Quite often, Wall Street's regulatory settlements leave me feeling ambivalent. Or, as I joke, I wind up with three hands -- on the one hand, on the other hand, and then on the other, other hand. All of which means that you see where the regulator had a point in sanctioning the Respondent, however, also, you think that the sanctions may have been a bit over the top, however, after thinking it all over, you're not so sure why the regulator bothered but you also never quite understand just what the hell the Respondent was thinking. A recent FINRA AWC settlement left me feeling ambivalent with all three -- maybe even four -- of my hands.
After receiving the other side's last-best-settlement-offer, a client says "no;" and then he tells his lawyer that he will fight on as a "matter of principle." Having heard that line before, the client's lawyer responds with the warning that "principle comes with interest." The client doesn't quite get the joke. Of course once you have to explain why something's funny, it isn't funny anymore. Speaking of something not be funny anymore, read about a recent FINRA arbitration in which a stockbroker declined to indemnify his former brokerage firm for a customer settlement. You got principle. You got a whopping amount of interest.
What follows is yet another bit of indulgence by those at the SEC who have serious things to do but, instead, find time to give speeches, attend seminars, make podcasts, film videos, and do all sorts of stuff that doesn't quite advance Wall Street reform, doesn't quite protect vulnerable investors, and doesn't quite pursue the scamsters and fraudsters. For several years there has been a clamor to implement some form of crypto regulation. Even if only first-stage in design and with the full intent to adapt on the run. Something, anything might have protected those now devastated by the FTX debacle. Instead, we got nothing. We got regulatory turf wars. We got petulance and inaction.
When a government prosecutes criminal misconduct, the Defendant is protected by constitutional and due process rights. When a non-governmental actor like FINRA pursues industry misconduct, however, a Respondent is often deprived of constitutional and due process rights. That distinction explains why courts generally allow for the imposition of penalties in criminal cases but only the imposition of sanctions in civil and regulatory cases. All of which explains why alarms go off when FINRA imposes what it calls a sanction but what others might view as a penalty, as demonstrated in a recent FINRA regulatory settlement.