Driving a Point Home: Stockbroker Registration

February 3, 2009

By Bill Singer



In the Matter of the Application of Michael Stegawski (Securities Exchange Act Rel. No. 59326/ Admin Proc. File No. 3-13001/January 30, 2009) http://sec.gov/litigation/opinions/2009/34-59326.pdf

Rather than present the numbing five years of facts in my typically artful prose, I have opted for the rather more convenient numbered format below.  Frankly, I hope this choice of format better depicts the Juggernaut of inanity that passes for serious regulation.


  1. In January 2004, Michael Stegawski began working as a trainee for Morgan Stanley DW Inc. ("Morgan Stanley").
  2. On March 26, 2004, Stegawski passed the Series 7 Examination and became registered as a general securities representative with Morgan Stanley. At or around the same time, Stegawski also passed the Series 31 (futures managed funds) Examination and the Series 66 (uniform combined state law) Examination.
  3. On July 20, 2004, Stegawski left Morgan Stanley and the firm terminated his registration, and under NASD Membership and Registration Rule 1031(c), he had two years from his termination to reinstate his registration.
  4. In September 2004, Stegawski enrolled at Georgia State College of Law.


  1. During law school, Stegawski participated in an externship program with the Securities and Exchange Commission's Atlanta Regional Office from September through December 2005.
  2. In December 2005, Stegawski passed Level I of the Chartered Financial Analyst ("CFA") Program.


  1. On July 20, 2006, the applicable two-year period for the reinstatement of Stegawski's registration as a general securities representative expired without reactivation.
  2. In October 2006, Stegawski became a legal assistant with FINRA member firm Capstone Partners, L.C. ("Capstone") and the Law Office of Gregory Bartko. Bartko is Capstone's chief executive officer.
  3. On November 7, 2006, Capstone filed a Uniform Application for Securities Industry Registration or Transfer ("Form U4") register Stegawski as a general securities representative with NASD.
  4. On December 6, 2006,to Capstone applied, on Stegawski's behalf, for a waiver of the Series 7 Examination based on Stegawski's educational achievement, prior registration and experience in the securities industry, and regulatory experience with the Commission (the "2006 Waiver Request").
  5. NASD's Department of Testing and Continuing Education (the "Department") denied the 2006 Waiver Request, concluding that a waiver was not warranted.


  1. In April 2007, the Waiver Subcommittee of the National Adjudicatory Council (the "Waiver Subcommittee") affirmed the Department's denial, and it was not appealed to the SEC.
  2. In November 2007, Stegawski passed the Series 24 (general securities principal) Examination.  
  3. In December 2007, Stegawski graduated from law school and subsequently passed the Florida Bar Examination.
  4. On December 18, 2007, Capstone filed a second request, on Stegawski's behalf, for a waiver of the Series 7 Examination (the "2007 Waiver Request").
    1. The 2007 Waiver Request asserted claims similar to those in the 2006 Waiver Request, that is
      1. that Stegawski qualified for a waiver based on his Commission externship (which, he represented, involved investigations of alleged investment fraud and securities laws violations);
      2. completion of the Series 7, 66, and 31 qualification examinations in 2004;
      3. association with a FINRA member firm, bachelor's degree in finance; and
      4. completion of Level I of the CFA Program.
    2. The 2007 Waiver Request represented additionally that, since the filing of the 2006 Waiver Request, Stegawski has
      1. passed the Series 24 Examination; completed all law school course work (including "securities regulation, bankruptcy, federal taxation, security interests, corporations, agency and partnership, wills and trusts, and contracts");
      2. would soon receive his law degree; and
      3. maintained employment with Capstone and the Law Office of Gregory Bartko.
  5. Capstone did not file a Form U4 on Stegawski's behalf, as required by FINRA's Qualification Examination Waiver Guidelines (the "Waiver Guidelines"), in connection with the 2007 Waiver Request.  FINRA did not immediately rule on the 2007 Waiver Request.


  1. On March 7, 2008, Stegawski filed an application for review with the SEC, claiming that FINRA staff had effectively denied his 2007 Waiver Request during phone conversations with him. Stegawski asserted that FINRA staff told him that they previously had decided the matter when FINRA denied his 2006 Waiver Request.
  2. In a letter dated March 17, 2008, FINRA informed Stegawski that its Waiver Guidelines require a Form U4 to be filed with any waiver request.
  3. The next day, Capstone submitted a Form U4 on Stegawski's behalf to the Central Registration Depository ("CRD").
  4. On April 4, 2008, the Department denied the 2007 Waiver request, concluding that the application presented no basis for a waiver of the Series 7 Examination.
  5. On April 8, 2008. Stegawski appealed that decision to the Waiver Subcommittee, and on April 17, 2008, he submitted a statement to the Waiver Subcommittee in support of his appeal.
  6. On May 12, 2008, the Waiver Subcommittee affirmed the Department's denial of the 2007 Waiver Request, determining the request did not meet the standards set forth in FINRA's Waiver Guidelines for a waiver of a qualification examination. The Waiver Subcommittee found that
    1. Stegawski's law degree lacked a "substantial emphasis on finance and investments."
    2. he failed to submit a final transcript reflecting his graduation;
    3. his Commission externship was not his "most recent employment" and lacked the "breadth of experience necessary" for an examination waiver;
    4. that his "prior experience as a general securities representative was not substantial, [lasting] approximately four months."
    5. his completion of the Series 24 Examination and Level I of the CFA Program did not "ensure the same breadth of knowledge of the securities laws and regulations as does completing the Series 7 Examination;" and
    6. Stegawski should re-familiarize [himself] with FINRA rules through the examination process and become familiar with the changes to the securities laws that have occurred since [he] last registered."
  7. On May 28, 2008, Stegawski amended his March 7 application for Commission review to include the Department's decision to deny the 2007 Waiver Request and the Waiver Subcommittee's affirmance of that decision.


  8. On January 29, 2009, the SEC sustained FINRA's denial of waiver.

Bill Singer's Pithy Analysis of the
SEC's Decision Denying the Waiver

Suffice it to say that not only did FINRA get it wrong and did so with amazing consistency (in my humble opinion) but the SEC saw the same wayward footsteps on the beach and decided to step into them with equally admirable consistency (again, in my humble opinion).  Before unleashing a salvo against this case and its oh so studied rationale, let me untie some of the SEC's balloons and let them float into the air for your admiration or (as in my case) disdain.

Lacking Education?

In affirming FINRA's denial of waiver, the SEC notes that FINRA's  Waiver Guidelines authorize granting waiver requests based on educational achievement to "persons who terminate their registrations and enroll in a master's program with a substantial emphasis on Finance and Investments." In order to qualify for a waiver under this provision of the Waiver Guidelines "[an] applicant must return to a member firm promptly after completing the course of study and furnish a copy of the course transcript with the waiver request."

In response to that standard, Stegawski argued that his legal studies and bachelor's degree demonstrate his "broad exposure" to the securities industry and qualify him for a waiver based on educational achievement. Stegawski states that he received a law degree and studied courses in "securities regulation, bankruptcy, federal taxation, security interests, corporations, agency and partnership, wills and trusts, and contracts." He also stated that he earned a bachelor's degree in finance and completed Level I of the CFA Program.

Okay, so, just for the sake of it, let's see if we can at least reduce the point and counterpoint here to something basic. You can get a waiver of the Series 7 if you demonstrate post-registration enrollment in a master's program with a finance/investment emphasis and you promptly return to a member firm upon completion of said studies and furnish a transcript with the waiver request.  We know that Stegawski terminated his registrations (yeah, that's plural: he passed the 7, 31, and 66!) in July 2004, immediately attended law school, associated with FINRA member Capstone in October 2006, and sought registration in November 2006.  And, yeah, okay, fine, we also know that the two-year window to keep his Series 7 active closed in July 2006 -- all of three or so months before he rejoined the industry.

On what principled basis did both FINRA and the SEC dispose of the sole issue as to whether Stegawski's legal degree satisfied the waiver requirement that he enroll in a master's program with substantial emphasis on finance/investments?  Oh, that was simple, and I quote from the SEC's decision on Page 6:

As an initial matter, the degree programs and examinations Stegawski relies on do not meet the Guidelines' requirements because they are not master's degree programs. He has a bachelor's degree -- not a master's degree -- in finance. His law degree, while including some relevant subjects, does not appear to have a "substantial emphasis on Finance and Investments." Capstone further failed to provide a copy of Stegawski's law school transcript, as required by the Waiver Guidelines, showing completion of the courses he had taken and verification of his graduation.

We have a young man who previously sat for and passed three separate registration exams, who worked at the SEC, who sat for and passed part of the CFA program, and graduated law school -- and we're now splitting hairs over whether his law school curriculum substantially emphasized finance and investments...and, even more foolishly, we're jerking this kid around because he didn't timely produce a law school transcript (or a note from his doctor or mother?) to prove that he completed his curriculum and graduated.  Does that fact that he passed the bar examination  give those scholars at FINRA and the SEC any clue as to whether Stegawski graduated law school?  Would it have killed anyone or destroyed the regulatory system if someone had the simple decency to say: Whoa, let's not go nuts here. Send us your transcript, even if it's belated, and we'll see what's what.

Timing Is Everything?

But we're not done putting this kid through the wringer. Among other issues that the regulators considered, were granting a waiver when an applicant's "most recent employment has been with a securities regulatory agency" and the applicant "was previously registered with a member firm." Hmmm...that should have given the good folks at FINRA and SEC a dignified way out of this. Stegawski had worked at the SEC for a few months in 2005, during the hiatus at issue.   But, "no," the laser-like analysis of FINRA and SEC will not lighten up. The SEC concludes on Page 7 of its decision that

However, Stegawski's most recent employment was not with the Commission or another regulatory agency, as the Waiver Guidelines require, but with Capstone and the Law Office of Gregory Bartko. The Waiver Guidelines also instruct FINRA to "consider the scope of the regulatory experience in deciding the waiver request." Stegawski's experience with the Commission lasted four months, during which he states that he was a research assistant for the trial unit and "aided the Enforcement Division in the investigation of Securities Act violations." Based on the limited nature of Stegawski's duties and the short duration of his experience, we agree with FINRA's conclusion that Stegawski's regulatory experience did not "evidence the breadth of experience necessary to warrant a waiver" of the examination requirements.

How refreshing and comforting to see the overseers of Wall Street exact such diligence upon the shoulders of so young a man.  Not only is his waiver request subjected to a consideration as to whether his law school curriculum substantially emphasized finance/investments, but now he is asked to jump a hurdle of "breadth of experience."  God only knows how many qualified stockbrokers are out in the field today with law degrees and CFA credits and passing grades on three separate qualifying exams plus a more recent Series 24 and a stint at the SEC (oh, sorry, Stegawski should apologize for the "short duration" of that apparently meaningless gig).

At this point, so much of what I read by way of justification by NASD, FINRA, and SEC simply strikes me as blah-blah-blah.  Let me try to put this all in context.

Like Lawyers, Except Not

I passed my Bar examination in 1984 and was promptly admitted to practice in 1985.  Over the ensuing years, I have become required along with other lawyers to take Continuing Legal Education credits every two years.  If I do not satisfy those CLE credits, I cannot continue to practice law within the relevant jurisdiction.  Sounds like the same regulatory scheme for Wall Street?  Not quite, and here are the significant differences (again in convenient numbered form):

  1. I didn't have to file to take the Bar exam through a law firm licensed in my state of application.  FINRA exams can only be accessed through a U4 submitted through the member firm;
  2. Once admitted to practice, my license does not go into limbo when I resign from a law firm. My license is not held hostage by any employer or partnership. I, Bill Singer, am personally licensed to practice law, and that is in my personal capacity--NOT as an employee, agent, or partner of any law firm.  If I want to quit a law firm, I am not concerned about that firm's ability to jam up my license;
  3. If I cease practicing at a law firm and accept a corporate in-house position or that as a regulator, my law license does not start a two-year countdown resulting in its termination if I don't return to private practice;
  4. If I want to retain my license, I must personally ensure that I satisfy my two-year CLE requirement by paying out of my own pocket for credits (offered by many, many organizations via seminars, home study, or online materials) and personally confirming same with the state court.

A Bankrupt Registration System?

Frankly, the above scenario is similar for most professionals in our society -- lawyers, doctors, accountants -- but, oddly, stockbrokers are subjected to an anachronistic system that binds them to an employer, replete with the panoply of conflicts and innate threats that such control of the bottleneck gives to the employer in such situations.  The stupidity here is that it exalts form over substance.

Take a colleague of Stegawski--another young man or woman who didn't terminate his/her registration and stayed in production.  That former colleague would not have gone to law school, would not have worked at the SEC, would not have passed part of the CFA. And the benefit to society and the industry of that other registered person's continued employment was what?  Does FINRA and the SEC truly believe that during those ensuing two years that Stegawski's former colleagues were learning about the breadth of experience that is Wall Street?  What utter, sheer nonsense, if not garbage!  Those regulators themselves are out of touch with reality if they believe that crap.  The benefit of remaining in production during those two years is that Stegawski's former colleagues made more cold calls, followed up on more leads, sat in on more sales meetings and were pressured to sell house product and meet sales quota, and the list of similar experiences goes on and on.  Do not for a second believe that the typical, daily experience of a Wall Street stockbroker is learning about the intricacies of new product or new regulations.  If that were the case, how come we can't find a single registered person or regulator who now claims to fully understand what a CDS is or the supposed good-as-cash ARS?

When is enough, enough?  The entire registration system on Wall Street is a sham.  It gives false comfort to an easily mislead consumer public. You want to reform Wall Street in a meaningful manner that will shake the dirty business to its core?  Fine--listen to me, a nearly three-decade veteran of the Street:  free the stockbrokers from the oppressive registration system. Let the registered men and women of the industry register on their own and directly with the regulator. End the nonsense that their registration starts to lapse once they resign or are laid off.  Give them the same licensing status as a doctor or lawyer, and require them to stay current by satisfying biennial continuing education.

At the end of the day, it just strikes me as idiotic that young Stegawski passed three exams in 2004 and then the even more demanding Series 24 in 2007, graduated law school, qualified for part of his CFA, worked at the SEC, and because he submitted a re-registration application some three months and change after the artificial two-year deadline, he is denied a waiver of a lousy Series 7.  Could he just take the exam over? Of course.  Why shouldn't he? Because it's just unfair and silly.

Still not convinced?  Okay, let me take this parting shot.  

Driving the Point Home

When did you pass your first driver's test and get your first driver's license

  • Did you have to renew your driver's license every time you sold each of your cars?
  • Did you apply for a driver's license renewal through the car dealer where you bought your car?
  • Did you lose your driver's license if you sold your car and subsequently leased or rented an auto, or opted for mass transit?
  • Have you ever taken a mandatory brush-up course every two-years to ensure that you still understand how to drive your car?
  • Sure, commit a crime or amass enough points and you lose your license and may well have to requalify. That's a sensible approach.
  • So, tell me, what exactly did Stegawski do wrong that he was punished by the loss of his license and the requirement to requalfiy?

Now do you get it?

For an older take on this issue, read Guzzone at http://www.rrbdlaw.com/2004/0405guzzone.htm .