January 28, 2022
In a recent FINRA regulatory settlement, a Barclays research analyst got a job offer from an issuer he was covering. FINRA makes the case that the job offer posed a conflict and should have been disclosed to the employer. Fair enough -- I agree; however, when considering FINRA's charges against the analyst, I was reminded of a similar scenario involving a FINRA hearing officer. As such, we have an interesting juxtaposition of FINRA regulating the industry and FINRA managing its own house. When it came to the non-disclosed conflict in the regulatory case, FINRA was out for blood and extracted a fine, suspension, and requalification. When it came to the in-house non-disclosed conflict, FINRA seemingly replaced a divot, took a mulligan, and hey, let's pretend it's just a friendly game of golf -- go ahead, Enforcement, take another swing at the ball.
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, Andrew Ang submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Andrew Ang entered the industry in December 2014; and by November 2019, he was a Research Analyst and General Securities Representative with FINRA member firm Barclays Capital, Inc. The AWC alleges that at Barclays, Ang was a junior analyst on a three-person team, and in his capacity as an equity research analyst, he covered the pharmaceutical sector. In the Matter of Andrew Ang, Respondent (FINRA AWC 2021069510201)
October 2020 Job Offer
Sometime in October 2020 -- about a year into his association with Barclays -- Ang was contacted by an executive recruiter concerning an open investor relations position at Issuer A. Notably, Issuer A was one of the issuers covered by Ang's team. In response to the recruiter's query, Ang indicated his interest in the job and transmitted his resume. At this point, the AWC alleges that:
[A] few days later, Ang discussed the open position with Issuer A's Senior Vice President for Global Finance and Investor Relations, who would be the immediate supervisor of the candidate hired. Ang subsequently reached out to the recruiter to express his continued interest in the position and to solicit feedback from Issuer A as to the firm's interest in hiring Ang. Shortly thereafter, the recruiter scheduled meetings for Ang with four additional Issuer A employees, including Issuer A's Director of Executive Talent Acquisition, with whom Ang met on October 29, 2020.
October 29th Research Report
By October 29, 2020, things had arrived to a point where it appeared that Ang was interested in Issuer A's job and that the company was interested in his candidacy and, well, here's what the AWC alleges:
By this point, the employment discussions had reached a level of seriousness, with mutual expressions of interest and Ang's candidacy clearly viable, such that he should have known that his employment discussions presented a material conflict of interest that required disclosure. On October 29, 2020, Barclays published a research report co-authored by Ang that provided analysis of Issuer A's recently announced third quarter 2020 financial results. The research report did not disclose that Ang was engaged in employment discussions with Issuer A.
Following the publication of the October 29th research report co-authored by Ang, he met with Issuer A's:
- Executive Director of Human Resources,
- Executive Director of the Office of the Chief Executive Officer;
- Vice President of Public Affairs, and
- Chief Financial Officer.
November 4th Research Report
On November 4, 2020, Ang met with Issuer A's CFO. On the same day, Barclays published another research report (co-authored by Ang) about several pharmaceutical companies including Issuer A -- but this report did not disclose Ang's employment discussions with the issuer.
November 17th Acceptance of Job Offer
After the November 4th report, Ang continued to meet with Issuer A's CFO and Senior Director of Investor Relations, and he eventually provided references. Thereafter, on November 17th, Ang accepted the offer of employment.
November 27th Notice of Interviewing
Ten days after he had accepted Issuer A's offer of employment, on November 27th, Ang finally informed Barclays' Research Compliance Department that he was interviewing with Issuer A. As the AWC asserts:
[O]n November 27, 2020, Ang informed the Barclays research compliance department that he was interviewing with Issuer A but did not disclose that he had already accepted an employment offer. Ang had not previously disclosed to anyone at Barclays that he had engaged in employment discussions with Issuer A. Ang resigned from Barclays on November 30, 2020, while the firm was conducting an internal investigation concerning his employment discussions with Issuer A.
How significant were Ang's purportedly undisclosed job-offer conflicts? The AWC alleged that reasonable readers of Ang's co-authored October 29th and November 4th research reports:
would have considered the conflict important to their investment decisions. Ang had a clear obligation to disclose his employment discussions with Issuer A in the research reports, yet he failed to do so. By virtue of the foregoing, Ang violated FINRA Rules 2241(c)(4)(I) and 2241(e). By virtue of those violations, he also violated FINRA Rule 2010.
In accordance with the terms of the AWC, FINRA imposed upon Ang a $10,000 fine, a six-month suspension from associating with any FINRA member in all capacities, and a requirement to requalify as a research analyst by passing the requisite examination (Series 86/87) prior to associating with any member firm acting in that capacity.
Bill Singer's Comment
Compliments to FINRA on drafting a comprehensive and persuasive AWC.
So . . . what we got here is a failure to communicate. As FINRA argues and as constitutes a finding in the AWC, Ang failed to timely disclose to his employer the conflicts engendered by his interviewing with Issuer A and by the offer of employment. Given the fact pattern in the AWC, I would say that FINRA made its case, and given that Ang signed off on the settlement with its sanctions, it would appear that he too felt that FINRA had alleged some failures to timely disclose conflicts. Accordingly, Ang is fined, suspended, and required to requalify. Part and parcel with the settlement is that his name is made public, the settlement is available for all to read on FINRA's website, and, FINRA's AWC goes into somewhat excruciating and painful detail about what And did and didn't do.
For an interesting variation on the non-disclosed-job-offer theme, consider:
FINRA Department of Enforcement, Complainant, v. Devin Lamarr Wicker, Respondent (FINRA Office of Hearing Officers Extended Hearing Panel Decision, Complaint No. 2016052104101 / March 21, 2019)
In pertinent part, consider this disclosure in the 2020 Wicker OHO Decision [Ed: footnotes omitted]:
In the Matter of Department of Enforcement, Complainant, v. Devin Lamarr Wicker, Respondent (FINRA Office of Hearing Officers Decision, Complaint No. 2016052104101 / June 5, 2020) (the "2020 Wicker OHO Decision")
In the Matter of Department of Enforcement, Complainant, v. Devin Lamarr Wicker, Respondent (FINRA National Adjudicatory Council Decision, Complaint No. 2016052104101 / December 15, 2021) (the "2021 Wicker NAC Decision")
c. Wicker's Argument that the Charges Should Be Dismissed Because of
Alleged Misconduct by Enforcement Fails
Wicker argues in his post-hearing brief that all of Enforcement's arguments, pleadings,
and evidence should be disregarded and the case against Wicker dismissed. He claims that
FINRA failed to provide him with the impartial forum to which he is entitled, and he alleges that Enforcement has engaged in contemptuous misconduct under FINRA Rule 9280. Rule
9280 authorizes an adjudicator to prohibit a party from supporting designated claims or
introducing matters into evidence as a remedy for contemptuous conduct during a proceeding.
Wicker's argument arises from a unique set of circumstances. The charges against
Wicker were originally heard and decided by another Hearing Panel, and after the decision was
issued the Hearing Officer on that Panel took a senior position in Enforcement. The Chief
Hearing Officer later learned that circumstances existed where the fairness of the former hearing
officer "might reasonably be questioned," which is a basis for an adjudicator's recusal under
FINRA Rule 9233.
In light of the circumstances, and pursuant to FINRA Rule 9233(a), the Chief Hearing
Officer vacated the original decision, ordered a new hearing with a different Hearing Panel, and
directed that no weight or presumption of correctness be given to any prior decisions, orders, or
rulings previously issued in the matter. In connection with the rehearing, additional steps were
taken to ensure (i) that no one involved in the rehearing had discussed the case with the former
Hearing Officer outside of the hearing process and Wicker's presence, (ii) that no one involved
in the rehearing was involved in the employment process that led to the former Hearing Officer
joining Enforcement, and (iii) that the persons in Enforcement who would conduct the rehearing
would not be supervised or evaluated by the former Hearing Officer in connection with the
The remedy in a case where an adjudicator should have disqualified him or herself for an
appearance of potential impropriety is to vacate that adjudicator's decision and provide another
trial free from any appearance problem. Wicker is incorrect that the circumstances here entitle
him to dismissal of the charges against him.
at Pages 36 - 37 of the 2020 Wicker OHO Decision
As Wicker's appeal of the OHO Decision made its way to the NAC, we have this rehash [Ed: footnotes omitted]:
Shortly after the November 2019 Order, a new Hearing Officer conducted several prehearing conferences with Enforcement and Wicker's attorney to discuss the proceeding. During the first conference, the Hearing Officer explained that she would conduct the proceeding "as a new case. It's a fresh start. It's a clean slate." The Hearing Officer explained that it was her understanding that the Chief Hearing Officer vacated the First Hearing Panel's decision because she learned that, after issuance of the First Hearing Panel's decision, the Former Hearing Officer was hired by Enforcement. The Hearing Officer further explained that the Chief Hearing Officer had determined that these circumstances "created a situation where the fairness of the earlier proceeding might reasonably be questioned." . . .
at Pages 8 - 9 of the 2021 NAC Wicker Decision
In case you missed the nuance, in 2019, FINRA's Chief Hearing Officer ("CHO") vacated a Decision issued by a FINRA Office of Hearing Officers ("OHO") Panel after the CHO had determined that the Hearing Officer, who had presided presiding over the Wicker OHO Panel, "was hired by Enforcement."
In contrast to the Ang AWC, note the paucity in the 2020 Wicker OHO Decision and the 2021 Wicker NAC Decision of names, dates, and events; e.g.:
well, you get the gist of where I'm going with all of this, right? And if you don't, simply consider all the factual assertions and allegations set out in the Ang AWC and see if you find the same granularity in the Wicker OHO/NAC Decisions. While you're doing all that pondering, remember that stuff about what's good for the goose and what's good for the gander.
- who the Hearing Officer was,
- who interviewed the Hearing Officer,
- the dates of the interviews,
- the nature of the job being offered,
- why FINRA approached a Hearing Officer with a job in Enforcement without immediately sidelining that Hearing Officer from any further docket items,
- whether any Enforcement lawyer prosecuting Wicker's case knew of the interviews,
- whether any Enforcement lawyer requested to be removed from the case because of the Hearing Officer's conflict,
- whether anyone at FINRA considered the propriety of disclosing the interviews to the Respondents,
- whether the FINRA Board of Governors was fully informed on a contemporaneous basis of the job interviews,
- whether anyone in FINRA Senior Management was aware that Enforcement was compromising the integrity of the FINRA regulatory process by offering employment to a Hearing Officer who should be a "neutral," and,
As we learn in the Wicker OHO/NAC Decisions, FINRA's Department of Enforcement prosecuted a regulatory case against Respondent Wicker. As FINRA would have us believe, its contested hearings are adversarial and fair. Of course, that belief-system may not prove all that credible when we learn that the OHO Hearing Officer is conducting a hearing while she is being interviewed by Enforcement for a job, is offered the job, and accepts the offer. Making matters worse, the 2021 Wicker NAC Decision states that the Hearing Officer's job-interview-offer-acceptance in the middle of a purported adversarial, contested hearing "created a situation where the fairness of the earlier proceeding might reasonably be questioned."
Might reasonably be questioned?
While we're dredging all of this stuff up, let's consider just a bit more context as to the impact of the conflicted Hearing Office's non-disclosure of Enforcement's job offer to the Respondent Wicker:
Wicker argues, as he did to the Hearing Panel in a post-hearing brief, that the proceeding against him should be dismissed pursuant to FINRA Rule 9280. He argues that, absent dismissal of this entire proceeding, the integrity of FINRA's adjudicatory process is at risk. Wicker bases his argument upon what he characterizes as the "blatant, ongoing conflict" resulting from Enforcement's negotiations with the Former Hearing Officer, which he asserts occurred during the proceeding before the First Hearing Panel. Based upon these allegations, Wicker claims that Enforcement had unclean hands, which prevents it from bringing a disciplinary proceeding against him. As set forth below, and based upon this record, we find that the Hearing Panel did not abuse its discretion in denying Wicker's request to dismiss the proceeding. Wicker received a fair proceeding before an impartial adjudicator where his ability to defend himself was not hindered or impaired.
at Page 14 of the 2021 Wicker NAC Decision
Oh, and, before we move on to other things, let's not forget this from the 2021 Wicker NAC Decision:
At this juncture, it would be fair to ask "What's your point, Bill?"
Footnote 21: Wicker's argument set forth in his post-hearing brief filed in March 2020-that the Former Hearing Officer and Enforcement were engaged in negotiations during the first proceeding and Enforcement obtained a favorable ruling in that proceeding because it "dangled the carrot" of a job to the Former Hearing Officer-undercuts his argument that he lacked sufficient information to seek discovery during the second proceeding and only learned of information sufficient to seek such discovery in January 2021 upon receiving the supplement to the record. Further, we reject Wicker's claim that the Hearing Panel failed to address Enforcement's role in hiring the Former Hearing Officer and only looked at the Former Hearing Officer's failure to recuse herself or provide notice to the parties. The Hearing Panel decided Wicker's request to dismiss the case under FINRA Rule 9280 based upon the record before it, and as set forth above, the appropriate remedy was applied here.
I'm not quite sure.
Sometimes things just strike me as interesting. I can't quite put my finger on it but FINRA's handling of an employment-offer conflict in the Ang AWC seems very different from FINRA's handling of an employment-offer conflict in the Wicker OHO/NAC Decisions. Moreover, FINRA's Board seems to have opted to do nothing and say nothing, and, frankly, I think the Board owed the membership and the industry a detailed report in which it ferreted out just how the hell anyone at FINRA thought it would even be okay for Enforcement to dangle a job offer before an OHO Hearing Officer without first sequestering that Hearing Officer from any further role with the regulatory docket.
Then there's the whole issue of what should FINRA have done per its case against Wicker, which, to most reasonable persons would now seem hopelessly conflicted. The underlying facts in FINRA's case against Wicker are troubling and would seem to present a danger to the investing public; on the other hand, FINRA's conduct in prosecuting Wicker is also troubling and seems to pose its own set of danger to the industry and the public. As the legendary English jurist William Blackstone so famously enunciated in what is now known as "Blackstone's Ratio": "It is better that ten guilty persons escape than that one innocent suffer." The dilemma we are presented with in Wicker is solely of FINRA's making. It is difficult to reconcile FINRA's high dudgeon in the Ang AWC with its do-over mentality in the 2021 Wicker NAC Decision.
In presenting the Ang AWC side by side with the 2020 Wicker OHO Decision and the 2021 Wicker NAC Decision, it doesn't all come off as particularly consistent. For starters, someone send me a link to the online report on FINRA's website where the FINRA Board of Governors published an unedited/unredacted independent report conducted by independent, outside counsel appointed by the Board -- not some errant references in a self-serving OHO or NAC decision. Never explained in the 2020 Wicker OHO Decision or 2021 Wicker NAC Decision is why anyone at FINRA thought that interviewing a sitting OHO Hearing Officer for a job with Enforcement was even remotely appropriate -- and, while you're thinking that over, also explain why the Hearing Officer wasn't immediately sidelined once the interview process began. Similarly, what conflict is now embedded into the FINRA disciplinary system because OHO Hearing Officers are aware that they could be offered jobs in Enforcement? How do you un-ring that bell?
Notwithstanding my ambivalence noted above, the biographies of FINRA's Hearing Officers are troubling when viewed in the aggregate. Of the 10 FINRA Hearing Officers, 7 had some FINRA employment prior to their hearing officer role. As to the remaining three previously-non-FINRA-affiliated Hearing Officers, each of them was employed by the SEC. Again, such prior roles in self- or federal-regulation do not disqualify anyone from serving as a FINRA Hearing Officer, nor does such prior employment (in and of itself) render an individual biased or conflicted. On the other hand, it is the appearance of bias or conflict that justly prompts complaints such as those raised by the anonymous Guest Blogger. To make the point, imagine if 7 of the Hearing Officers were former in-house counsel at Wells Fargo or JP Morgan, and the other 3 were former lawyers at major law firms representing financial services firms. In that latter scenario, PIABA and other public advocates would scream bloody murder -- and with justification.
FINRA Department of Enforcement, Complainant, v. Devin Lamarr Wicker, Respondent (FINRA Office of Hearing Officers Extended Hearing Panel Decision, Complaint No. 2016052104101 / March 21, 2019)