Above the gates to Hell is a sign: “Abandon Hope All Ye Who Enter Here” — some folks swear that the same words are posted above the doors to the Financial Industry Regulatory Authority (FINRA). However, as a few recent FINRA disciplinary cases show, not every regulatory case results in the respondent being damned for life.
Dodging a Bullet
Michael Keith Paul was warned by his firm against exercising discretion in customers' variable annuity sub-accounts. Beyond merely telling him “no,” Paul's firm actually had him sign a warning letter regarding the use of discretion. Inexplicably, Paul went ahead and made changes to his clients' sub-accounts without their explicit approval. Your reaction to these facts may be the same one I had: This guy is toast.
Oddly, FINRA entered into a Letter of Acceptance, Waiver, and Consent (AWC) with Paul that resulted in only a $5,000 fine and a 10-business-day suspension. Why such a light sanction? I'm guessing that FINRA showed some leniency based upon the following:
- Paul's customers had granted him verbal authority to exercise discretion;
- the transactions did not result in any fees or charges to the customers; and
- the transactions did not yield any compensation for Paul.
While on an electronic bulletin board, Anthony Basir Shakoor posted messages. Since Shakoor was identified online as a member firm employee and his messages referenced securities, he was required to obtain a firm principal's prior approval (which he did not). Among the shortcomings of his postings, Shakoor:
- failed to disclose material information and/or the messages were misleading;
- posted messages that contained claims that were false, exaggerated, unwarranted and/or misleading;
- posted messages containing recommendations without providing a reasonable basis;
- posted messages containing predictions or projections; and
- failed to disclose his positions in some of the recommended securities.
Pursuant to an AWC, Shakoor was fined $10,000 and suspended six months in all capacities. Although a somewhat stiff sanction, things could have been far worse because FINRA has been honing in on these online violations. I'll bet that if Shakoor had failed to identify himself as a member firm employee in his postings that FINRA would have landed far more serious blows.
Let's be honest — and don't pretend that you haven't thought about this — what if FINRA has you cold and you learn that some disgruntled former customers are planning to come to your hearing and testify. You wonder if maybe, just maybe, you could phone those customers, tell them your sob story, maybe hint that you will compensate them for whatever losses they are whining about and … are you crazy? I can't think of any lawyer in his or her right mind giving that advice.
Then again, in a FINRA complaint, (NAC, FINRA Complaint No. 2005000127502, July 28, 2009) respondent Neal Anthony Impellizeri was alleged, among other things, to have contacted one such customer and suggested that, rather than pay extensive legal fees, he would “just as soon” reimburse any losses. Additionally, FINRA claimed that Impellizeri attempted to talk to two other clients, probably to offer a similar deal.
No Vowel Obstruction
Impellizeri denies he tried to persuade any unhappy clients not to attend his FINRA hearing. Moreover, Impellizeri alleges that several customers told him FINRA staff had harassed them, and he wanted those clients to understand that FINRA was not a government agency and could not force them to testify. Yeah, exactly…Impellizeri was being civic-minded.
Except that FINRA's hearing panel viewed Impellizeri's conduct as an obstruction of the disciplinary process and threw the book at him with fines and a bar. Being a somewhat feisty guy, Impellizeri appealed the hearing decision to FINRA's National Adjudicatory Council (the NAC), which dismissed some findings against him and ordered that the bar be reduced to a six-month suspension, along with a $25,000 fine, and $7,929 in restitution to customers. So much for right-minded lawyers.
Please note that Offers of Settlement (OS) and AWC are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions and to the entry of findings. For more details on the reported cases, please visit http://rrbdlaw.com/RegulatoryLinks/CASESOFNOTE/NASD/2009.htm.