Whatever you do, don't lie to FINRA. I can't even begin to recount the number of times that I have given that admonition to a client. You wouldn't think that such a directive would be open to a lot of interpretation but, alas, folks have a tendency to stretch things to their limits. In a recent FINRA regulatory settlement, we come upon someone who submitted altered and fabricated documents to the self-regulatory-organization during an examination. The surprising thing about the matter is not that the Respondent got caught but the nature of FINRA's sanctions of the misconduct.
Case In Point
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Yegor Kashirsky submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Yegor Kashirsky, Respondent (FINRA AWC 2019063625701)
The AWC alleges that Yegor Kashirsky was first registered in 2012 and by October 2017, he was associated with Vanguard Marketing Corporation. The AWC asserts that Kashirsky "does not have any relevant disciplinary history." In part, the AWC alleges that:
In January 2019, FINRA conducted an examination of Vanguard. The firm assigned Kashirsky to lead the firm's response to the exam. In that capacity, Kashirsky was responsible for locating, reviewing, and submitting responses to FINRA's requests.
In connection with the 2019 exam, FINRA requested a copy of a firm document regarding Vanguard's contingency plan for responding to system outages. Prior to submitting the document to FINRA, Kashirsky removed certain sections of the document, including a section related to an alternate system through which Vanguard personnel could enter customer orders during system outages. He then submitted the altered document to FINRA without informing FINRA that the document had been altered.
During the same exam, FINRA also requested a copy of an internal firm communication related to a trading outage. After failing to locate the communication, Kashirsky fabricated a copy of the communication based upon information gathered from a different trading outage. He then submitted the fabricated document to FINRA without informing FINRA that he had submitted a fabricated version of the communication.
Online FINRA BrokerCheck records as of March 3, 2020, disclose under the heading "Employment Separation After Allegations," that Vanguard "discharged" Kashirsky on July 18, 2019, based upon allegations that:
MR. KASHIRSKY WAS UNDER INVESTIGATION [sic] LACK OF PROFESSIONALISM AND MISREPRESENTING DOCUMENTS AS A FIRM BOOKS AND RECORDS.
In accordance with the terms of the AWC, FINRA found that McDevitt violated FINRA Rule 2010, and the self regulator imposed upon him a $5,000 fine and a three-month suspension from associating with any FINRA member in all capacities.
Bill Singer's Comment
Omigod, seriously? I'd ask what Kashirsky was thinking but I'm not quite sure that any answer would even remotely make sense.
I was shocked and floored by FINRA's apparent generosity in not imposing a Bar upon Kashirsky. The way I was brought up in our biz, the cardinal sin was always lying to regulators -- for which the industry's "capital punishment" of a Bar was almost always a given. How did Kashirsky escape with a mere three-months of suspension? Maybe there were extenuating circumstances that we don't know about because they weren't spelled out in the AWC; or, perhaps someone at FINRA took the Covid pandemic into consideration allowed mercy to drip unstrained. Whatever the explanation, Kashirsky should consider himself incredibly lucky.
Somewhat lost in the AWC is that FINRA's 2019 examination of Vanguard had gotten to a point where the self-regulator was seeking information about the firm's "contingency plan for responding to system outages." In the developing lingo of Wall Street regulation, FINRA was looking into aspects of Vanguard's "operational capacity" during times of stress. A commendable and worthy inquiry. During the last year, I have written with increasing regularity about "operational capacity" and how that issues should be a front-burner issue for Wall Street's regulators.
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.
As Vanguard's pointman for the 2019 FINRA examination, the AWC alleges that "Kashirsky was responsible for locating, reviewing, and submitting responses to FINRA's requests." In discharging his role, the AWC asserts that Kashirsky "removed certain sections of the document, including a section related to an alternate system through which Vanguard personnel could enter customer orders during system outages." Similarly, the AWC asserts that Kashirsky "fabricated" a copy of an internal communication relating to a trading outage -- pointedly, he submitted to FINRA information about a trading outage different from whichever one was under investigation. Oh how I wish the AWC explained why Kashirsky did what he did! More to the point, oh how I hope that FINRA followed up on what was deleted, what was fabricated, and what was actually in place to respond to system outages.
As retail trading volumes have ramped up during the Covid pandemic, there are increasing reports of brokerage firms unable to keep pace. Customers complain of outages and inadequate customer service. Online sites freeze and crash. Helplines queue frustrated and often panicking customers for interminable periods of time. All of which seems a sardonic twist on that line about "If you build it, they will come." Indeed, come they have -- to the point of overwhelming the field! They'll pass the money over without even thinking about it.