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FINRA Fines and Suspends Former SagePoint Rep Who Didn't Actually Know Anything
November 18, 2022
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.
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, John M. Selleh submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted.
In the Matter of John M. Selleh, Respondent (FINRA AWC 2021072636102)
https://www.finra.org/sites/default/files/fda_documents/2021072636102
%20John%20M.%20Selleh%20CRD%201292048%20AWC%20lp.pdf
%20John%20M.%20Selleh%20CRD%201292048%20AWC%20lp.pdf
Cooperation and Candor
The AWC asserts that John M. Selleh entered the industry in 1984; and October 2008 to October 2021, he was registered with SagePoint Financial, Inc. The AWC asserts in part that:
[I]n a Uniform Termination Notice for Securities Industry Registration (Form U5) filed on October 1, 2021, SagePoint reported that it had discharged Selleh because it was "dissatisfied with [the] level of cooperation and candor of [Selleh regarding] inquiries into activities of a former financial professional." . . .
The AWC asserts that SagePoint's Form U5 stated that the firm had discharged Selleh because it was dissatisfied with his cooperation/candor. Cooperation? Candor? On Wall Street -- really? Like since when??
FINRA Sanctions
In accordance with the terms of the AWC, FINRA imposed upon Selleh a $5,000 fine and a six-month suspension from associating with any FINRA member in all
capacities.
37 Years of Zilch
As of November 18, 2022, online FINRA BrokerCheck disclosures assert that since October 2021, Selleh has not been registered. Further, during Selleh's registered industry career running from 1984 to 2021 (about 37 years), BrokerCheck does not disclose a single customer complaint or regulatory action or arbitration or, frankly, anything. His industry record is essentially clean, as in zilch; but for the new blot of a $5,000 fine and a six-month sit-down. Not quite sure how you spend six months on suspension when you're not registered but I'll leave that for the folks at FINRA to ponder.
Only One Call Away
Here's the guts of FINRA's case against Selleh, as set out in part in the AWC:
On September 16, 2021, while associated with SagePoint as a registered principal, Selleh received a phone call from a registered representative at a different FINRA member firm seeking Selleh 's assistance in responding to an internal investigation by that other firm. Selleh had supervised that representative at SagePoint from August 2018 until the representative departed in August 2021.Over the next week, Selleh materially assisted the representative in responding to the other firm's investigation. Selleh helped the representative draft a written response to the other firm that falsely represented that the representative had invested a customer's assets in a loan. Selleh also helped the representative draft a promissory note to document the purported loan and compose purported meeting notes with the customer. While Selleh did not actually know about the representative 's misconduct (which involved stealing the customer's assets), he acted recklessly in assisting the representative given various red flags, such as the representative 's desire to recreate and backdate a purportedly six-year-old promissory note as well as material inconsistencies between what the representative told Selleh and information that appeared in the purported customer meeting notes.On September 23, 2021, the representative informed Sell eh that he had been terminated by the other firm and warned Selleh that he had told his firm that Selleh had a copy of the purported promissory note. The following day, on September 24, 2021, SagePoint personnel met with Selleh. Selleh falsely told them that he did not have the note and did not help the representative draft it. SagePoint personnel had a second meeting with Selleh two business days later, at which time Selleh told the truth and produced the requested document.By materially assisting another registered representative in providing false information to another member firm and by making false statements to his own firm, Selleh violated FINRA Rule 2010.
Okay, so, lemme see what we got here.
On September 16, 2021, a rep from another FINRA firm (as in NOT SagePoint) telephoned Selleh. The rep had been at SagePoint, where Selleh had supervised him from August 2018 until August 2021. So . . . the former SagePoint rep called his former SagePoint supervisor and the call was NOT about an internal investigation at SagePoint but apparently at the firm to which the rep had decamped after leaving SagePoint. Strikes me as two guys shootin' the breeze, as in "Hey, John, how ya doin? Listen, got a quick question for you. Was wondering how you would respond to a question from a compliance officer about a promissory note and a customer?"
As best I understand the AWC, during the unfolding week following the phone call at issue, Selleh helped the rep draft a response to the other firm. Draft, as in Selleh didn't sign his name to anything and may well have suggested how to format a response and the type of answers that a compliance officer would likely be expecting. As to just what the rep told Selleh, as to what Selleh understood about the underlying issues, as to what Selleh actually wrote, well, FINRA doesn't quite care to share that with us. Here is what the AWC alleges:
Help!Selleh helped the representative draft a written response to the other firm that falsely represented that the representative had invested a customer's assets in a loan. Selleh also helped the representative draft a promissory note to document the purported loan and compose purported meeting notes with the customer. . . .
FINRA is a regulator. The AWC is a regulatory document setting out the terms of a settlement and the underlying facts. We're not engaging in a creative writing assignment. This is serious. As such, I place emphasis on FINRA's choice of words in the AWC.
When FINRA says that Selleh "helped" the rep draft a response and a promissory note, I infer that if FINRA believed that Selleh "drafted" the response/note, then FINRA would have said as much. As such, "help" to draft is not the same as "draft."
Departing from the characterization "draft," FINRA separately alleges that Selleh "helped" the rep "compose" meeting notes. You'd sort of think that a regulator would place a premium on the use of consistent, concise language when alleging misconduct but apparently FINRA is not adverse to peppering its AWC with synonyms, unless, "compose" was not meant as a synonym for "draft," in which case, Selleh helped the rep draft two things and compose one.
Given that FINRA has abandoned consistent, concise language in favor of a more expansive lexicon, let me try to rein things in a bit. Here are two things that the AWC did NOT actually allege about Selleh:
1. He is not actually charged with having had any role whatsoever in drafting the original promissory note by which the "rep" apparently defrauded a client; and2. He is not actually charged with having ever knowing and/or communicating with the victimized customer about the promissory note, the underlying loan, or, in fact, anything.
I am making a big deal about the difference between Selleh actually "helping" the other rep "draft" documents versus Selleh actually writing them.
I am making a big deal about Selleh actually knowing that what was written was false.
I am making a bid deal about Selleh actually knowing that the documents would be used to lie to the other firm's compliance staff.
I am making a big deal about Selleh actually knowing that the rep had engaged in a fraud upon his customer.
Why am I making such a bid deal about that word "actually"? Because FINRA uses the word "actually" in the AWC, and it is used to make a damaging implication:
While Selleh did not actually know about the representative's misconduct (which involved stealing the customer's assets), he acted recklessly in assisting the representative given various red flags, such as the representative 's desire to recreate and backdate a purportedly six-year-old promissory note as well as material inconsistencies between what the representative told Selleh and information that appeared in the purported customer meeting notes.
Let's all get on the same page here: Selleh did not actually know about the rep's misconduct; however, FINRA alleges that Selleh was reckless in not knowing what he did not actually know? Making matters worse, if you read the AWC, you will note that there isn't even an allegation that Selleh "should have known" about the rep's misconduct. No . . . what the AWC actually says is that Selleh "acted recklessly in assisting the representative given various red flags . . ." In fairness to FINRA, the AWC does allege that:
On September 23, 2021, the representative informed Selleh that he had been terminated by the other firm and warned Selleh that he had told his firm that Selleh had a copy of the purported promissory note. The following day, on September 24, 2021, SagePoint personnel met with Selleh. Selleh falsely told them that he did not have the note and did not help the representative draft it. SagePoint personnel had a second meeting with Selleh two business days later, at which time Selleh told the truth and produced the requested document.
On the one hand, Selleh had no role whatsoever in the underlying promissory note/loan between the customer and the other rep. Further, at the time of the September 16, 2021, call from the rep to Seleh, Selleh was not under investigation by SagePoint or any regulator, and, more to the point, had not engaged in any reportable or disclosable conduct pertaining to the loan, customer, and other rep. At that point, Selleh had done nothing wrong, had nothing to disclose, actually knew nothing, and was merely helping the rep draft documents that Selleh would not attest to or submit under his own name.
For reasons that make no sense to me and are not explained by FINRA, on September 24, 2021, Selleh apparently lied to SagePoint about not having the note, and further lied about not having helped draft the note. As such, we come to the other, other hand.
Why did Selleh lie? Perhaps he figured that given his lack of involvement in the loan, it was best to just say "no," and avoid getting sucked into something that didn't concern him. Perhaps he panicked. Perhaps he lied and then felt remorse because, as the AWC acknowledges, two business days later, Selleh has a change of heart and provided his copy of the promissory note to SagePoint.
Selleh should not have lied to SagePoint; and, if the brokerage firm wanted to fire him for that, I got no problem with that decision. On the other, other, other hand, beyond Selleh having a colossal brain fart and really screwing himself by not immediately answering his firm's queries truthfully, does any of his conduct rise to the level (as charged in the AWC) of "materially assisting" the other rep to provide false information? Similarly, does any of this amount to a violation of FINRA Rule 2010 by somehow failing to observe high standards of commercial honor and equitable principle of trade and conduct?
As I always note and will do so again, it's not my place to second guess any Respondent who enters into an AWC with FINRA. I don't know what I don't know and the final AWC is often the byproduct of negotiations whereby material facts are left out and other allegations dropped. On top of that, Selleh was represented by legal counsel. All of which may justify the resulting settlement. None of which actually explains what happened or why.