August 13, 2022
Early on in "Macbeth," the eponymous character famously muses about cases, bloody instructions, even-handed justice, and a poisoned chalice. Those lines are summoned up by a recent FINRA regulatory settlement barring a former Merrill Lynch employee for getting paid unearned overtime. Will FINRA be plagued by this case because the misdeed of the employee is treated far worse than the similar misdeed of the employer? Indeed, FINRA's disparate treatment of employees of FINRA's Large Member Firms and those Large Member Firms themselves is a poison that fills the regulator's chalice. Has the regulator developed an immunity to its uneven regulation?
It's not that rare a scenario. An investor is victimized by fraud and suffers significant financial losses. The victim seek out a lawyer to sue the brokerage firm, the stockbroker, and anyone else with a pocket. At some point, the investor learns that the brokerage firm and stockbroker filed for bankruptcy -- and maybe the Director of Compliance, the Chief Executive Officer, the President, and the part-time janitor (all of whom were named in the lawsuit). Now what? Can the victimized investor sue a firm or individual who had filed for bankruptcy? The answer is that it depends. Consider a recent case to see how some of these issues actually play out.
Imagine that Joe, Jack, and Jim are charged with a criminal conspiracy, but Joe and Jack refuse to plead guilty. In contrast, Jim fully cooperates against Joe and Jack. After getting their days in court, Joe and Jack are convicted and sentenced to prison. Although Jim becomes a convicted felon via his plea, he serves only one-day in prison but has to pay a $1 million fine. On appeal, Joe and Jack's convictions are reversed. Is Jim still guilty of being part of conspiracy despite the fact that the other two co-conspirators are not guilty of fraud? Does Jim have his felony plea dismissed? Does Jim get his $1 million fine back?