Never give in, never give in, never; never; never; never - in nothing, great or small, large or petty - never give in except to convictions of honor and good sense.
Former Wells Fargo Advisors LLC's ("WFA") registered representative Denise Lynn Gizankis took Churchill's admonition to heart.
On January 25, 2011, Gizankis filed an application for review of a Financial Industry Regulatory Authority ("FINRA") disciplinary action, which had barred her for failing to respond to a request to provide information in connection with her termination from WFA. In seeking to have the Securities and Exchange Commission ("SEC") set aside FINRA's bar, Gizankis explained that because she recently relocated to another state, she had not received FINRA's demands for the production of information or the subsequent suspension notices that resulted in her Bar.
FINRA's records reflect that it first suspended Gizankis for non-compliance with its demands for information on October 21, 2010, and, thereafter, barred her on December 30, 2010.
SIDE BAR: FINRA Rule 9552 provides that FINRA may suspend a person subject to FINRA's jurisdiction who fails to provide information and that, if the person subsequently fails to request termination of the suspension within three months, that person will be automatically barred.
FINRA Rule 8210 requires persons associated (or formerly associated) with a member firm to provide information with respect to any matter related to an investigation, complaint, or proceeding.
All's Well That Ends Well
On March 16, 2011, FINRA filed with the SEC a "Motion to Dismiss Application for Review and to Stay Briefing Schedule." In that motion, FINRA stated that Gizankis's application for review included "information responsive to FINRA's information requests." Not only did Gizankis provide whatever information FINRA had initially been seeking, but she apparently demonstrated that there were "extraordinary circumstances that made her unavailable."
In consideration of Gizankis's ultimate compliance with FINRA's Rule 8210 demands and the extraordinary circumstances that caused the tardy response, FINRA entered into a Letter of Acceptance, Waiver, and Consent, that settled the matter "for a sanction less than a Bar." (NOTE: The SEC's Decision does not detail what that lesser sanction was).
Given that the issues in dispute are now rendered moot, the SEC dismissed Gizankis's application for review. In the Matter of the Application of Denise Lynn Gizankis for Review of Action Taken by FINRA (Order Dismissing Petition for Review, Securities Exchange Act Of 1934 Rel. No. 64391 / Admin. Proc. File No. 3-14206, May 4, 2011).
Bill Singer's Comment: Having worked as a lawyer for two self-regulatory organizations and as a defense lawyer, I know that most of these non-response cases are what they are - individuals who are in trouble simply refuse to reply, foolishly believing that the matter will simply go away if they don't answer. In such cases, a significant suspension or Bar may well be warranted.
On the other hand, there are many situations where individuals simply do not recieve mailed notices or have replied and their communication is lost in transmission. In far too many of these situations, the regulators refuse to exercise reasonable discretion and jam up the system with the silliness that is evident in Gizankis. One can only imagine the wasted time and legal expenses imposed upon Gizankis, FINRA, and the SEC to process this appeal when a simple waiver from FINRA months earlier could have achieved the same outcome.
It appears that FINRA first attempted to communicate its production demands to Gizankis via letter dated March 5, 2010, and again on April 12, 2010. On September 27, 2010, FINRA initiated proceedings against Gizankis for her failure to respond, resulting in first a suspension and then a bar on December 30, 2010 .
On January 6, 2011, one week after Gizankis was barred, FINRA received a one paragraph letter from her acknowledging receipt of the September 27th notice of proceedings and providing her new mailing address. The letter was dated December 15, 2010, but postmarked December 31, 2010. In her letter, Gizankis also requested a termination of the proposed suspension. The letter did not provide a substantive response to FINRA's demands for information and documents that dated back to March 5, 2010.
On or about January 25, 2011, Gizankis appealed FINRA's Bar to the SEC. In a letter to FINRA dated that same date, she also provided the information previously requested. As noted above, FINRA thereafter decided to resolve the matter via an AWC with Gizankis, thus rendering her SEC appeal moot.
As a result of the AWC that she submitted, Gizankis agreed to the imposition of a 6 month suspension and a $5,000 fine. In the Matter of Denise Lynn Gizankis, Respondent (FINRA AWC #2010021840402, Accepted March 2, 2011)
Bill Singer's Comment: Given the update and apparent conclusion to this matter, let me set forth the salient dates:
- March 5, 2010: First 8210 demand letter from FINRA to Gizankis
- April 12, 2010: Second FINRA 8210 demand letter
- December 30, 2010: FINRA Bars Gizankis
- January 6, 2011: FINRA receives notice from Gizankis (postmarked December 31, 2010) of her new address
- January 25, 2011: Gizankis files SEC Appeal. Gizankis sends responsive letter to FINRA
- March 2, 2011: FINRA accepts AWC from Gizankis
- March 16, 2011: FINRA files Motion to Dismiss Gizankis's SEC Appeal
I accept FINRA's version of the facts and have no issue with barring a registered person for failing to respond to Rul3 8210; however, I am still left with the fact that on January 25, 2011, Gizankis fully and satisfactorily responded to FINRA's outstanding 8201 demands. Moreover, FINRA negotiated and accepted an AWC from Gizankis on March 2, 2011 - which strongly suggests that the negotiations were ongoing during February 2011.
Given that FINRA had Gizankis's responses in January and had settled the case on March 2nd, why did it take two more weeks until March 16th to notify the SEC of the resolution - and why couldn't this appeal have been pulled earlier in February or January?
To be fair, the appeal was filed by Gizankis and perhaps she was unable or unwilling to withdraw her application. That is an equally credible explanation. However, nearly two months transpired from when she produced the responses that FINRA now deems as acceptable until such time as the self-regulator notified the SEC that the sanction of a Bar was off the table and the need for the appeal was rendered moot. My guess - and it's only that - is that there was far too much regulatory posturing by FINRA and not enough consideration for the ongoing waste of time and resources.
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Naming, Blaming, and FINRA Gaming
Suppose that an unhappy investor didn't specifically name you in a lawsuit or arbitration when he complained about your investing advice. You'd think that would get you off the regulatory disclosure hook, right? Think again.
According to the Financial Industry Regulatory Authority's rules, you could still be required to file a disclosure report even if your name is omitted from the caption of respondents (in arbitrations) or defendants (in court proceedings) - and even if you're not identified by name in the complaint.
FINRA requires your member firm to make a good faith determination about whether you were the responsible "unnamed" registered person. If your firm reads between the lines and figures out that it's you, you will likely wind up with a report on your Central Registration Depository ("CRD") or Form U4.
Consider how one broker recently dealt with this dilemma: Naming, Blaming, and FINRA Gaming