Giles represents that he reported the Order to FINRA "as soon as he became aware of it earlier this year," and FINRA states that Giles disclosed it in mid-March of 2021. On March 24, 2021, FINRA sent Ameriprise a notice (the "Notice") that, due to the Order, Giles is subject to a statutory disqualification under Exchange Act Section 3(a)(39). The Notice informed Ameriprise that, unless it provided FINRA with proof that Giles had complied with the Order's sanctions and the sanctions were no longer in effect, Ameriprise "must, by April 12, 2021, either initiate the Membership Continuance process in order to obtain approval for the association [with Giles], or terminate the association." On Ameriprise's request, FINRA extended this deadline to May 3, 2021. 3 Giles now represents that Ameriprise "has indicated it will not" file a membership continuance application on his behalf.= = = = =Footnote 3: Giles represents that FINRA extended the deadline to May 5, 2021, but the record reflects that FINRA extended the deadline to May 3, 2021.
SIDE BAR: As set forth on page 4 of the SEC Order [Ed: footnote omitted]:
Under Exchange Act Section 3(a)(39)(F), a person is subject to a statutory disqualification if he or she is subject to an order enumerated in Exchange Act Section 15(b)(4)(H)(i), which in turn describes "any final order of a . . . State insurance commission . . . that . . . bars such person . . . from engaging in the business of . . . insurance." . . .
whether: (i) there is a strong likelihood that the movant will eventually succeed on the merits of the appeal; (ii) the movant will suffer irreparable harm without a stay; (iii) no other person will suffer substantial harm as a result of a stay; and (iv) a stay is likely to serve the public interest. Although the first two factors are the most critical, our decision depends on balancing all four factors. Thus, a stay may be warranted even if the movant has not shown a strong likelihood of success, as long as the movant raises a "serious legal question on the merits" and shows that the other factors weigh decidedly in his favor. "Because the moving party must not only show that there are serious questions going to the merits, but must additionally establish that the balance of hardships tips decidedly in its favor, its overall burden is no lighter than the one it bears under the likelihood of success standard." . . .
As we have held, a state order may indicate that the order is a bar, and therefore that the person is disqualified, even if it fails to include the word "bar."15 We therefore, at this stage, reject Giles's contention that the Order is not a bar for purposes a statutory disqualification because the Order uses the word revocation and not bar.= = = = =Footnote 15: Id.; see also Crowdfunding, Exchange Act Release No. 70741 (Oct. 23, 2013), 78 Fed. Reg. 66,428, 66,502 (Nov. 5, 2013) (proposed rules) (stating, in proposing rules regarding statutory language that is "substantively identical" to Exchange Act Section 15(b)(4)(H), that "bars are orders issued by one of the specified regulators that have the effect of barring a person from . . . engaging in the business of . . . insurance . . . , regardless of whether it uses the term 'bar' "); Disqualification of Felons and Other "Bad Actors" from Rule 506 Offerings, Exchange Act Release No. 9414 (July 10, 2013), 78 Fed. Reg. 44,730, 44,740-41 (final rule) (making similar statement in final rule regarding "essentially identical" statutory language).
SIDE BAR: "Gregory Acosta Hands FINRA An Earth Shattering, Precedent Setting, Historic, Stunning Defeat" (BrokeAndBroker.com Blog / June 24, 2020)http://www.brokeandbroker.com/5291/finra-sec-acosta/
Former Kestra Investment Service, LLC representative Gregory Acosta was notified by the Financial Industry Regulatory Authority ("FINRA") that it deemed him subject to a "statutory disqualification" as set forth pursuant the Section 3(a)(39) of the '34 Act. Pursuant to such a designation, FINRA informed Acosta that he was not allowed to continue his association with Kestra unless that member firm requested and received FINRA's approval for his continued affiliation. In a dramatic and historic decision, the SEC held that it had jurisdiction over the dispute because FINRA's conduct "effectively bars Acosta from associating with any FINRA member." After considering the arguments of Acosta and FINRA, the SEC set aside FINRA's action.
[G]iles argues that the Order does not constitute a bar because we did not treat a similar California order as a bar in Acosta. But in Acosta we had no reason to determine whether the California order constituted a bar. FINRA had based its determination that Acosta was subject to a statutory disqualification on a different statutory provision. Specifically, FINRA found Acosta statutory disqualified not because it determined he was subject to a bar from engaging in the business of insurance but because it determined that the California order was "based on violations of any laws or regulations that prohibit fraudulent, manipulative, or deceptive conduct." The California order in Acosta is also distinguishable because it issued Acosta a restricted license in lieu of revocation, rather than revoking his license outright as California did to Giles's license here. Thus, we find that Giles has not raised a serious legal question on the merits regarding these first two arguments.
While the Order did not preclude Giles from reapplying for a license for a period of time as did the order in Meyers Associates, Giles has not, however, made a strong showing of a likelihood of success on the merits. Under California law, unless an exemption applies, a person without an insurance license "shall not solicit, negotiate, or effect contracts of insurance" and may not "act in [certain] capacities defined in" the California Insurance Code. Thus, because the Order has revoked Giles's license, he cannot engage in many critical aspects of the business of insurance in California. Arguably, then, unless and until Giles's license is reinstated, he remains subject to an order that has the practical effect of barring him from engaging in the business of insurance in California, regardless of whether he can reapply for a license.
Giles states that he would be "deprived of his livelihood" absent a stay and that he "has spent 30 years building his business and reputation in this industry." But Giles has not demonstrated that he will have to end his association with his current firm absent a stay, let alone leave the industry. Although Giles's stay motion alleges that Ameriprise "has indicated it will not file" a membership continuance application on his behalf, he does not present a declaration from Ameriprise or any other evidence supporting this allegation. And even if Ameriprise-- which successfully requested an extension of FINRA's deadline for terminating Giles--declines to file a membership continuance application on his behalf, he could potentially find another firm to do so. Also, Giles does not seem to seriously dispute that he could find another member firm to sponsor him, stating in his reply brief that, "[e]ven if Mr. Giles could find another member firm willing to sponsor a membership application, he cannot be required to do so." Giles does not argue that FINRA or the Commission would likely deny such a membership continuation application, or that the membership continuation process itself would cause great harm to him. Thus, because the Notice may not even cause Giles to leave the industry, he has not shown that he would be subject to a "certain" or "great" injury, absent a stay.Even if Giles would lose his employment in the industry absent a stay, "the loss of employment income does not necessarily establish irreparable harm-even when the loss is unrecoverable." For example, unrecoverable loss of income does not rise to the level of irreparable harm if an individual could obtain another job during the pendency of the appeal. Similarly, loss of income does not rise to the level of irreparable harm if an individual fails to show that he or she would be in financial distress absent a stay. Here, Giles has not shown that, absent a stay, he would be unable to obtain another job or be in financial distress. Indeed, he has put on no evidence of his likely financial situation absent a stay. And even his allegations about his likely financial situation lack sufficient detail to demonstrate that he would be unable to find another job or be in financial distress absent a stay.
at Page 10 of the SEC OrderGiles also does not contest that he failed to report the 2009 revocation to FINRA for over a decade, even though FINRA rules required him to report license revocations. Giles explains the delay in reporting the revocation by stating that "he was unaware that his insurance license was revoked until recently." But his application for review suggests that he at least knew about the Accusation, which Giles was also required to report to FINRA. In addition, the Accusation informed Giles that his license could be revoked, suggesting that he should have monitored the proceeding to see if he had to report an eventual revocation to FINRA. Also, Giles does not provide details about why he failed to receive the order, such as whether he conformed to his obligation under California law to keep his address with the Commissioner updated.On the record before us, Giles seemingly fails to appreciate the significance of his conduct. He does not seem to recognize that his failure to respond to the Commissioner's inquiries, failure to respond to the Commissioner's Accusation, and failure to report the Accusation or Order to FINRA suggest a concerning disregard for regulatory oversight. And associated persons' respect for regulatory oversight is critical to FINRA's ability to protect investors, particularly given that FINRA relies upon the cooperation of associated persons and their compliance with reporting obligations when carrying out its self-regulatory functions.
Giles cites Jeffrey Ainley Hayden, Exchange Act Release No. 42772, 2000 WL 649146 (May 11, 2000). In Hayden, a self-regulatory organization failed to bring disciplinary charges against the applicant until "approximately fourteen years after the first act of misconduct and over six years after the last incident," even though it received notice of the misconduct about five years before it brought charges. Id. at *2. Here, Giles does not allege that FINRA was aware of the Order but declined to act upon it. Indeed, he does not dispute that he failed to report the Order to FINRA until recently. He points out that the Order "has been publicly available since it was issued in 2009," but he does not explain how FINRA could have learned about it. Also, unlike in Hayden, FINRA has not brought disciplinary proceedings here. Instead, FINRA has determined that Giles is and has been subject to a statutory disqualification since the issuance of the Order in 2009. If anything, FINRA's delay in discovering the Order seems to have benefited rather than prejudiced Giles, as he has been able to continue associating with a FINRA member firm for many years since he allegedly became subject to a statutory disqualification.
FINRA attached to its opposition brief a separate May 6, 2021 determination that Giles is statutorily disqualified based on two other states' orders revoking his insurance licenses. But Giles has not filed an application for review as to this second determination, and it is therefore not before us. In addition, Giles's reply brief states that he recently reapplied for his insurance licenses in these two states, and one of these reapplications has been granted.
Upon consideration of the record and the briefs filed, we believe that additional briefing would "significantly aid the decisional process." Specifically, the parties are directed to address whether the Commission should dismiss Giles's application for review as moot.Accordingly, it is ORDERED that the parties submit briefs addressing the foregoing issues. Giles's opening brief shall be filed by September 27, 2021. FINRA's response shall be filed by October 12, 2021. Giles may file a reply by October 26, 2021. Pursuant to Commission Rule of Practice 180(c), Giles's failure to file an opening brief on this issue may result in dismissal of this review proceeding.