To Err Is Human. To Fine And Suspend Is FINRA

August 12, 2021

There is a saying that to err is human, to forgive divine. In the modern version of that sentiment, we should add "but to fine and suspend is FINRA's mission." In today's blog, we come across a human being who erred. In terms of the misconduct and misdeeds of Wall Street, this respondent's actions don't amount to much at all. No investor was harmed. No brokerage firm suffered so much as a penny's worth of loss. Frankly, the underlying conduct is all too familiar to most of us. Someone hit the wrong button while online and agreed to do something that was never intended.

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, Sandeep Jain submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Sandeep Jain, Respondent (FINRA AWC 2020068662501)

The UBS MD and Global Head

The AWC asserts that between 2016 and September 2019, Jain was the Managing Director, Global Head of Rates Quantitative Analytics at UBS Securities LLC. 

File Sharing

I've opted to let the self-regulatory-organization's prose speak for itself per this pertinent part of the AWC:

In August 2019, Jain used his UBS-issued computer to access a third-party internet-based platform that facilitates the creation of websites; Jain did so to edit a website for his wife's business. Jain enabled file sharing between his UBS computer and the third-party platform, which resulted in the transfer of more than 100 files from Jain's computer to the third-party platform; the shared files contained confidential UBS information, including business information and intellectual property belonging to UBS Securities. None of the transferred information pertained to UBS customers. The file sharing folder on the third-party platform was publicly accessible, permitting anyone who visited it to access the UBS confidential files that were transferred from Jain's computer. UBS detected the data leakage and brought it to Jain's attention. Jain then realized that he had transferred confidential firm files, and thereafter, with UBS's permission, deleted the files from the third-party platform. 

Therefore, by circumventing the firm's written policies and procedures concerning the protection of confidential information, Jain violated FINRA Rule 2010. 

FINRA Sanctions

In accordance with the terms of the AWC, FINRA imposed upon Jain, who was represented by counsel, a $5,000 fine and a 20 business-day suspension from associating with any FINRA member in all capacities

Bill Singer's Comment

By way of a reminder:

FINRA Rule 2010. Standards of Commercial Honor and Principles of Trade

A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.

Two years ago in August 2019, during those halcyon day before Covid, Jain had a UBS-issued computer.  Given that Jain was a UBS Managing Director and served as the firm's Global Head of Rates Quantitative Analytics, I'm guessing that UBS was paying him enough that he could have purchased his own computer, but, you know, I'm also guessing that UBS was more than happy to give this exec a PC or laptop, even if it were only a loaner. Regardless, armed with his UBS-issued computer, Jain accessed "a third-party internet-based platform that facilitates the creation of websites. . ." 

Having overly dramatized Jain's UBS-provided computer and painted the attendant scenery with portents of doom and gloom, FINRA now adds the finishing touch by alleging that Jain has used necromancy to conjure up an online platform that "facilitates the creation of websites." Oh for godsakes, is FINRA shittin' me? You're making a big deal about a guy who logged on to Wix or GoDaddy or another commercial site of that ilk?

Ultimately, Jain was not logging on to create a porn site or to illicitly transfer billions of dollars in crypto. Jain was on an Internet-based website creation platform in order to "edit a website for his wife's business." Having embarked upon world domination and the disruption of the international financial markets via his wife's website, Jain apparently enabled "file sharing" on his UBS-provided computer and he wound up transferring:

more than 100 files from Jain's computer to the third-party platform; the shared files contained confidential UBS information, including business information and intellectual property belonging to UBS Securities.


Yeah, I hear you, you're right: could have been a disaster; however, it wasn't because the AWC admits that:

UBS detected the data leakage and brought it to Jain's attention. Jain then realized that he had transferred confidential firm files, and thereafter, with UBS's permission, deleted the files from the third-party platform.

Whoa, close call! Thankfully, UBS caught the leakage and equally as thankfully, Jain realized his error and deleted all the exposed files. Moreover, the AWC concedes that:

None of the transferred information pertained to UBS customers.

FINRA is on firm ground when it notes that UBS has all sorts of policies and procedures requiring that its employees, such as Jain, keep certain business and customer information confidential. FINRA is also correct that Jain's inadvertent file sharing likely ran afoul of UBS's confidentiality rules and constituted a technical "unauthorized" access of the subject files. Then again, my wife complains that I didn't raise the toilet seat. I pretend that I did. She says that I violated our household policies and procedures about using the toilet. As a skilled litigator, I reply that I don't remember, have no recollection, and then cite my Fifth Amendment rights. My wife was a federal prosecutor for 33 years years. She reminds me that I do not have any Fifth Amendment rights when it comes to household toilets. I tell her that I might have an associate brief the issue. She calls me an idiot and tells me to lift the seat next time. There is no AWC issued against me by the Singer Family Regulatory Authority. I am not fined. I am not suspended. Maybe next time I will remember to raise the seat. Probably not.

As I see it, Jain made a mistake. 

I think that Jain sees that he made a mistake. 

As UBS might see it, Jain made a potentially disastrous mistake

As to the motivation behind the file transfers, there doesn't appear to have been any. The transfers were done by accident. They were not done intentionally or with any malicious intent.  Jain was not thinking about the UBS policies and procedures and musing as to how clever he could be by transferring dozens of confidential files while he was fixing the fonts on his wife's website. Likely, just a brain fart. 

Why then did FINRA see the need to investigate what likely strikes most sentient human beings as human error?  Well, okay, FINRA's mission is to protect the investing public and the industry and, sure, even mere mistakes should be investigated. See -- I can be a reasonable guy too, even if only at times. 

After FINRA investigated Jain's conduct and all the facts set forth in the AWC were clear, why the hell was Jain hit with a $5,000 fine and a 20-business-day suspension? I have no goddamn idea. I can't even figure out what the remedial purpose of such sanctions would be: Don't make an inadvertent mistake in the future? 

All of which reminds me that on February 25, 2006, the Boca Raton office of NASD (FINRAs predecessor) were burglarized and the regulator reported the theft of 10 laptops and 1 Apple iPod, FINRA's predecessor self-regulatory organization. Oddly, NASD waited until April 6, 2006, to notify individuals

[A]fter assessing the contents of the stolen laptops, NASD determined that one of the laptops contained an On The Record transcript of an interview of you conducted by securities regulators. During the course of the interview you provided identification information, including your social security number. This information was included in the transcript.
. . .
The stolen laptops were all password protected, requiring an unauthorized user to either reformat the hard drive in order to use the device, or use special software to bypass the computer's operations system. 

Another interesting fact is that despite the burglary occurring in February 2006, NASD only first contacted potential victims via an April 2006 letter. Making matters worse, NASD only first publicly disclosed the theft of the laptops on July 7, 2006. That notification delays do not strike me as honorable or anything other than a Wall Street regulator covering its ass and hoping the stink would go away. Of course it didn't and the whole sordid story wound up in the press. And here we are, some 15 years later and wouldn't you know, but I still remember the episode. I'm sure that FINRA wishes that I didn't. Also see, "NASD laptops stolen, but risks played down" (NBCNews by Bob Sullivan / July 7, 2006)

NASD had a lapse in judgment when it failed to properly secure laptops filled with confidential investigative information, Making matters worse, NASD failed to timely notify potential victims of the theft of its confidential laptops. I invite FINRA to open up its internal records and disclose the fines and suspension that NASD imposed upon responsible Staff in its Boca Raton office for their lack of implementing and maintaining a suitable confidentiality protocol to protect both industry respondents and the investing public. Similarly, I invite FINRA to cite to the NASD Press Release in which such fines and suspensions imposed on Staff were published. If FINRA wants to open up a dialog about commercial honor, and just and equitable principles in Jain's AWC, let's have at it on a larger scale. Oddly (deliciously!) FINRA is having its own online file transfer issues:

Outbound Files Delays (Technical Notice / August 11, 2021)

The availability of outbound files in fileX CT environment may be delayed on 8/12 and 8/13 due to a planned maintenance activity. fileX customers who experience issues during this time are advised to reconnect and retrieve outbound files after the maintenance window.

You mean to tell me that as of August 11th, FINRA was uncertain as to whether its so-called "planned" maintenance would delay its outbound files on the 12th and/or the 13th? Doesn't sound like FINRA did enough Beta-testing and planning. Gee, sort of sounds like maybe FINRA's maintenance policies and procedures weren't fully complied with. After all, how could Wall Street's vaunted self-regulatory-organization not know whether there will be a delay on one or two days before undertaking the planned maintenance. More to the point, why wasn't this activity planned for a weekend? Wouldn't deferring such critical maintenance to off-hours during which the market is closed have been more in keeping with the industry's high standards of commercial honor and just and equitable principles of trade? Could it be? Is it possible? Did someone at FINRA err?

Jain screwed up. He made a mistake. It was a lapse in judgment but not one derived from malicious intent -- and before you go there, I concede that some of the worst harm has been caused by lapses in judgment: the road to Hell is paved with good intentions. Ultimately, I don't think Jain needed to be hit with an AWC. I don't think that he needed to be fined. I don't think that he needed to be suspended. He needed to be admonished. Which he was. He needed to express remorse, which I'm guessing that he did.