BrokeAndBroker.com Blog publisher Bill Singer is a fairly dyspeptic fellow. Most days, he's in a bad mood. Other days, he's in a worse mood. As to trying to get to Bill on a "good" day, don't waste your time. Ain't gonna happen. As to why Bill is such a dour countenance, consider the recent seven-year saga involving the burning question of when is a suspension not a suspension. The quick answer is when FINRA orders a suspension but decides not to impose the suspension because the self-regulatory-organization also imposed a Bar. The old suspension of disbelief!
The 2013 FINRA Complaint, the 2015 FINRA OHO Decision and the 2017 FINRA NAC Decision
Yeah, here we are, 2022, and why the hell are we talking about misconduct that's anywhere from 10 to 14 years old? Puhlease don't get me started! As you likely have figured out, this omniscient voice speaking to you from this article is none other than the very dyspeptic, dour countenanced Bill Singer. I ain't in a good mood right now. This idiocy masquerading as regulation -- inept and ineffective regulation -- ain't putting a smile on my face.
After a FINRA Office of Hearing Officers ("OHO") hearing was conducted in 2015, Respondent Louis Ottimo was barred by an OHO Hearing Panel. Ottimo appealed to FINRA's National Adjudicatory Council ("NAC"). Little did we know that seven years later, Ottimo's appeal would still be ongoing. We sit as spectators in the old regulatory stands, and we watch an uninspired game of tennis where FINRA and the SEC volley back and forth with little regard for actually winning the game. As set forth in part in the 2017 FINRA NAC Decision:
Louis Ottimo appeals an Extended Hearing Panel decision issued on July 10, 2015. The Extended Hearing Panel found that Ottimo fraudulently omitted material information in a personal biography in the offer and sale of securities, in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), Rule 10b-5 thereunder, and FINRA Rules 2020 and 2010. It further found that Ottimo willfully failed to disclose or disclose timely on the Uniform Application for Securities Industry Registration or Transfer ("Form U4") material information related to his unsatisfied tax liens, judgments, and a bankruptcy filing, in violation of FINRA Rules 1122 and 2010, NASD IM-1000-1, and Article V, Section 2(c) of FINRA's ByLaws. For his fraud violation, the Extended Hearing Panel barred Ottimo from association with any FINRA member in all capacities. For his Form U4 violation, the Extended Hearing Panel assessed, but in light of the bar did not impose, a $25,000 fine and a two-year suspension in all capacities. The Panel also found Ottimo's misconduct was willful, as a result of which he was statutorily disqualified. On appeal, Ottimo challenges before the National Adjudicatory Council ("NAC") the Extended Hearing Panel's fraud findings and corresponding sanction. He does not challenge the Extended Hearing Panel's Form U4 findings but requests the NAC to reduce the Panel's assessed sanctions. Based on an independent review of the record, we affirm the Extended Hearing Panel's findings of violation and sanctions.
Ottimo entered the securities industry in 1995. He was employed with several FINRA member firms before he joined his father's brokerage firm, EKN Financial Services Inc. ("EKN" or "Firm"), as a general securities representative in 2008. Prior to his association with EKN, Ottimo was the co-owner of Jet One Jets, Inc. ("Jet One Jets"), a broker that arranged private jet charters, and the owner and president of Wheatley Capital Corporation ("Wheatley"), a company that handled back-office operations for EKN. In February 2012, Ottimo created and sold interests in First Secondary Market Fund LLC ("Fund"), a special purpose vehicle created to purchase shares of Facebook Inc. ("Facebook") in the secondary market before its initial public offering ("IPO"). FINRA expelled EKN in October 2012. Ottimo's most recent employer terminated his registration in February 2014 and he has not associated with a FINRA member firm since then.
2018 SEC Appeal
The NAC affirmed the OHO's findings that Ottimo had fraudulently omitted to disclose material information in a personal biography in the offer and sale of securities and had willfully failed to disclose or disclose timely on his Form U4 material information related to his unsatisfied tax liens, judgments, and a bankruptcy filing, in violation of FINRA. Consistent with his prior response, Ottimo appealed FINRA's findings and sanctions to the SEC. In the Matter of the Application of Louis Ottimo For Review of Disciplinary Action Taken by FINRA (Opinion, SEC, '34 Act Rel. No. 83555; Admin. Proc. File No. 3-17930 / June 28, 2018)
http://brokeandbroker.com/PDF/OttimoSEC180628.pdf As set forth in the preamble of the SEC Opinion:
Louis Ottimo, a former registered representative with EKN Financial Services Inc. ("EKN"), a former FINRA member firm, seeks review of a FINRA disciplinary action finding that he fraudulently omitted information from his biography in a private placement memorandum (the "PPM") in violation of Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, and FINRA Rules 2020 and 2010. FINRA also found that Ottimo failed timely and accurately to update his Uniform Application for Securities Industry Registration or Transfer ("Form U4") to reflect unsatisfied tax liens, judgments, and a bankruptcy filing in violation of FINRA Rules 1122 and 2010, NASD IM-1000-1, and Article V, Section 2(c) of FINRA's ByLaws. For the fraud violations, FINRA imposed a bar. For the Form U4 violations, FINRA assessed -- but in light of the bar did not impose -- a $25,000 fine and a two-year suspension in all capacities. FINRA also found that Ottimo's misconduct was willful and that he was statutorily disqualified from association with a FINRA member firm as a result.
We affirm FINRA's finding of the Form U4 violations, which Ottimo does not challenge, and affirm in part its findings of fraud as to the PPM. But part of FINRA's fraud findings is not supported by the record. Accordingly, we remand for FINRA to reassess the sanctions.
2020 FINRA NAC Decision (on remand from the SEC)
Ain't Wall Street regulation grand! Having started this regulatory idiocy with a 2013 FINRA Complaint, we now have spent some nine years on a case in which FINRA barred Ottimo; however, the SEC remanded the case back to FINRA because the federal regulator found that "FINRA's fraud findings is not supported by the record." My, how inconvenient! Imagine that -- FINRA barred a respondent despite the underlying findings were not supported by the record. What a minor point for the SEC to raise . . . I mean, c'mon, does FINRA really have to prove its cases before barring folks? Since when??
Sort of cutting to the chase here, this is what is published under "Conclusion" in the NAC's 2020 remand Decision:
For committing fraud, Ottimo is barred from association with any FINRA member in all
capacities. Ottimo is ordered to pay hearing costs totaling $11,037.51 and appeal costs totaling
$1,692.50. The bar will become effective immediately upon issuance of this decision.
That seems clear enough. But wait, factor in this tidbit from the 2020 NAC Remand Decision:
Accordingly, we suspend Ottimo in all capacities for two years and fine him $25,000, but
do not impose these sanctions in light of his bar from the securities industry for his fraud. These
sanctions are consistent with the Guidelines and appropriately remedial to ensure that associated
persons, like Ottimo, provide complete, accurate, and timely updates to the Form U4 in
accordance with FINRA rules.
at Page 10 of the 2020 NAC Remand Decision
Lemme see if I got this.
The NAC barred Respondent Ottimo for committing fraud and ordered him to pay $11,037.51 in hearing costs and $1,692.50 in appellate costs.
The NAC suspended Ottimo in all capacities for two years and fined him $25,000 (not for "fraud" but for Form U4 violations); however, the NAC declined to "impose" the suspension and fine in light of his Bar.
What the hell is the point of FINRA not imposing a suspension and fine when FINRA indicated that it was suspending and fining Ottimo, and also, for good measure, barring him? C'mon already.
Apparently, FINRA wanted to sanction the Form U4 violations with a two-year-suspension and fine -- that would make sense in the event that Ottimo might appeal again to the SEC. In keeping with that approach, if the fraud conviction was thrown out on remand back to the SEC, then FINRA has preserved a separate conviction and sanctions for the Form U4. If that's the strategy, then the NAC should impose the Bar and the suspension and the fine. Which means that the NAC should once again impose the suspension and fine; or, in the alternative, if you're not going to do so, then don't mention it in the NAC Decision on remand. You know, this is your second bite at the same apple. Let's try to clean things up at this belated point in time.
Y'all might note that in 2022, the SEC's Administrative Proceeding File number is "3-17930r," which means that the little "r" there is for remand. Isn't that cute? Too bad that the SEC didn't wait until June 28th to post the Opinion because that would have been the fourth anniversary to the day when it issued the plain-old 3-17930 in 2018 without that oh-so-cute little "r." Again, so as to respect your time and just get to the spoiler alert, the SEC sustainedFINRA's imposition of a Bar on Ottimo. In explaining its rationale, the SEC offers us this somewhat anticlimactic rationale [Ed: footnotes omitted]:
[I]n any case, we find that a bar is necessary to
protect the public from Ottimo's demonstrated propensity for fraudulently omitting information
material to prospective investors. Ottimo not only recklessly omitted such information here but
then attempted to pressure investors into saying that had they known additional information
about Ottimo it would not have mattered to them. In these circumstances, we find a bar
warranted to remedy the risk that otherwise Ottimo would again defraud investors in the future.
As a result, barring Ottimo is not punitive. FINRA bars are not punitive where they are
imposed "to protect the public." Given that aggravating factors predominate here and that
Ottimo has failed to establish the presence of any mitigating factors, he has not shown that a
sanction less than a bar would protect the public and would be appropriate for the serious fraud
violation we have sustained. Accordingly, we sustain the bar FINRA imposed on Ottimo. We conclude, with due regard for the public interest and the protection of investors, that the bar is
not excessive or oppressive here but a necessary remedial measure.
at Pages 12 - 13 of the SEC 2022 Decision on Remand
I've thought long and hard as to my postscript for this Ottimo-FINRA-SEC saga. My anger and frustration with the half-assed nature of Wall Street's belabored regulatory process got the better of me and all that came out was some foul-mouthed sputtering, which seems to be a somewhat common outcome for me when writing about FINRA or the SEC. Nonetheless, there was this tune that I just couldn't get out of my head, and, you know, maybe that ear-worm says it all far better than I could.