January 3, 2021
We're in a high-stakes football game. It's coming down to crunch time. It's the fourth quarter. There are only seconds left for the last play. It was supposed to be fourth down and two yards. The refs huddle. They walk over to your opponent's sideline. They talk to the other team's coach. There's more huddling. Then the whistle blows and you're told that it's not fourth and two but fourth and, ummm, let's see here, sure, fourth and 22. A recent FINRA arbitration seems to have moved the goal line in the midst of an expungement hearing. Then again, maybe the refs called a foul but forgot to blow the whistle. Or maybe they blew the whistle but no one heard it. Or maybe they changed a rule in the middle of the game and it was enforced as time was about to run out.
Today's blog is less a legal analysis of a case than it is a somewhat pathetic rendering of all that is wrong with Wall Street regulation. Unfolded before us is a tortured tale of miscues and missteps by regulators involving what truly appears to be a record of misconduct by the respondents. So, no . . . it's not as if FINRA's Complaints lacked justification. Frankly, it seems that there was misconduct, some of which was, indeed, serious. On the other hand, the more you read about this mess, you wonder how much of what drove the prosecutions and appeals was fueled by institutional bias against small firms and their management: Would FINRA and the SEC have gone after a large member firm or one of its C-suiters with the same hammer-and-tong approach? I'd like to think that the answer is "yes." On the other hand, history tends to offer us too many examples where the regulation of Wall Street is one of disparate treatment that comes down in a heavy-handed fashion against the industry's small fry. Looking down on the proceedings, and looking back over time, FINRA seems to be pulling wings off of flies, and doing so with disproportionate zeal and joy.