Blog by Bill Singer Esq WEEK IN REVIEW

December 19, 2020

( Blog)
A Morgan Stanley Wealth Advisor Associate alleged that she was the victim of discrimination and retaliation based, in part, on sex, race, and ethnicity in violation of the ADA, Title VII, and FMLA. In furtherance of her claims, she moved to compel a FINRA arbitration, which the firm contested.
Ultimately, even if flawed by one of five claims, the innovative Massachusetts Complaint against Robinhood raises many valid points in furtherance of investor protection. I do not and will not fault the State for filing an edgy pleading when the press is daily filled with horror stories about recurring outages at Robinhood and other online firms. In this online brokerage sector, operational capacity does not seem able to keep pace with growth. At some point, as the Complaint suggests, in-house compliance loses containment, and unresolved problems cross over into sanctionable regulatory events. Like I said, I'm not going to criticize Massachusetts for its laudable efforts to seek redress for many allegedly victimized traders. To that extent, my comments are more critique than criticism. On the other hand, I am going to criticize FINRA for being an ineffective regulator but a very effective cash register. For FINRA, Wall Street regulation seems more about ringing up fines rather than pursuing innovative regulation.
There are times when the Universe can be cruel: The stars align against us. More often than not, if we're being honest, the messes we get ourselves into are of our own creation. As William Shakespeare so famously wrote: "The fault, dear Brutus, is not in our stars / But in ourselves, that we are underlings." (Julius Caesar, Act I, Scene III, L. 140-141). Lawyer George Gilmore became a defendant in a criminal tax case, and the blame for his predicament seems to fall largely upon his shoulders. Still, Gilmore wasn't quite ready to go down without a fight. The fault wasn't truly, simply, clearly his . . . or so he argued.
In numerous other statements and comments that she has published over the years, SEC Commissioner Hester Peirce's leitmotif is an acknowledgement that many regulatory concerns and goals are justified; however, Peirce pushes back against the inroads of the Nanny State and is unapologetic in defending individual rights and liberties. She recognizes the value of a fair regulatory agenda but is not shy about questioning the costs, both financial and from a libertarian perspective. As Commissioner Peirce often argues, it is not government's role or place to ensure that every investment we make is profitable. Virtually no successful trader exists who has not been forced to eat losing trades and learn the invaluable lessons that failure teaches. Inherent in all investments is the success of the buyer at the loss of the seller, or vice versa -- it is an arena where the zero-sum game plays out in each and every trade. Wall Street is not the place for awarding Participation Certificates. The regulation of Wall Street is not supposed to be an exercise in social engineering. 

As I have often set forth in my own published works, there is a dynamic and tension in regulation. We must always exalt investor protection over the industry's desires for profit. Wall Street is besieged by criminals and fraudsters who prey on the vulnerable and exact a horrific cost when it comes to the integrity of the markets. As such, both investors and industry participants have a common interest in the fair and effective regulation of Wall Street.  As a long-time and vocal advocate for Wall Street reform, I am all to aware of the carnage caused by those who prey upon the elderly, the uneducated, and the vulnerable.  Unfortunately, ineffective rules and inept regulators achieve nothing worthwhile. What is always needed is effective regulation via fair and thoughtful rulemaking and enforcement. In policing the industry, Due Process is not an inconvenience, and the constitutional rights of investors and market participants are not obstacles to be circumvented by otherwise well-meaning but misguided politicians and regulators. That is a belief that Commissioner Peirce and I share.
A couple of public customers sued Morgan Stanley citing losses in Puerto Rico bond investments. As has been well documented by now, investments in Puerto Rico bonds were not so much investments as the act of flushing good money down the toilet -- consequently, we have a long and building record of litigation. In today's featured lawsuit, a Panel of FINRA Arbitrators ordered Morgan Stanley to produce discoverable materials by midnight. Midnight came and went. No production.  After midnight, the arbitrators slammed Morgan Stanley with a $3 million sanction for its non-compliance.