Bias In Regulatory Sanctions
Visit http://rrbdlaw.com/RegulatoryLinks/CASESOFNOTE/NASD/2008.htm to read this squib:
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Lerner opened checking and savings bank accounts for fictitious customers through an affiliate of his member firm in order to meet monthly sales goals.
Marat Lerner: Fined $5,000; Suspended 1 year
Bill Singer's Comment: And now for yet another example of how FINRA's institutional bias against smaller firms and individual reps (in favor of larger firms) politicizes the regulatory process and essentially corrupts it. Please look at this January 8, 2008 FINRA Press Release: FINRA Fines 19 Firms a Total of $2.8 Million for Inaccurate Advertised Trade Volume Information. In that highly publicized settlement, FINRA explained:
The firms' overstated trade volumes were made available to market participants by the service providers. The service providers also used the firms' inaccurate advertised trade volumes to compile rankings and reports, including reports that rank the most active broker-dealers by security.
. . . .
[E]ight firms were fined $200,000 each (Broadpoint Capital, Inc., CIBC World Markets Corp., Lehman Brothers, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., Needham & Company, LLC, Robert W. Baird & Co., Inc., Thomas Weisel Partners, LLC and UBS Securities, LLC). Six firms were fined $150,000 each (Bear, Stearns & Co., Inc., BMO Capital Markets Corp., Cowen and Company, LLC, Deutsche Bank Securities, Inc., Leerink Swann & Company, Inc. and RBC Capital Markets Corp.). Four firms were fined $50,000 each (Friedman, Billings, Ramsey & Co., Inc., Jefferies & Company, Inc., JMP Securities, LLC and Pacific Crest Securities, Inc.).
The fine for one firm, Piper Jaffray & Co., was reduced to $100,000 because the firm conducted its own extensive internal investigation and then voluntarily provided the results to FINRA.
So here's what riles me. Not a single individual at those 19 firms seems to have been suspended and the big boys cited just get off with fairly modest fines. What actually did those 19 firms do? Well, to reduce it to basics, they lied about their trade volumes in order to gain higher rankings among their competitors, and those rankings are important market metrics. What did Lerner do in the case cited in this squib? He lied about the number of accounts he opened in order to meet a sales goal. Seems to be that if Mr. Lerner was suspended for 1 year then the 19 firms involved in the fictitious trade volume stats should have at least been suspended from advertising those stats for a year... you know, in accordance with FINRA's creative sanctioning that it imposed upon Loeb and MidSouth just this month. Oh, but then again, the 19 firms cited in the settlement are generally larger firms and I guess there is one set of sanctions for them and one set for everyone else.