FINRA: Tool of Management?

February 20, 2008

In the just-issued February disciplinary reports, FINRA discloses that Gregory Gibala, Docket #007008400401, entered into an Acceptance, Waiver & Consent (AWC) settlement. Gibala wrote checks against his mutual fund account at a company affiliated with his member firm and deposited the checks into his checking account even though he knew the mutual fund account had insufficient funds to cover the checks, and that no additional funds would be deposited into the mutual fund before the checks were presented for payment. Gibala withdrew funds from the bank checking account although he knew, or should have known, that, excluding the mutual fund checks he had deposited, the checking account did not contain sufficient funds to cover the withdrawals.

As a result of the above factors, FINRA fined Gibala $5,000 and suspended him for four months.

Up front, let me be quite clear, Gibala's conduct is a serious matter. Writing a check when you KNOW that you lack sufficient funds is wrong. Writing a check when you KNOW that you will not deposit funds in time to cover is wrong. Fact is, in most states knowingly writing an NSF check is a crime.

So, before you read further, please give me credit for not justifying or making light of Gibala's conduct.

Notwithstanding all of the above, I think that the FINRA decision should have at least stated whether Gibala was charged with or convicted of a crime. Similarly, we should be advised as to whether his employer even filed criminal charges. Moreover, it would be helpful to know the sum involved -- not to excuse the conduct but to place it within a given context. Was this $100 or $10,000?

FINRA always seems ready and willing to go after industry employees for these types of violations but rarely seems to take up the banner when the employee is the wronged party. Wall Street employees often claim that they have not been paid, or not timely paid, or that they have been wrongly underpaid.

Does FINRA investigate allegations by employees of unfair compensation practices by member firm employers, and does the regulator charge member firms with the same frequency and zeal as often shown against registered reps?

When FINRA member firms are named in racial or sexual discrimination/harassment suits (and often found guilty in court), does FINRA also fine and suspend the member firm?

For many years I have argued that FINRA is too often a tool of management. The self-regulator allows only member-firm-employers to vote on its rule proposals or for its elective offices. Some three-quarters of a million registered men and women are disenfranchised and prohibited from voting on rules that directly impact their lives. I see little explanation for this discrimination other than to perpetuate an unfair system.

Individuals will do wrong. They will commit grievous harm. And as any veteran observer of the securities industry knows, our business is too often plagued with such miscreants. However, Wall Street, our country, and the world's economy are not in the difficult straits we now find ourselves solely because individual, renegade RRs broke the rules. This current mess did not occur because a few men and women were churning the accounts of public customers.

No---we are in our present predicament because large, multinational financial service companies (many of them FINRA member firms) made bad choices and likely violated rules, regulations -- if not laws. Today, the blame squarely falls on the boardroom tables and in the windowed offices of the entities who advertise on television and in our newspapers. This is about household names. This is about member firms.