UPDATE: Bill Singer, Esq. Files Form TCR with SEC Seeking Investigation of FINRA Election Interference

August 29, 2023

From Bill Singer, Esq.
Publisher of the
"Securities Industry Commentator" and
"BrokeAndBroker.com Blog"

Members of the FINRA Small Firm community received a PROXY seeking your vote for a candidate for the 2023 FINRA SMALL FIRM Governor seat. DO NOT RETURN ANY PROXIES to FINRA.

According to FINRA's most recently published statistics, the number of FINRA Small Firms (1 - 150 registered persons) is about 3,039. The FINRA Small Firm community has sent a message to FINRA by boycotting the petition phase of the 2023 Board elections. As a result of that boycott, only one FINRA Small Firm candidate received enough petitions to move forward. Not much of an election with only one candidate for the one vacant Small Firm Governor seat. The goal of the boycott is to persuade 1,520 FINRA Small Firm Executive Representatives to not return their firm's proxy. There is no conflict inherent in not casting a worthless vote. It is a quiet, elegant form of protest. If we prevail, less than half of all eligible voting FINRA Small Firms will return a proxy.  That's a simple metric by which to send FINRA an overdue message. Please, join us. 

As one of the founders of the NASD Dissident/Reform Movement (now the FINRA Dissident/Reform Movement), and as a member of the 1998 slate of the first four petition candidates to successfully challenge the self-regulatory-organization's process of anointing its industry Board members, I am a fervent proponent of robust, contested elections as a means of democratizing FINRA's Board. As presently constituted, the FINRA Board is a lackluster, gerrymandered body that:

  • entrenches the power of the regulator's Large Member Firms and industry special interests;
  • constrains the influence of Small Firm Members; 
  • denies proportionate representation for the industry's associated persons and public customers; and
  • rebuffs meaningful Wall Street reform.

As the FINRA election moves forward, it is critical that you maintain the boycott and send a strong message to FINRA.  Perhaps FINRA and its Board will finally pursue a reform-oriented agenda that better addresses the needs of both public investors and all industry participants.

Boycott the 2023 FINRA Elections

If you have given a revocable proxy pursuant to a proxy card distributed by FINRA, you may revoke your proxy before the Annual Meeting on Wednesday, September 6, 2023, at 10:00 a.m. Eastern Time by delivering to FINRA’s Corporate Secretary:

  • a written statement revoking it; or
  • delivering another proxy at a later time. 

The 2023 FINRA Board Election

In “Notice of Annual Meeting of FINRA Firms and Election Proxy” (FINRA Election Notice / August 7, 2023) https://www.finra.org/rules-guidance/notices/election-notice-080723, self-regulatory-organization FINRA announced that it will conduct an Annual Meeting on September 6, 2023:

[T]o elect individual to fill one small firm seat and one large firm seat on the FINRA Board of Governors (FINRA Board or Board)1

It is important that all eligible firms be represented by proxy or in person at the Annual Meeting. Firms are urged to submit a proxy using one of the methods described below. For a proxy to be considered valid, it must be signed by the executive representative of the firm eligible to vote in the election. . . .

= = =

1: To be eligible to serve, Small Firm Governors must be registered with a small firm and Large Firm Governors must be registered with a large firm. See FINRA By-Laws, Article I (xx) and (z). Pursuant to Article I of FINRA’s By-Laws, a small firm is defined as a firm that employs between one and 150 registered persons, and a large firm is a firm that employs at least 500 registered persons. 

The 2023 UNCONTESTED FINRA Small Firm Election

Funny thing about FINRA's so-called 2023 Small Firm Governor election: There is only one candidate.  As noted in the FINRA Election Notice:

Small Firm Governor Candidate

FINRA Nominating Committee Nominee

      • None

Nominee by Petition

      • Wendy Lanton, Chief Compliance Officer/Founding Principal, Herold & Lantern Investments, Inc.

The One-Third Quorum

As to the mechanics of voting in a FINRA Board election, the FINRA Election Notice states in pertinent part that:

Voting Methods

Firms will be able to submit a proxy by any lawful means, including using any of the following methods:

      • Telephone;
      • U.S. mail; or
      • Internet.

Alternatively, firms may attend the Annual Meeting and vote in person. The proxy mailed to each eligible firm contains detailed instructions on the proxy submission procedures.

For purposes of the election, for each open governor seat, a quorum must be met in each size category.4 Therefore, as mentioned above, it is important that all firms be represented at the Annual Meeting. Executive representatives may receive telephone or email reminders during the election period to ensure that FINRA receives sufficient proxies to satisfy the Annual Meeting quorum requirements, as well as broad participation in the election by all firms that are eligible to vote.

= = =

4: See Restated Certificate of Incorporation of Financial Industry Regulatory Authority, Inc. Per Ninth section (Meetings and Offices):“. . .At all meetings of members of the Corporation the presence in person or by proxy of one-third of the members entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. . .”

According to the FINRA Election Notice as cited above, the Small Firm Governor’s race is subject to the condition that “a quorum must be met in each size category,” and that quorum is further characterized in the Notice as “one-third of the members entitled to vote . . .”

The 2023 Boycott of FINRA Elections

In May 2023, I called for a boycott of all 2023 FINRA elections:

[F]urther, until such time as FINRA demonstrates a sincere commitment to reform, all FINRA member firms should instruct their Executive Representative to not cast a vote for any candidate in any FINRA election by way of a boycott.

Recently, purported FINRA Small Firm Executive Representatives and industry compliance/regulatory consultants informed me that they had received (or were aware of) phone calls from a company that asserts it has been retained by FINRA for the purpose of contacting Executive Representatives eligible to vote for the Small Firm Governor. In response to my advocacy, some of the folks contacted by the caller had decided to "boycott" the 2023 Small Firm Governor election and did not return their proxy. When the caller contacting the representatives was informed of their decisions to boycott the election via the non-submission of a proxy, the caller purportedly pressed the representative to cast a vote in "Abstention." The caller allegedly suggested that they could opt to "not vote" by also casting a vote in "abstention." 

Many of the representatives/consultants noted that they found the caller's conduct odd given that one and only one candidate is running for the Small Firm seat. Why was FINRA apparently exerting so much pressure to secure a proxy in an uncontested election? The likely answer is that a candidate running unopposed could win the vote but if the one-third quorum was not reached, that election might not be certified by the Board. The folks who contacted me about the pressure from FINRA's apparent proxy solicitor expressed concern that the caller never disclosed to them that a vote-in-abstention counted towards a "quorum," whereas the non-submission of a proxy did not. 

1996's Troubling Election-Interference Legacy

https://www.sec.gov/files/litigation/investreport/nd21a-report.pdf, the federal regulator found, in part, that the NASD self-regulatory-organization (FINRA’s predecessor) had “violated Section 19(g) of the Exchange Act by failing adequately to comply with certain NASD rules and, without reasonable justification or excuse, to enforce compliance with the Exchange Act . . .” at Page 1 of the 21(a) Report. Further, “C. Other Areas of Regulatory Concern” set out four enumerated topics of which the third was “The Contested Election Process. “ at Page A-iii of the Appendix to the 21(a) Report [Ed: footnote omitted]:

3. The Contested Election Process

In the Report issued by the Rudman Committee in its review of the NASD's operations, the Committee discussed the NASD's District Nominating Committee and made particular reference to a contested election in 1994 in District 10.

The Rudman Committee stated:

[The NASD] addressed issues that arose on an ad hoc basis, and generally handled the election inappropriately - particularly insofar as NASD staff appeared to take sides in the matter. NASD officials have acknowledged that the election was mishandled.

The gist of the Rudman Committee's concerns arose out of two letters sent by the District 10 Nominating Committee, the first of which was on NASD letterhead, endorsing the candidacy of one person over the challenger. In addition, volunteers recruited by the NASD's District Nominating Committee actively campaigned in support of the successful candidate. The NASD's By-Laws only specifically authorize the Nominating Committee to select the regular candidate. The NASD, its committees and its staff should not in any way exhibit favoritism or partiality in such elections.

at Page A-83 of the Appendix to the 21(a) Report:

Unlearned Lessons?

If, in fact, FINRA member firms are being pressured by the proxy solicitor to cast any type of vote in an election – be that for the uncontested candidate, or to cast a vote-in-abstention rather than not cast any vote – that is unacceptable. The privilege of voting includes the right to not vote. In calling for a boycott of all 2023 FINRA elections, my goal was to send an unequivocal message to the powers that be that it's time to implement many long overdue reforms.  

The uncontested 2023 Small Firm Governor's election should not afford cover for any inappropriate conduct seeking to harvest votes for the sole candidate or votes in abstention. In light of the call to boycott this year's FINRA election by not submitting a proxy, FINRA's apparent push to secure the one-third quorum by using a proxy solicitor seems an unsavory attempt to rig the election. Given the totality of the circumstances, it was incumbent upon FINRA to maintain a disinterest appropriate for its role as a regulator. FINRA has mishandled the 2023 election, just as NASD did some 30 years ago. 

August 23, 2023 FINRA Weekly Update

Perhaps in response to my published criticisms of FINRA's apparent interference in the 2023 Small Firm Governor's election, the regulator published this in "FINRA Weekly Update / August 23, 2023 / Volume 34":


All small and large firm members are encouraged to vote in the current Board of Governors election which concludes on September 6, 2023. Election Notice 8/7/2023 contains more information on the candidates and the election process.

Although the small and large firm elections are uncontested, FINRA must still meet its quorum requirement to finalize the elections.

A proxy solicitor was engaged by FINRA to contact firms to ensure that they received the proxy card, to encourage broad participation in the election and to help FINRA meet its quorum requirement. FINRA’s election agent is also sending email reminders to the executive representative of each firm with voting instructions (if you have your proxy, you can vote online here).

If you have questions or need a replacement proxy, please email the Office of Corporate Secretary or call (202) 728-894

FINRA cynically asserts that it "must still meet its quorum requirement to finalize the elections." In an era when talk about stolen elections and corrupted voting is all the rage, Wall Street's preeminent self-regulator asks the industry and the investing public to believe that it has an unfettered right to ensure that a quorum is met in order to "finalize" its Board of Governors election. And this from a Wall Street regulator that has amassed a history of prosecuting and sanctioning brokerage firms and brokers who resort to omissions and commissions of facts in an effort to fraudulently finalize securities offerings.

FINRA's facile excuse for its seeming election misconduct amounts to little more than a flimsy justification for misstating the proxy solicitor's efforts as merely designed to "encourage broad participation in the election and to help FINRA meet its quorum requirement." 


Really?? That's all that's going on here??? Just some old-fashioned encouragement????

FINRA publishes an announcement launching the petition phase of its elections. FINRA publishes the requirements that petition candidates must satisfy to be certified as a so-called candidate in a "contested" election. FINRA has a nominating committee that is vested with the right to nominate candidates; but, in this year's Small Firm Governor's race, that committee opted to avoid making such a nomination. Further, FINRA publishes election notices and has built an architecture by which eligible member firms are provided with the ability to cast votes. Apparently, that's all of no consequence. The only thing that matters is the goal. The process is subverted to whatever it takes to ensuring that a quorum is reached. No matter the lack of fair disclosure. No matter the obtuse nature by which the proxy solicitor presses for a vote when no FINRA Rule or By-Law compels any member firm to cast a vote! No matter that this all seems designed to defeat an ongoing boycott.

Form TCR Filed

I have filed a Form TCR with the SEC and have asked the federal regulator to investigate FINRA’s conduct of the 2023 Small Firm Governor election. 

In furtherance of such an investigation, the SEC should require FINRA to conduct a statistical analysis to determine whether the number of votes in "Abstention" cast in this year's Small Firm election have meaningfully increased from prior years; and, as such, would confirm the reports of pressure from the proxy firm to elicit a vote in abstention rather than accept a representative's decision to boycott the election by not casting any vote.

Additionally, the SEC should demand production of all communications between FINRA and its officers/Board, on the one hand, and the proxy solicitation firm and its agents, on the other hand. Such an inquiry should be designed to determine whether any guidance was provided by FINRA to the proxy firm in terms of how "abstentions" should be solicited and what disclosures were warranted about the impact of such abstentions on validating the uncontested election per satisfaction of the requisite quorum.

If there has been pressure by FINRA on its member firms to vote in abstention, I would ask that the SEC deem FINRA's actions via its proxy solicitor as the inappropriate intrusion into the election process. Consequently, the SEC should decertify the results of such an election and demand a new election. Further, I would urge the SEC to impose significant monetary penalties upon FINRA and demand substantive election-rules reforms. 

Tarnished Election

This year's Small Firm Governor election is so tarnished that even if the number of votes cast (including abstentions) rises to the one-third quorum, the victorious candidate will never be viewed as legitimate. Ironically, FINRA's mishandling of the election has energized the ongoing boycott. 

If FINRA 's Board of Governors will not declare the 2023 election invalid and order a new vote without the interference of the proxy solicitor, then I call upon the uncontested candidates (Large and Small Firm) to voluntarily withdraw from the election. Shamefully, no sitting Governor has spoken out against FINRA's election interference; but, in truth, we have come to expect such equivocation from this lackluster Board.

As filed per Form TCR https://tcr.sec.gov/TcrExternalWeb/faces/pages/intake.jspx



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