Sexism on Wall Street: The Cowardly Silence of FINRA's Board of Governors

November 28, 2022

By way of preamble, this blog is is about Goldman, Sachs & Co. and the Financial Industry Regulatory Authority's ("FINRA") Board of Governors. This is about a multinational investment bank and financial services company. This is about Wall Street's largest self-regulatory-organization. This is about a sexual discrimination Class Action filed in 2010 against Goldman Sachs. This is about a growing chorus of troubling, disturbing, unsettling allegations by female professionals against Goldman. This is about the appointment of the Goldman Sachs General Counsel to the FINRA Board of Governors. This is about the cowardly silence of FINRA's Board.

September 2020: Goldman Sachs Class Action

In 2010, a Class Action Complaint was filed against Goldman Sachs by female professionals alleging civil and human rights violations. The Goldman Sachs Class Action Complaint cited Goldman's alleged "policies and practices for promoting its employees that result in the disproportionate promotion of men over equally or more qualified women. . . ." at Page 2 of the Class Action Complaint; and further alleged that Goldman "discriminates against women in (1) performance evaluations; (2) compensation; (3) promotions; (4) business opportunities; and (5) professional support, including but not limited to administrative support, training, and mentoring." at Pages 8 - 9 of the Class Action Complaint
H. Cristina Chen-Oster, Lisa Parisi, and Shanna Orlich, Plaintiffs, v. Goldman, Sachs & Co. and the Goldman Sachs Group, Inc., Defendants (Class Action Complaint, United States District Court for the Southern District of New York ("SDNY"), 10-CIV-6950 / September 15, 2010) 
http://goldmangendercase.com/pdf/20100915-complaint.pdf.

October 2020: Goldman Associate General Counsel Marla Crawford Sues Firm Citing Sexual Misconduct Cover-Up

On October 26, 2020, former Goldman Sachs' Associate General Counsel Marla Crawford filed a Complaint in the New York State Supreme Court alleging discrimination and retaliation. 
Marla Crawford, Plaintiff, v. The Goldman Sachs Group, Inc., Karen Seymour, and Darrell Cafasso, Defendants (Complaint, New York State Supreme Court/Count of New York, October 26, 2020)
http://www.wigdorlaw.com/wp-content/uploads/2020/10/Complaint-against-Goldman-Sachs-Karen-Seymour-and-Darrell-Cafasso-FILED.pdf  The "Preliminary Statement" for Crawford's Complaint alleged in part that:

1. This is an action about the most senior in-house lawyers at The Goldman Sachs Group, Inc. ("Goldman" or the "Bank") - Karen Seymour, Esq. (General Counsel) and Darrell Cafasso, Esq. (Global Head of Litigation) - completely disregarding their legal and ethical obligations and permitting a workplace where sexual harassment is covered up and the powerful are cloaked with immunity. Ms. Crawford - an Associate General Counsel - attempted to speak up about misconduct - perpetrated by Mr. Cafasso - but the result was a broadside attack on her performance and then terminating her after more than 10 years of exemplary performance. The conduct at issue here calls into doubt all internal investigations done at Goldman and demonstrates that the Bank and its senior leaders are only concerned with protecting themselves and their executives, not the employees.

On August 19, 2021, Crawford filed a Stipulation of Discontinuance dismissing with prejudice her Complaint.

August 2022: Former Goldman Managing Partner Jamie Fiore Higgins Publishes Book About Misogyny at Goldman Sachs

In August 2022, former Goldman Managing Partner Jamie Fiore Higgins published "Bully Market: My Story of Money and Misogyny at Goldman Sachs.
https://www.amazon.com/Bully-Market-Story-Misogyny-Goldman/dp/1668001020
The Amazon.com webpage offers, in part, this summary of Higgins' book:

Jamie Fiore Higgins became one of the few women at the highest ranks of Goldman Sachs. Spurred on by the obligation she felt to her working-class immigrant family, she rose through the ranks and saw it all: out-of-control, lavish parties flowing with never-ending drinks; affairs flouted in the office; rampant drug use; and most pervasively, a discriminatory culture that seemed designed to hold back the few women and people of color employed at the company.

Despite Goldman Sachs having the right talking points and statistics, Fiore Higgins soon realized that these provided a veneer to cover up what she found to be an abusive culture. Her account is one filled with shocking stories of harassment and jaw-dropping tales of exclusionary behavior: when she was told she only got promoted because she is a woman; when her coworkers mooed at her after she pumped for her fourth child, defying the superior who had advised her not to breastfeed; or when a male boss used a racial epithet in front of her, other colleagues, and clients without any repercussions.

August 2022: Goldman Sachs' Motion to Reconsider Denied / Trial Date Set for June 2023

Over the course of some 13 years since the filing of the Class Action Complaint in 2010, Defendant Goldman Sachs filed motions. It sought delays. It challenged the certification of the class. It asked for reconsideration. On August 22, 2022, SDNY denied Goldman Sachs's motion to reconsider a March 2022 order denying its motion to decertify the class; and, at long last, a trial date was set for June 5, 2023. http://goldmangendercase.com/wp-content/uploads/2022/08/GSG-Order-on-1346-1337-Motion.pdf

September 2022: Class Action Plaintiffs' Memorandum Unsealed 

On May 19, 2014, the Class Action Plaintiffs filed a Memorandum in Support of Plaintiffs' Motion for Class Certification; however, that Memorandum was only unsealed on September 22, 2022. In part that Memorandum alleges [Ed: footnotes omitted]:

b. Goldman Condones the Sexualization of Women and an Uncorrected Culture of Sexual Assault and Harassment. 

Company records indicate that Goldman permits or facilitates a culture where male professionals view women as sexual objects, leading to substantial numbers of incidents of alleged sexual assault and harassment in just the three Class divisions. In complaint files produced for the period 2000-2011, there have been at least 75 such reported incidents. For instance, one male manager took his female employee to an abandoned office floor and propositioned her for sex; he separately called her and said he was masturbating to the sound of her voice. He also insisted that she come to his apartment, where he showed her pictures he had taken of other Goldman female employees in lingerie. 

Another Goldman manager told his female employee that, "with that feisty nature, you would be good in bed." GS0158798. Yet another male Goldman manager told his female employee that he loved her, and repeatedly made sexually suggestive comments and overtures during business trips. See also GS0162302 ("I was talking to this guy who just got promoted to VP . . . I told him about how it made me uncomfortable how the guys were touching me, and he was really supportive and giving me advice on what to do, and the next thing I know, his hand is on my ass, too!"); GS0162142, 160, 171-173, 191 (male vice president massaged female employees' shoulders and asked them out for drinks while on the desk; another male supervisor and vice president allowed client to discuss female subordinate in a sexual manner while female subordinate was on the calls and also discussed performing sexual acts on another female colleague he labelled a lesbian); GS0167579-603 (male manager rated the outfits of female employees on the desk, rubbed the shoulders of female analysts, told a female colleague he is "big down there", and asked if female employee's roommates are "easy fucks"); GS0167542 (male employee showed coworkers a sex tape he made with an unidentified woman and perpetuated rumor that the woman was a female coworker). See also Shaver Decl., Ex. D (Marie Myung-Ok Lee, What It was Like to Be a Woman at Goldman Sachs, The Atlantic, November 26, 2012, www.theatlantic.com/sexes/archive/2012/11/what-it-was-like-to-be-a-woman-atgoldman-sachs/265572) (describing "memos announcing a new crop of incoming female associates [that] instead of the usual corporate headshot . . . used different semi-nude pictures of Playboy playmates," and a widely-held belief "that it was a professional responsibility for women to wear heels, the higher the better"); id., Ex. I (Daniel Bates, How to Party Like a Goldman Trader, Daily Mail Online, October 18, 2012, www.dailymail.co.uk/news/article2219662/Inside-bankers-lives-excess-hot-tubs-Goldman-Sachs.html) (describing corporate party in Las Vegas including hot tubs with topless woman).

Even more disturbingly, in the same time period, at least seven women reported criminal sexual assault, attempted rape, or rape by male Goldman employees from the three Class divisions. GS0162409-410 (female employee drugged and raped by male employee after company baseball game); GS0161598-600 (female employee persistently harassed, groped, and propositioned for sex by male manager at Goldman orientation retreat; after being rejected, he followed her into her room, tried to get into her bed, and would not leave her alone until she was able to lock the door); GS0162306 at 313 (after drinks with colleagues, male Vice President took sick female coworker back to her house, followed her into her home, got in her bed, and put her hand on his crotch); GS0158763-764 (male colleague groped female employee during an evening social event, said "I want to fuck you" and put his hand down her pants multiple times to grab her crotch while in front of friends, despite her protestations); GS0162384-385 (Managing Director took his assistant out to dinner, and during the taxi ride back he groped her and put his hand down her blouse); Chen-Oster Decl., ¶ 10 ("I was sexually assaulted by a married male coworker after attending a Goldman dinner to celebrate the promotion of a man in my group to Managing Director."); Shaver Decl., Ex. G (Chris Dolmetsch, Goldman Managing Director to Be Arraigned on Rape Charge, Bloomberg News, September 20, 2013, www.bloomberg.com/news/2013-09-20/goldman-managing-director-to-be-arraigned-on-rapecharge.html) (Managing Director accused of raping 20-year old woman after meeting her at a nightclub and inviting her to his Hamptons property rented for $33,000 a month).

Unsurprisingly in such a culture, work events are held at strip clubs where the sexualization of women is endorsed and celebrated. See, e.g., Shelley Decl., ¶ 10 ("my male colleagues at Goldman took their clients to strip clubs"); Tischhauser Decl., ¶ 7 ("In my experience, entertaining clients at strip clubs was considered routine for Goldman in the U.S."); GS0158596 (male partner took clients to strip clubs); GS0167724 at 726 (work events took place at restaurant where female servers wear bikini tops); GS0175455 ("traders take clients to Asian massage parlors"); GS0161513 at 518 (email from Vice President to administrative assistant stating as the "subject" of the email, "new place for mmkt [money market] party!!"with the text of the message, "what do you think. . . Penthouse Launches Flagship Club in Manhattan . . . a Manhattan-based, luxury gentlemen's club"); Shaver Decl., Ex. H (Tracy Clark-Flory, Goldman Sachs: When business and strip clubs mix, Salon, Sept. 16, 2010, www.salon.com/2010/09/17/strip_club_business) (strip club marketing manager noting frequent business visits to the club with topless entertainment and an "extremely upscale" steakhouse); id., Ex. E (Patrick McGeehan, Former Trader Sues Goldman, Charging Firing Was Illegal, N.Y. Times, February 09, 2000, www.nytimes.com/2000/02/09/business/former-trader-sues-goldmancharging-firing-was-illegal.html) (describing lawsuit by former trader for Goldman, alleging that he believed that his inter-office, extramarital affair would be accepted by the Firm because the Firm accepted his entertaining clients at strip clubs); id., Ex. F (Mike Taylor, Goldman "Defender" Saw Harassment at Firm: "Deep Doodah", The N.Y. Observer, September 23, 2010, observer.com/2010/09/goldman-defender-saw-harassment-at-firm-deep-doodah) (former Goldman partner acknowledging that her boss engaged in sexual harassment and discrimination and she personally experienced inappropriate behavior, including a Goldman outing to a strip club). In fact, Goldman has such a strong reputation for this kind of behavior that in 2005 the Firm cautioned new associates in their orientation that while clients will ask to go to strip clubs, they should merely not "expense" that entertainment. However, the record above demonstrates that entertaining clients at strip clubs remained unabated, if frequently "off the books."

at Pages 22 - 25 of the Memorandum in Support of Plaintiffs' Motion for Class Certification 

September/November 2022: From Bad News to Worse

The drumbeat of bad press for Goldman Sachs has not abated; to the contrary, it continues:

November 2022: Goldman General Counsel Kathryn Ruemmler Defends CEO Solomon

Goldman Sachs. Harassed. Sexual Assault. Misogyny. David Solomon. Oral Sex. Sexism. Mistreatment of Women. Sexist Culture. Troubling Behavior. SEC Charges. Not exactly the stuff a publicist dreams about. Understandably, there was pushback from the firm. Following Bloomberg News' November 15th story about Goldman Sachs' Chief Executive Officer David Solomon and a $12 million settlement with a former Goldman Partner, we have, in part, this: 

The head of Wall Street's most prestigious investment bank bragged to the underlings that he was the only one among the group to have received oral sex the previous night, according to a complaint revealed Tuesday by Bloomberg News.

. . .

The alleged remark by Solomon was not the central focus of the lawsuit, which claimed Goldman paid women less than men for doing the same jobs and that the company tolerated crude and vulgar remarks from senior officials.

. . .

"Bloomberg's reporting contains factual errors, and we dispute this story," said Kathy Ruemmler, General Counsel at Goldman. "Anyone who works with David knows his respect for women, and his long record of creating an inclusive and supportive environment for women." 

https://nypost.com/2022/11/15/goldman-sachs-boss-david-solomon-bragged-about-getting-oral-sex-night-before-complaint/

Goldman General Counsel/FINRA Governor Ruemmler

Goldman Sachs General Counsel Kathryn Ruemmler minced no words. Bloomberg's article had errors. Goldman disputes the story. Contrary to Bloomberg's purportedly erroneous, disputed article, General Counsel Ruemmler said that CEO David Solomon respects women and has fostered an inclusive, supportive environment for them. Kathryn Ruemmler has  an impressive curriculum vitae: 

"Goldman Sachs Gives First-Year Legal Chief $17.5 Million" (Bloomberg Law / March 18, 2022)
https://news.bloomberglaw.com/business-and-practice/goldman-sachs-pays-first-year-legal-chief-nearly-12-7-million :

Goldman Sachs Group Inc.'s legal chief Kathryn Ruemmler received roughly $17.5 million in total compensation after being appointed its top lawyer a year ago, the firm disclosed in a proxy Friday.

Goldman paid Ruemmler $7.9 million in cash last year, including $1.5 million in base salary and a $6.4 million bonus, the proxy showed. Goldman gave her a stock bonus valued at $9.6 million, the firm said in a disclosure separate from its compensation table.

"FINRA Board Appoints Deborah Bailey and Kathryn Ruemmler as Newest Governors" (FINRA News Release / January 8, 2021)  https://www.finra.org/media-center/newsreleases/2021/finra-board-appoints-deborah-bailey-and-kathryn-ruemmler-newest, which states in part that:

Ruemmler is the Global Head of Regulatory Affairs at Goldman Sachs, where she serves on the firmwide Management Committee, is Co-Vice Chair of the Firmwide Reputational Risk Committee and is Co-Chair of the Regulatory Reform Steering Group. Prior to joining Goldman Sachs as a Partner earlier this year, Ruemmler was a Litigation Partner at Latham & Watkins LLP, where she was Global Chair of the White Collar Defense and Investigations practice. Previously, she served as counsel to President Barack H. Obama and was his longest-serving White House counsel. She also served in the Department of Justice, including as Principal Associate Deputy Attorney General, Deputy Director of the Enron Task Force, and Assistant United States Attorney for the District of Columbia. Earlier in her career, Ruemmler served as Associate Counsel to President William J. Clinton. She received a bachelor's degree in English from the University of Washington and a law degree from Georgetown University.

Additional details about Ruemmler's background are available at her online biography on FINRA's website https://www.finra.org/about/governance/finra-board-governors/kathryn-ruemmler, where we additionally learn that she is a FINRA Industry Governor / Floor Member Representative, and she serves on FINRA's Nominating & Governance Committee and its Regulatory Policy Committee. 

Ruemmler's Dual Role (Inescapable Conflicts)

Kathryn Ruemmler has nothing whatsoever to apologize for in terms of where she's worked, who she's represented, what she has said in discharging her obligation as a zealous advocate, or in accepting the nomination to FINRA's Board. To answer the unasked question: No, I don't know her and have never met or even spoken to her. 

In January 2021, the FINRA Board of Governors appointed Kathryn Ruemmler to fill the Floor Member Governor's seat. There was no election. Ruemmler was hand picked, and her appointment was approved by the full Board. The Governors who voted to approve Ruemmler's nomination knew or should have known of the troubling allegations set out in the pending 2010 Class Action against Goldman Sachs; and, as such, should have made a full inquiry of Ruemmler as to her likely role, going forward, on behalf of her employer. 

In her role as Goldman Sachs' General Counsel, Ruemmler has defended her employer in the press against charges of sexism. Fair enough in her role as General Counsel, but, in her dual capacity as a FINRA Governor, Ruemmler's energetic defense of her firm undercuts FINRA's purported commitment to diversity: "FINRA Creates Industry Diversity Advisory Committee / New Committee Highlights FINRA's Commitment to Improving DEI in the Securities Industry" (FINRA Release / November 9, 2022) 
https://www.finra.org/media-center/newsreleases/2022/finra-creates-industry-diversity-advisory-committee. When Goldman Sachs General Counsel Ruemmler asserts that Goldman Sachs CEO Solomon has "respect for women" and a "long record of creating an inclusive and supportive environment for women," her comments are raised to refute claims to the contrary. 
In defending her firm and its senior management, by inference (if not in actuality) Ruemmler questions the veracity of the women whose allegations provide the underpinnings of the Class Action Complaint. Either Goldman Sachs was/is a sexist employer, and the various female Plaintiffs have made valid claims; or, Goldman Sachs was not/is not a sexist employer, and the Plaintiffs have made invalid claims.  Accordingly, we know where General Counsel Ruemmler stands on the Class Action Plaintiffs' allegations; but where does FINRA Governor Ruemmler stand on the allegations  -- and where does FINRA's Board of Governors stand on the allegations?

The FINRA Regulatory Policy Committee members (of which Ruemmler is one) serve as the FINRA Regulation, Inc. Board of Directors -- that's no small dual role because that involves the "primary day-to-day responsibility for the regulation, surveillance, examination and disciplining of member firms and registered persons, with respect to market activities as well as other self-regulatory matters." Notwithstanding that daily regulatory responsibility, FINRA Governor/FINRA Regulatory Policy Committeeperson/Goldman Sachs General Counsel Kathryn Ruemmler disapproved efforts by the United States Department of Justice to appoint more independent monitors after criminal settlements: "Goldman Sachs Legal Chief Knocks Biden DOJ on White Collar Shift" (Bloomberg Law / March 4, 2022) https://news.bloomberglaw.com/us-law-week/goldman-sachs-legal-chief-knocks-biden-doj-on-white-collar-shift, where she is quoted, in part, as saying:

"I have long been of the view that monitors should really be reserved for the quite unusual case, that they should not be the norm, that they should be only required in very very rare circumstances," said Ruemmler, who served as White House counsel to former President Barack Obama.

DOJ is "at its best when it's investigating and prosecuting crimes," added Ruemmler, who was also principal associate deputy attorney general under Obama. "That's what they should be doing. And when you start getting into monitors, the department starts to feel and I think look a bit more like a regulator."

Which begs the question as to whether FINRA-the-regulator agrees with Ruemmler's press comments about how the United States Department of Justice should confine itself to "investigating and prosecuting crimes," because once DOJ starts "getting into monitors, the department starts to feel and I think look a bit more like a regulator." Maybe FINRA is now enamored with the idea that as a regulator it should do more monitoring and less of that investigating and prosecuting stuff? I am unaware of any published comment by FINRA refuting Governor Ruemmler's position. Speaking of possibilities, perhaps the FINRA Regulatory Policy Committee might one day prod the self-regulatory-organization into prosecuting racism and sexism in the industry? Then again, one can imagine the awkwardness that such newfound zeal might impose upon Goldman Sachs General Counsel / FINRA Governor Ruemmler during the pendency of the sexism Class Action. All of which could motivate FINRA to tone down all that diversity and inclusion talk. 

Inescapably, Ruemmler speaks out of both sides of her mouth as an industry General Counsel and as a FINRA Governor. Which places FINRA in an uncomfortable position when Ruemmler publicly opposes DOJ's expanded use of independent monitors for criminal settlements, some of which would likely involve Wall Street fraudsters. Similarly, Ruemmler's defense of her firm and its senior management against allegations of sexist misconduct may have a chilling effect on those questioning the diversity of FINRA's member firms and seeking to enroll the self-regulatory-organization in the fight against many forms of discrimination and harassment. Further, Ruemmler's involvement with the ongoing defense of Goldman against the Class Action may foster unease among other Board members and FINRA staff -- and that discomfort may manifest itself in not raising issues that should be raised. 

The Thought Process (Or Lack Of One) At FINRA

In January 2021, were FINRA's Governors unaware of the decade-old Class Action alleging sexism at Goldman Sachs and the lurid stories emerging from other former female executives? 

In January 2021, what was FINRA's Board of Governors thinking (or not) when it appointed Goldman Sachs' General Counsel to the Board and further seated her on two of FINRA's more important Committees -- at that moment in time, why did FINRA's Board of Governors appoint any Goldman Sachs General Counsel to serve on the Board?  

Goldman Sachs pays its General Counsel Ruemmler a reported $17.5 million per annum to handle its legal affairs; and she's going to have spare time to serve as a FINRA Governor and also as a member of two FINRA Committees --  and all this while juggling her oversight of her firm's defense against the Class Action and voicing her opinions about incursions by DOJ/SEC/CFTC into Goldman's affairs?

It is now about two weeks since the negative November 15, 2022, press reports about the undisclosed $12 million settlement by Goldman with a former female partner and the attendant salacious allegations. I waited . . . I hoped for some response from the women on FINRA's Board. Some expressions of concern. Perhaps even a modicum of outrage. Despite the gravity of the disclosure by the press of allegations of sexual harassment/discrimination at Goldman Sachs, there is no evidence that any FINRA Governor has called for Governor Ruemmler's resignation or asked the Board to consider an appropriate response. Moreover, on November 22, 2022, Goldman Sachs Asset Management, L.P. agreed to pay a $4 million penalty pursuant to the settlement of SEC charges that it had failed to establish reasonable policies and procedures governing how it evaluated Environmental, Social, and Governance ("ESG") investments at two mutual funds and a separately managed account. "SEC Charges Goldman Sachs Asset Management for Failing to Follow its Policies and Procedures Involving ESG Investments" (SEC Release / November 22, 2022)
https://www.sec.gov/news/press-release/2022-209 

I look at the composition of FINRA's Board and see many women and minorities. I look at the composition of the two FINRA Committees on which Ruemmler sits and I see diversity. All of which troubles me and it should trouble you too. There is no published report about any FINRA Governor having challenged the 2021 appointment of Goldman Sachs' General Counsel to the Board of Governors of Wall Street's leading self-regulatory-organization: at a time when Goldman Sachs was embroiled in a Class Action alleging sexism. Similarly, there was no published report in 2022 that any FINRA Governor had requested the resignation of Governor Ruemmler. It is now nearly 2023. The Governors' silence is deafening. As the poet Ella Wheeler Wilcox admonished "To sin by silence, when we should protest, Makes cowards out of men." In an updated, non-sexist revision of Wilcox's words, silence makes cowards out of men and women.  

On June 11, 2020, some six months before Goldman Sachs General Counsel Ruemmler was appointed to FINRA's Board, FINRA's Board of Governors issued this statement 
https://www.finra.org/about/governance/finra-board-governors/statement-bog-from-june-11-2020#:~:text=FINRA's%20mission%20is%20investor%20protection%20and%20market
%20integrity.&text=We%20are%20committed%20to%20continuing,the%20FINRA%20Board
%20of%20Governors.
:

We are grieved by the senseless death of George Floyd and other recent acts of violence against members of the Black and African American communities. We stand together with the FINRA community in our personal commitment to the principle of equal justice under the law and to fight all forms of racism and prejudice.

FINRA's mission is investor protection and market integrity. We support management's determination to further enhance FINRA's long-standing initiatives to pursue that mission with a diverse and inclusive workforce that represents all of society, and to expand our efforts to promote the financial literacy and capability of minority communities in collaboration with the FINRA Foundation. We are committed to continuing to increase the diversity of the FINRA Board of Governors. As a leader in the financial services industry, we also support management's determination to work collaboratively with others to promote greater diversity and inclusion across the industry, so that the industry can better engage traditionally underinvested communities and better represent and serve the needs of all investors.

And yet, six months after issuing the above June 2020 Statement, FINRA's Board appoints a General Counsel from a major member firm that is embroiled in a high-profile, tawdry Class Action alleging civil and human rights violations with an emphasis on a culture of sexism. Yes, those are all allegations. Yes, Goldman Sachs has every right to defend against the allegations and may well prevail. No . . . FINRA did not advance its purported commitment to "greater diversity and inclusion" on Wall Street by hand-picking Goldman Sachs' General Counsel to a sit on its Board on January 2021. A bad choice at a bad time.

None of this is about Ruemmler personally. All of this is about Goldman Sachs and the appropriateness of having that firm's General Counsel sitting on FINRA's Board at this moment in time with the pending Class Action and the swirl of troubling allegations. Again, this blog is not a personal attack against FINRA Governor Ruemmler; but it is an attack against FINRA and its lackluster Board of Governors. The investing public deserves better. The industry deserves better. What we need is advocacy and transparency. We need accountability. We need FINRA to act more like a regulator and less like some trade group on steroids. The corrosive influence of Wall Street politics eats away at the industry's regulators. This appears to be yet another instance. January 2021 was the wrong time for FINRA to appoint any Goldman Sachs General Counsel to its Board. During 2022, it was still a misguided appointment in need of rectification. In 2023, the concerns will only amplify. 

In My Defense

My views on Wall Street's history of sexism and racism are a matter of record;
In my defense, I am merely being consistent and, yes, persistent, with my criticism of FINRA and its lackluster Board. This is not the first time that I have questioned FINRA's choice of a Governor. During the last two decades, I raised similar points against the service of the Vice Chairman (and former General Counsel) of JPMorgan Chase & Co., and the Chief Executive Officer of Deutsche Bank, when those males were nominated by FINRA's Nominating Committee to serve on its Board of Governors. 

Re-posted below are two Blogs demonstrating my
consistent and persistent voice
against FINRA's misguided nominations to its Board:

https://www.brokeandbroker.com/1448/deutsche-bank-finra-board/

I'm going to make this as short and sweet as possible and leave it to my devoted readers to fill in whatever blanks that they wish. Ultimately, this is a bizarre, sad, and somewhat shocking tale of Wall Street's regulatory community and its incessant failure to get it.

Bharara Slams Deutsche Bank

On May 10, 2012, the United States Department of Justice issued a press release: "Manhattan U.S. Attorney Recovers $202.3 Million From Deutsche Bank And Mortgageit In Civil Fraud Case Alleging Reckless Mortgage Lending Practices And False Certifications To HUD."   The release states, in part:

[t]he United States has settled a civil fraud lawsuit against DEUTSCHE BANK AG, DB STRUCTURED PRODUCTS, INC., DEUTSCHE BANK SECURITIES, INC. (collectively "DEUTSCHE BANK" or the "DEUTSCHE BANK defendants") and MORTGAGEIT, INC. ("MORTGAGEIT").  The Government's lawsuit, filed May 3, 2011, sought damages and civil penalties under the False Claims Act for repeated false certifications to HUD in connection with the residential mortgage origination practices of MORTGAGEIT, a wholly-owned subsidiary of DEUTSCHE BANK AG since 2007. . . The defendants also agreed to pay $202.3 million to the United States to resolve the Government's claims for damages and penalties under the False Claims Act . . .

[I]n addition, the Complaint alleges that, after DEUTSCHE BANK acquired MORTGAGEIT in January 2007, DEUTSCHE BANK managed the quality control functions of the Direct Endorsement Lender business, and had its employees sign and submit MORTGAGEIT's Direct Endorsement Lender annual certifications to HUD.  Furthermore, by the end of 2007, MORTGAGEIT was not reviewing any early payment defaults on closed FHA-insured loans.  Between 1999 and 2009, the FHA paid more than $92 million in FHA insurance claims for loans that defaulted within the first six payments . . .

[T]he DEUTSCHE BANK defendants admitted, acknowledged, and accepted responsibility for the fact that after MORTGAGEIT became a wholly-owned, indirect subsidiary of DB Structured Products, Inc and Deutsche Bank AG in January 2007:

    • The DEUTSCHE BANK defendants were in a position to know that the operations of MORTGAGEIT did not conform fully to all of HUD-FHA's regulations, policies, and handbooks;
    • One or more of the annual certifications was signed by an individual who was also an officer of certain of the DEUTSCHE BANK defendants; and;
    • Contrary to the representations in MORTGAGEIT's annual certifications, MORTGAGEIT did not conform to all applicable HUD-FHA regulations . . .

How serious were MortgageIt and Deutsche Bank's fraudulent acts? Consider this comment from the press release:

Manhattan U.S. Attorney Preet Bharara stated: "MORTGAGEIT and DEUTSCHE BANK treated FHA insurance as free Government money to backstop lending practices that did not follow the rules.  Participation in the Direct Endorsement Lender program comes with requirements that are not mere technicalities to be circumvented through subterfuge as these defendants did repeatedly over the course of a decade.  Their failure to meet these requirements caused substantial losses to the Government - losses that could have and should have been avoided.  In addition to their admissions of responsibility, Deutsche Bank and MortgageIT have agreed to pay damages in an amount that will significantly compensate HUD for the losses it incurred as a result of the defendants' actions."

For a detailed analysis of this case, READDeutsche Bank And MORTGAGEIT Settle Federal Fraud Charges For $202 Million ("BrokeAndBroker.com Blog" May 11, 2012).

FINRA Board Nominees

On May 11, 2012, a mere one day after the Department of Justice announced its $202 million settlement with Deutsche Bank, the Financial Industry Regulatory Authority ("FINRA") issued a press release: Election Notice: Nominees for Upcoming FINRA Board of Governors Election. In that FINRA election notice, we learn that for the upcoming 2012 Board of Governors election:

FINRA Nominating Committee Nominees

Pursuant to Article VII, Section 9 of the FINRA By-Laws, the FINRA Nominating Committee has nominated the following individuals:

Large Firm Governor: Seth H. Waugh, Chief Executive Officer, Deutsche Bank Americas . . .

Additionally, on page 5 of FINRA's Election Notice, we find the following biographical disclosure:

Profiles of Large Firm Governor Nominee

Seth Waugh joined Deutsche Bank in April 2000 as regional head of Global Markets and Equities and vice chairman of the Americas Executive Committee. Seth was appointed CEO of Corporate and Investment Banking in the Americas in 2001 and the following year was named CEO of Deutsche Bank Americas and chairman of the Americas Executive Committee, a position he has held since May 2002. He was appointed member of the Group Executive Committee effective April 1, 2009. Seth is chairman of the Deutsche Bank Securities Inc. (DBSI) Board of Directors and serves as chairman of the board, CEO and president of several Deutsche Bank companies including Deutsche Bank Trust Company and Deutsche Bank Trust Corporation Americas. He has recently announced that he will be stepping down as CEO once the ideal replacement is identified and in place. . .

Bill Singer's Comment

Unless I'm missing something here, Seth Waugh has been at Deutsche Bank since 2000 and held CEO and Chair positions in that organization since 2002.  Discounting all of Mortgageit's pre-2007 misconduct, which predated its acquisition by Deutsche Bank, that still means Waugh was part of the management team from 2007 through 2009 - years covered in the settlement with the Department of Justice.

None of which is to suggest that Waugh was personally involved in any of the alleged misconduct but it is to suggest that he was at the organization during some two years when cited misconduct occurred - misconduct that was apparently so significant as to warrant a whopping $202 million settlement. Pointedly, "Deutsche Bank Securities" is named in the DOJ's caption and Waugh is presently Chairman of the Board of that entity.

At a minimum, given all the above and the fair inferences a reasonable person would draw, did FINRA truly think it appropriate to nominate for the 2012 Large Firm seat (500 or more registered representatives) an individual whose firm just settled - the day before - a $202 million fraud case with the Department of Justice? FINRA loves to tout itself as follows:

FINRA is the largest independent regulator for all securities firms doing business in the United States. We oversee nearly 4,420 brokerage firms, 162,575 branch offices and 629,280 registered securities representatives. Our chief role is to protect investors by maintaining the fairness of the U.S. capital markets.

I guess that chief role thing about protecting investors by "maintaining the fairness of the U.S. capital markets," is subject to quite a bit of leeway when it actually comes to putting all those fine words into practice.  While the Wall Street cops at FINRA are busy drawing up names for Board nominees, perhaps they might consider today some fine men and women from, say, JP Morgan or MF Global.  After all,  what's a couple of billion in trading losses or a few missing dollars in customers' funds when we're talking about a regulator's chief role and the composition of its Board?  We're all just one big happy family on Wall Street, right?  If the Department of Justice is going to slam one of our own, maybe there's something that we can do to soften the blow - or maybe we can just pretend that it's no big deal? Ultimately this isn't about nominating Seth Waugh but it sure as hell is about nominating to a regulator's Board a high-profile Deutsche Bank executive one day after his firm entered into a $202 million fraud settlement with the Department of Justice.

Frankly, I have no idea what FINRA was thinking with this nomination - assuming that much, if any, thought went into it. One thing for certain: the self-regulatory organization dropped the ball when it came to fostering the impression that its core mission is maintaining the fairness of the markets. As they say, timing in life is everything.  The timing here stinks.

FINRA's JPM Omelet Ends With Egg On The Regulator's Face 
(BrokeAndBroker.com Blog / September 17, 2019)
https://www.brokeandbroker.com/4810/finra-awc-jpm/

They say you have to break some eggs to make an omelet (or, if you prefer, omelette). Similarly, you have to break some eggs in order to get egg on your face. A few years ago, it appears that the Financial Industry Regulatory Authority was attempting to make an omelet in 2016 and 2017 when it appointed Stephen M. Cutler, then Vice Chairman of JPMorgan Chase & Co., to its Board of Governors. Based upon revelations in a just-released 2019 FINRA regulatory settlement with JPM Securities LLC, FINRA didn't manage to flip the omelet and wound up with a face covered in dripping egg. I'm sort of enjoying watching the self-regulatory-organization try to maintain its composure while cleaning itself up. Can I get a toasted bagel and a refill of my coffee while I'm waiting?

The 2019 FINRA JPM Press Release


Broker-dealers are required to file with FINRA a Uniform Termination Notice for Securities Industry Registration (Form U5) within 30 days of terminating a registered representative's association and to file an amendment with FINRA within 30 days of learning that anything previously disclosed on the Form U5 is inaccurate or incomplete. Firms must disclose, among other information, allegations involving fraud, wrongful taking of property, or violations of investment-related statutes, regulations, rules or industry standards of conduct. FINRA uses this information to help identify and investigate potential misconduct, and sanction individuals as appropriate. State securities regulators and other regulators use the information to make informed regulatory and licensing decisions. Member firms use this information to make informed hiring decisions, and investors use this information-displayed through FINRA's BrokerCheck-when considering whether to do business with a registered or formerly registered person.

FINRA found that from January 2012 to April 2018, JPMS failed to disclose, or timely disclose, 89 internal reviews or allegations of misconduct by its registered representatives and associated persons, including misappropriation of customer and company funds, borrowing from customers, forgery or falsification or alteration of documents, unauthorized trading, making unsuitable recommendations, structuring and other suspicious activity. When JPMS eventually filed the required information with FINRA, it was, on average, more than two years late. This prevented or delayed FINRA, other regulators, member firms, and the public from learning about the allegations. JPMS' delays prevented FINRA from pursuing potential disciplinary action against 30 former JPMS representatives over whom FINRA's jurisdiction expired before JPMS disclosed the allegations. These failures resulted primarily from the firm's failure to establish and maintain reasonably designed written supervisory procedures and supervisory systems to identify all instances when Form U5 disclosures were necessary.

The 2019 AWC

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, J.P. Morgan Securities LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of J.P. Morgan Securities LLC Respondent (FINRA AWC 2015047127703, September 16, 2019) 
https://www.finra.org/sites/default/files/2019-09/jpms-awc-091619.pdf. In accordance with the terms of the AWC, FINRA imposed upon JPMS a Censure, a $1.1 million fine, and the firm entered into an 60-day undertaking to reform its supervisory systems and procedures. 

2016 and 2017 Cutler FINRA Board Appointment 

Before the good folks at FINRA embark upon their victory lap and spend JPM's $1.1 million, let me remind them of this:

The Financial Industry Regulatory Authority (FINRA) has named a new Large-Firm Governor - Stephen M. Cutler, Vice Chairman of JPMorgan Chase & Co. - to its Board of Governors. Cutler was appointed to complete the term of former Governor Gregory Fleming, who resigned his board seat earlier this year.  

Cutler joined JPMorgan as its General Counsel in 2007 from the law firm of WilmerHale in Washington, D.C., where he was a partner and co-chair of the firm's Securities Department. Prior to that, he was the director of the U.S. Securities and Exchange Commission's Enforcement Division. Before joining the SEC in 1999, he was a partner at Wilmer, Cutler & Pickering, where he worked for 11 years. 

Cutler obtained his bachelor's degree summa cum laude from Yale and his J.D. from Yale Law School, where he was an editor of the Yale Law Journal. 

"Steve brings a valuable perspective and a keen understanding of securities regulation and the industry to FINRA's Board," said FINRA Chairman Jack Brennan. "We welcome Steve and look forward to working with him."  

"FINRA will benefit from Steve's depth of industry and regulatory knowledge in advancing our mission of protecting investors and ensuring the integrity of our markets," said Robert Cook, FINRA's President and Chief Executive Officer. "We are very fortunate to have Steve join the FINRA Board." . . .

  • "Notice of Annual Meeting of FINRA Firms and Proxy(FINRA Election Notice / July 21, 2017) 
    https://www.finra.org/sites/default/files/notice_doc_file_ref/Election-Notice-072117.pdf,
    in which FINRA proudly noted that the FINRA nominating Committee had nominated none other than "Stephen M. Cutler, Executive Vice President and Vice Chairman of JPMorgan Chase & Co." as the Large Firm Governor Candidate. This is what FINRA published as Cutler's candidate profile:
Stephen M. Cutler, Executive Vice President and Vice Chairman of JPMorgan Chase & Co. 

Mr. Cutler joined the company in 2007 and served as its General Counsel for nearly nine years. Previously, he was a partner at Wilmer Cutler Pickering Hale and Dorr LLP in Washington, D.C., and co-chair of the firm's Securities Department. From 2001 to 2005, Mr. Cutler served as Director of the Securities and Exchange Commission's Division of Enforcement, where he oversaw the Commission's investigations of Enron and WorldCom, as well as those involving NYSE specialists, research analyst conflicts and mutual fund market timing and revenue sharing. Before joining the SEC as Deputy Director of Enforcement in 1999, Mr. Cutler was a partner at Wilmer Cutler & Pickering in Washington, D.C. Mr. Cutler is a 1985 graduate of Yale Law School, where he served as an editor of the Yale Law Journal, and a 1982 graduate (summa cum laude) of Yale University. He is on the boards of the Legal Action Center, the National Women's Law Center and the Metropolitan Museum of Art, and for the last two years, has served as a Visiting Lecturer and co-taught a course at Yale Law School.

March 30, 2018, Cutler Resignation

Cutler resigned his FINRA Board seat on March 30, 2018. 

There Are None So Blind As Those Who Do Not See (Regulators Included)

As noted above in glowing detail in FINRA's November 2016 Press Release, the self-regulatory-organization appointed Cutler, JPM's former General Counsel and then-current Vice Chairman, to the regulator's Board of Governors. Appointment as in hand-picked. Appointment as to be seated without the inconvenience of a contested election. Not that there were any warnings, signals, or flares that might have given FINRA pause when it came to appointing Cutler. I mean, you know, what the hell did any of this even mean:

J.P. Morgan to Pay $267 Million for Disclosure Failures (SEC Press Release / December 18, 2015)
https://www.sec.gov/news/pressrelease/2015-283.html

The Securities and Exchange Commission today announced that two J.P. Morgan wealth management subsidiaries have agreed to pay $267 million and admit wrongdoing to settle charges that they failed to disclose conflicts of interest to clients.

An SEC investigation found that the firm's investment advisory business J.P. Morgan Securities LLC (JPMS) and nationally chartered bank JPMorgan Chase Bank N.A. (JPMCB) preferred to invest clients in the firm's own proprietary investment products without properly disclosing this preference.  This preference impacted two fundamental aspects of money management - asset allocation and the selection of fund managers - and deprived JPMorgan's clients of information they needed to make fully informed investment decisions.

In a parallel action, JPMorgan Chase Bank agreed to pay an additional $40 million penalty to the U.S. Commodity Futures Trading Commission (CFTC).. .

SEC: J.P. Morgan Misled Customers on Broker Compensation (SEC Press Release / January 6, 2016)
https://www.sec.gov/news/pressrelease/2016-1.html

The Securities and Exchange Commission today announced that J.P. Morgan's brokerage business agreed to pay $4 million to settle charges that it falsely stated on its private banking website and in marketing materials that advisors are compensated "based on our clients' performance; no one is paid on commission."

An SEC investigation found that although J.P. Morgan Securities LLC (JPMS) did not pay commissions to registered representatives in its U.S. Private Bank, compensation was not based on client performance.  Advisors were instead paid a salary and a discretionary bonus based on a number of other factors. . . 

JPMorgan Chase Paying $264 Million to Settle FCPA Charges (SEC Press Release / November 17, 2016)
https://www.sec.gov/news/pressrelease/2016-241.html

The Securities and Exchange Commission today announced that JPMorgan Chase & Co. has agreed to pay more than $130 million to settle SEC charges that it won business from clients and corruptly influenced government officials in the Asia-Pacific region by giving jobs and internships to their relatives and friends in violation of the Foreign Corrupt Practices Act (FCPA).

JPMorgan also is expected to pay $72 million to the Justice Department and $61.9 million to the Federal Reserve Board of Governors for a total of more than $264 million in sanctions resulting from the firm's referral hiring practices.

According to an SEC order issued today, investment bankers at JPMorgan's subsidiary in Asia created a client referral hiring program that bypassed the firm's normal hiring process and rewarded job candidates referred by client executives and influential government officials with well-paying, career-building JPMorgan employment.  During a seven-year period, JPMorgan hired approximately 100 interns and full-time employees at the request of foreign government officials, enabling the firm to win or retain business resulting in more than $100 million in revenues to JPMorgan. . .

Manhattan U.S. Attorney Settles Lending Discrimination Suit Against JPMorgan Chase For $53 Million / Settlement Includes Admissions by the Bank and Provides Compensation for Borrowers Harmed by the Discriminatory Lending Practices (DOJ Press Release / January 20, 2017)
https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-settles-lending-discrimination-suit-against-jpmorgan-chase-53

The government's data model projects that, from at least 2006 through late 2009, certain of the approximately 106,000 African-American and Hispanic borrowers who obtained loans through independent mortgage brokers participating in Chase's wholesale channel paid higher rates and fees on "wholesale" home mortgage loans compared to the rates and fees paid by similarly situated white borrowers who obtained loans through independent mortgage brokers participating in Chase's wholesale channel. It projects that in thousands of instances, an African-American borrower entering into the same type of Chase wholesale mortgage as a white borrower paid higher loan rates and larger fees than such white borrower. Similarly, it projects that in thousands of instances, a Hispanic borrower entering into the same type of Chase wholesale mortgage as a white borrower paid higher loan rates and larger fees than such white borrower.

For a jaw-dropping sense of the enormity of some $34 Billion in penalties paid by JPMorgan Chase and its subsidiaries since 2000, see: https://violationtracker.goodjobsfirst.org/parent/jpmorgan-chase. Also, see "JPMorgan Chase: Corporate Rap Sheet" (Corporate Research Project)
https://www.corp-research.org/jpmorganchase

An Inconvenient Truth

The JPMorgan Securities FINRA AWC that's being so highly touted today asserts misconduct by that member firm from January 2012 to April 2018. That six year and four month period ends in the month that began just one day after Cutler's resignation. Oh, how very, very convenient that was for all parties concerned, no? 

Let's not lose focus of the the 2007 date when Cutler joined JPMorgan as its General Counsel. It's not like Cutler walked into JPM long, long after the mess cited in FINRA's 2019 AWC -- or even in the SEC's various actions. No, Cutler was there in 2007, which is five years before the 2012 date cited in the AWC as the starting point. And Cutler was there throughout the 2012 - 2018 regulatory/compliance meltdown. I'm not blaming him and, pointedly, neither did FINRA or the SEC. Perhaps he did his best. Perhaps he too was in the dark. 

Also, let's not forget that in July 2017, when former FINRA Large Firm Governor Greg Fleming's term of office ended,  FINRA proudly trumpeted the APPOINTMENT of Cutler to his own three-year term by its National Nominating Committee. 

Clueless Regulators. Clueless Regulation.

Unfortunately, FINRA was enamored with Cutler. He brought a valuable perspective and a keen understanding of securities regulation and the industry to FINRA's Board. FINRA proclaimed that it would benefit from Steve's depth of industry and regulatory knowledge in advancing our mission of protecting investors and ensuring the integrity of our markets How very fortunate FINRA was to have Cutler on its Board. 

Lone Voice of Dissent in the Wilderness

Sadly, there was no one criticizing FINRA for appointing Cutler to its Board. 

No one spoke up. 

No one spoke out. 

No one suggested that FINRA might be having a moral/ethical lapse in 2017 in seating someone, anyone on its Board from JPM. 

Oh wait a minute, you're right there was this:

As the January 24, 2017, Blog's opening paragraph presciently warned:

You might want to call it an existential challenge. The Financial Industry Regulatory Authority has to make up its mind. Will it treat its smaller member firms the same as its larger ones? Will the self-regulator perpetuate its seemingly disparate reaction to the transgressions of its financial superstore member firms versus those of individual men and women stockbrokers? With new Chief Executive Officer Robert Cook, FINRA has a chance to hit the re-set button. One size fits all regulation is a bust. It's time to restore the partnership between the regulator and the regulated. Perhaps the first step in fixing the broken machinery of self regulation begins with an enlightened assessment of the issues presented in today's BrokeAndBroker.com Blog.

After I criticized what I viewed as the disparate, overly-favorable treatment afforded by FINRA to its large member firm JPM, I offered in part this observation:

Disparate FINRA Regulation?

FINRA carried the banner for non-FINRA-member-firm J.P. Morgan Chase Bank and its FINRA-member-firm subsidiary J.P. Morgan Institutional Investments when it investigated DeBow and fined him $10,000 and suspended him for 18 months. Recall that no act technically took place at any J.P. Morgan FINRA member firm because the checks were all written against the non-member bank's account. If you read the AWC, it says that he was discharged by FINRA member firm J.P. Morgan Institutional Investments for "VIOLATION OF PARENT COMPANY'S CODE OF CONDUCT."  Note the reference to the non-FINRA member firm parent company's Code of Conduct.

Given that FINRA seemed comfortable acting as a collection agency or keeper-of-the-flame when it pounced on DeBow, what then should FINRA do now that it is confronted with the DOJ settlement involving J.P. Morgan Chase Bank, an intertwined affiliate of at least a couple of J.P. Morgan FINRA member firms? 

For starters, FINRA should investigate the extent to which all those banking and affiliate entanglements may have involved customers of its member firms. Armed with that information and guided by its actions against DeBow, FINRA should consider fining any member firm and suspending its senior brokerage staff for looking the other way, facilitating any referrals of minority mortgage clients, and feeding the fires of that marketing machinery that may have contributed to racial discrimination. I mean, after all, there is a $53 million civil-rights-lawsuit settlement with DOJ by J.P. Morgan Chase Bank, N.A. involving 106,000 minority victims of improper mortgage practices.

FINRA Board of Governors

I just checked and noticed that the current list of FINRA's Board of Governors includes Stephen M. Cutler of JPMorgan Chase & Co. If it turns out that his firm or its affiliates engaged in discrimination, maybe FINRA should remove Mr. Cutler from its Board and impose an 18-month ban on future Board service by JPMorgan representatives.