Sometimes you are guilty as charged — caught with your arm in the cookie jar and that's it. Sure, you have excuses and rationalizations, but no NASD or NYSE hearing panel is likely to believe them. Your lawyer warns you that if you plan to go in with the story that you've concocted, you will insult the panel's intelligence and likely make a bad situation worse.
This damage-control phase is usually referred to as mitigation: You're trying to convince the panel that you should be suspended rather than barred, fined rather than suspended, fined a few hundred dollars rather than thousands. Let's consider some arguments typically raised in mitigation.
I didn't know what I did was wrong and no one at my firm warned me.
Ignorance of the law is no excuse — and that maxim applies with extra force to Wall Street's rules and regulations. If you passed the qualifying exams and are registered, a panel holds you responsible for understanding the covered material and for staying current through your attendance at annual continuing-education programs. Similarly, most panels take a dim view of registered reps who try to shrug off their responsibility for remaining compliant by claiming their firm's supervisory policies and procedures were deficient. If you ask your supervisor or compliance department for permission to do something, it should come as no surprise that those same folks may dispute your version of the discussions while under oath (particularly if they gave you the wrong advice or are also respondents). Word to the wise: If you have to ask for permission to do something, then document it in writing.
This is my first violation.
Panels will consider your prior, clean history when imposing sanctions, but they will not give you a free pass simply because you appear before them without a blemish. On the other hand, prior violations are often seen as aggravating factors requiring even stiffer penalties.
This was an aberration and I'm truly sorry.
If you denied the allegations during the investigation (in written responses and during on-the-record testimony), it's going to be a tough sell to ask a panel to disregard all that and accept the fact that you're now “truly sorry.” Panels look for sincere remorse and acceptance of responsibility. This is why it's all the more critical to decide with your lawyer — at the earliest date possible — whether you are going to admit the crime and just argue the fine.
But I paid my clients back.
If you demonstrate full repayment of losses, overcharges, disputed fees or a schedule of payments agreed to by the client, that may earn you some brownie points with the panel. However, what is often as important as the actual repayment is the “when.” Panels will give you less credit if they suspect you returned the funds grudgingly — i.e., only after the misconduct was uncovered by regulators.
I fully cooperated during the investigation and told the truth.
The fact that you did what you were required to do will not get you any special consideration. However, if you give a regulator “substantial assistance” during an investigation (typically, this means that but for your assistance the case against you or others couldn't have been made, or could be made, only with great difficulty), that will earn you some points.
I read a legal opinion from a lawyer saying that what I was doing was OK.
The reliance-on-counsel defense may be a considerable point in your favor, but it is often strictly construed. Generally, you have to show that you sought out independent legal counsel, that you fully debriefed the lawyer on what you were proposing to do and that you acted reasonably in relying upon that lawyer's advice.
The NASD and the NYSE are acting like the Gestapo.
Boy, if there's one line that regulators hate it's this one. If you are the victim of unfair or biased regulation, then you should meticulously document the incidents and be prepared to cite dates, times, specific examples and the specific regulatory staff involved. But don't think you're going to get any sympathy by arguing that the NASD and NYSE “should go after the really bad guys.” They've heard that one too many times before.
Writer's BIO: Bill Singer practices law at Stark & Stark, and is the publisher of RRBDLAW.com