Blog by Bill Singer Esq WEEK IN REVIEW

August 22, 2020
The SEC says that Justin Keener was a dealer. He says he was a trader. If he was a dealer, then he needed to register with the SEC, and since he didn't, he may be in a lot of trouble. If he was a trader, then he may not have needed to register with the SEC, in which case, the federal regulator doesn't have a case against him. It would seem a simple task to come up with a definition of what's a "dealer" versus what's a "trader." Simple? Yeah, sure, good luck with that!
A former associated person got involved in a Ponzi scheme, was convicted by a jury on seven felony counts, and was sentenced to 140 months to 20 years in prison. Given that background, you'd sort of expect swift action by the Securities and Exchange Commission in its role as the protector of the investing public. You know, something like barring the felon from further activity in the securities industry. So . . . how long after the convictions do you think it took the SEC to get out of bed and do its job? A year? Two years? Five years? How about more than six years and still counting!
The former employee was never the subject of the Customer's complaint, which was directed against the former brokerage firm employer and a different broker. Making matters worse, the Claimant was not involved in or responsible for the underlying transactions and did not recommend or execute the sales of the products the Customer complained about. So -- how come the Claimant's industry record was marked up with the customer complaint? That's what he wanted to know. That's what prompted the FINRA arbitration. In a sign of these COVID pandemic times, the dispute was adjudicated via a  virtual FINRA Arbitration hearing.
When tasked with implementing industry reforms on behalf of the investing public or the industry's smaller firms and associated persons, FINRA's Board of Governors tends to shrug. It just never rouses itself to the task. What more prompting is required by the Board than the growing chorus of judges who are shocked and dismayed by the dubious performance of FINRA's arbitrators and by the morass created by FINRA's adherence to a default protocol of unexplained decisions? Consider today's featured federal case.
A 4Cir Majority Opinion touts the benefit of "lower costs, greater efficiency and speed" of FINRA arbitration as some antidote for thoughtful judicial review. As noted by the Dissent: "In short, the arbitration panel abdicated its role as fact-finder and disregarded the basic legal principles governing damages, resulting in an impermissible and extralegal award." In the end, this is no victory for public customers because the Majority's short-shrift may be used in a future case to support a FINRA Arbitration Panel's denial of damages in favor of a brokerage firm.