're supposed to apply those concepts to what exactly? The Decision doesn't disclose what Credit Suisse said or didn't say about Yang's conduct on his Form U5 or CRD. We don't know anything beyond that Yang held a license that he did not use and that he had no interaction with retail customers. Yeah, that's all really, really helpful. Like I groused about above, what's the point of even publishing such nonsense?