April 10, 2021
A lot of what passes for misconduct on Wall Street is a matter of interpretation. You say that you did or didn't do something. Your firm's compliance department or FINRA says what you did or didn't do was a violation. Sometimes you're right, sometimes they're right, sometimes everyone's right -- and sometimes, no one is right. Unfortunately, you can be right, they can be wrong, but, still, you're getting fined and suspended. In three FINRA matters, we consider the importance of understanding the inferences and implications of words such as "complaint" and "settlement," and how the disputed definitions of such terms can negatively impact a registered rep's career.
Yet again, I say. Yet again. Wall Street's lackluster regulatory scheme fails to proactively detect an oncoming tsunami, and the markets get flooded. There was not so much as a single warning from the industry's many regulators about the oncoming Archegos disaster. Yet again, a hedge fund blows up and sends shockwaves through the financial system. Yet again, a major financial services firm, this time Credit Suisse, is swamped. Yet again, I ask, what's the point of having self regulators, state regulators, federal regulators, and international regulators when those systems don't coordinate and ferret out oncoming disasters? Yet again, our 1930's regulatory approach shows its age. Yet again, at some point, don't we need to turn off the lights on self regulation and send FINRA's Board of Governors packing?
Over a decade ago, when the stock markets were cratering in the wake of the Great Recession, investors saw their pre-2009 gains vanish. Lots of black ink became red. As was all too common in those days (but, let's be fair, often justified), customers complained that they were given lousy investment advice by their stockbroker. And that wave of customer complaints flooded onto the industry records of thousands of men and women. A recent case illustrates that once posted online, a customer complaint may have the half-life of xenon-124 -- trust me, that's a long half-life.
At its best, remorse demonstrates a pang of conscience. At its worst, it may arise only in anticipation that you are about to get caught. Contrition and regret are two very different things. As such, we're often caught up in the ambivalence of the moment when we consider the motivation behind someone's renunciation of a crime or fraud. Were the remedial steps prompted by a guilty conscience or the malefactor's sense that someone's hot on his trail? In a recent FINRA regulatory settlement we have all the classic elements of such puzzle.
If your brokerage firm decides that a customer "communication" was a complaint, the drafting of a regulatory disclosure often involves a lot of interpretation, inferences, assumptions, and filling-in-the-blanks. At times, what gets reported isn't a fair or accurate reflection of what the customer said. Which means that an expungement may not involve removing what a customer said but what a brokerage firm thought was said or, worse, what was meant. A recent case illustrates the worst aspects of this process.