by Bill Singer
FINRA and Lt. Col. Johnson Matter Appears Resolved!
May 12, 2008October 2008 Update
Following communications with Lt. Col. Johnson, his U.S.-based representatives, and FINRA staff and executives, it appears that there were a number of unfortunate misunderstandings that resulted in the regulatory situation that prompted my involvement. In order to fully respond to the many inquiries about this matter, let me briefly try to explain what happened.
Johnson's FINRA member firm is best described as "passive," to the extent that he remains overseas on military duty and Amerivet's revenues are largely from legacy transactions set in motion prior to his departure. Notwithstanding the firm's limited business, it is still technically an active FINRA member and, as such, is still subject to periodic filings. Because of Johnson's service in the Iraqi war zone, he is not always able to promptly communicate with his U.S. representative who are overseeing Amerivet's business. In part, those communication strains are caused by the cumbersome military email system, by the obvious delays in trying to contact an individual on active duty, and by the sheer distance and time lag inherent in such a scenario.
At a particular point in time, Amerivet needed to file a FOCUS report but in order to to do in a timely manner, Johnson needed to review and provide data. When his military obligations prevented him from promptly responding to his U.S. representatives, discussion were undertaken to obtain an extension of time from FINRA. Hence, the genesis of the problem.
As best as now seems apparent, Amerivet's U.S. staff and consultants understood from discussions with FINRA District staff that the FOCUS report needed to be submitted on X date. A FOCUS was filed "timely" in an effort to satisfy the deadline but with the understanding that some data would need to be reviewed, updated and/or supplemented by Johnson. Amerivet came away with discussion with FINRA staff with the understanding that if such was not completed by Y date that the firm would be subject to disciplinary action and closed pursuant to a FINRA Order.
It would be Johnson's position that he requested an extension of the Y date through his representatives and on his own. For the sake of simplified explanation, he asked for a 30-day extension. When Y date arrived, Johnson had not personally heard back from FINRA and he and his representatives were petrified that the extension had not been granted and that FINRA was moving to close his firm. He reached out to me and others for help during that perceived emergency. Shortly thereafter, he received a letter from FINRA staff granting an extension of Y date for ten business days thereafter -- but Johnson received that letter on the 11th business day and assumed that the granted extension had expired and FINRA was still proceeding to close his firm. Moreover, he was advised that FINRA's Washington-based staff would consider his request for additional extended time but no such follow-up from the home office was received. Following my intervention, the matter appears to have been resolved, if not amicably then at least to the apparent mutual satisfaction of the parties.
FINRA's position is that it did not move to close down his firm and that Amerivet's distress was largely caused by miscommunication between Johnson and his U.S. based representatives.
I would note that FINRA has not satisfactorily explained to me why it arbitrarily granted less extended time than Johnson had sought--particularly given that he was in Iraq, that his firm was essentially engaged in a very limited level of passive activity, and that there had been an ample record of prior dealings between him and FINRA that raised the inference that he felt discriminated against and unfairly treated as an African-American, a disabled veteran, and an active-duty serviceman. To be fair, FINRA disputes his beliefs as to his treatment by the regulator. Nonetheless, if I accept that Johson over-reacted, then I think it only fair that FINRA accepts the fact that its prior dealings with him may have created an atmosphere of distrust and doubt.
As of approximately 4:30PM ET on May 12, 2008, the dispute between Lt. Col. Johnson and FINRA appears to have been resolved, and to have been accomplished in what I hope will be an amicable matter. In order to avoid jeopardizing the resolution, I will abide by my own counsel and promises and not disclose the communications or discussions that may have engendered that result. Suffice it to say that a large part of this mess seems to have been cause by the vagaries of the U.S. Military's postal system and the inherent difficulties of communicating with a soldier on active duty in a war zone.
Finally, let me extend a heartfelt thank you to the hundreds of folks who communicated with me on Elton's behalf and sought to help with dollars or time. Pointedly, I wish to express my sincere appreciation to both the Financial Industry Association (FIA) and the Securities Industry Professionals Association (SIPA) for their generous efforts on behalf of Lt. Col. Johnson. To some degree, my confidence in our industry has been restored.
I hope to finally communicate directly with Elton tomorrow and will send him all of your best wishes. Hopefully, what now appears to be a satisfactory resolution will become a firm, final one within the next few days.
If you would like to communicate directly with Elton (and I'm sure he would love to hear from all his new friends and supporters) please try reaching him at elton.johnson@iraq.centcom.mil I can't guarantee that your messages will get through or that his email address will remain unchanged for long, but I know that he would appreciate hearing from everyone.