May 1, 2021
FINRA says that a registered rep borrowed money from two customers, but the loan wasn't actually made directly to the rep but to her limited liability company. Is that a difference without a distinction or does that difference matter? A few years later, the same rep again crossed onto FINRA's radar when she allegedly made eight under-$10,000-cash-deposits into her bank account. As the regulator alleged, those deposits were efforts to "structure" in order to evade cash transaction requirements. Two bites of the regulatory apple. As I recall, that didn't work out that well for Adam and Eve.
For over two decades, I have urged FINRA and the financial services industry to establish an anti-fraud fund whereby victims of Wall Street fraud would be compensated for their losses in the event they could not obtain satisfaction from insolvent firms or individuals. Instead of undertaking funding my anti-fraud initiative, FINRA provides financial support for academic studies that examine the obvious. Is there any Governor on FINRA's Board of Governors who monitors any of the garbage that is regularly published by the organization? Why not require full disclosure of the amount of funding provided by the FINRA Foundation in each report for which financial support was made?
Given my professed distrust of FINRA mandatory arbitration, I find myself in the uncomfortable position of defending that very forum against the brunt of PIABA's April 26/27 complaints. COVID is the culprit here. The arbitration forum shutdown at FINRA is unfair to victimized public customers. I will not argue that point and it is validly espoused by PIABA. On the other hand, FINRA's shutdown was also unfair to the industry's victimized employees who are unable to get timely redress of their own employment-related claims against former employers, or are unable to clear their reputations in the face of what they may view as unprincipled customer complaints. Just as I chastise FINRA for issuing idiotic press releases that seem little more than self-aggrandizing or make-work, I see little value in PIABA's campaign to blame FINRA for the delays in conducting live arbitration hearings during a pandemic.
As with many lawsuits, it's not always easy to figure out just where to start the tale of woe. Sometimes there are numerous pathways that converge on the courthouse steps. For our purposes today, we're going to start in June 2019, when Wealth2k, Inc. filed a lawsuit against Key Investment Services, LLC. In trying to explain how we wound up in federal court, we're going to start moving backwards in time and then move forward, but it's going to be in fits and starts. Ultimately, we may find that out journey ends beyond the courtroom and before a FINRA arbitration panel.
140 Victims. Over $8 million in lost investments. What was being sold? Oh -- nanotechnology that turned dirt into gold. No . . . don't laugh. That's was the pitch. That was the fraud. The larger question was what, if any, due diligence did the victims perform before writing out their checks. Did anyone uncover the criminal histories of the guys pushing the deal?