The Regulatory Woodshed

January 14, 2010

As noted in my current Street Legal column at Registered Rep. Magazine, without admitting or denying the allegations, respondents Fortune Financial Services and its Registered Principal Brian Lee Daniels consented to the entry of findings and sanctions pursuant to the Financial Industry Regulatory Authority's (FINRA's) Acceptance, Waiver and Consent (AWC) settlement process. FINRA found that acting through Daniels, FFS failed to maintain and preserve all of its business-related electronic communications (and lacked adequate policies and procedures relating to such record retention); improperly increased the number of registered representatives in its offices despite failure to obtain FINRA's approval; and conducted business at unregistered branch offices.

Daniels was fined $25,000 and suspended nine months in Principal capacities only.  FFS was censured and fined $125,000 â" but it's what comes next that's truly noteworthy. In addition, FFS was prohibited for 90 days, commencing five business days after issuance of the AWC, from registering any associated persons, except for individuals who perform only compliance and/or supervisory duties.

Why does there always seem to be a regulatory woodshed for FINRA's member firms and registered reps but no place for the regulator to take a time-out when it misbehaves? Was FINRA fined for its lapses as documented in the press and its own Madoff Report? Not that I have read. Were any senior level FINRA regulators suspended or fired? Again, not that I have read. Oddly, FINRA imposes a hiring ban upon the likes of FFS, yet sees no inconsistency with simply sloughing off its own shortcomings and seeking even more responsibilities among investment advisors and financial planners (with the concomitant increase in revenues).