Fans of this blog (or, at least, readers of this blog who are fans of Jeopardy) will no doubt remember Alan’s prior post, published a few weeks ago, and discussing a recent case that FINRA’s Department of Enforcement brought against one of our clients. From the very beginning, we, as her counsel, were both bewildered and outraged by the case, given the particular circumstances.
Alan recapped the story nicely in his prior post, but the highlights are as follows: Our client was required to file an MC-400 application as a result of her decision to sign a Consent Order with the State of Washington that included among its sanctions a one-year suspension as a principal. FINRA opposed the application, claiming she had improperly violated the terms of the Consent Order by acting in a principal capacity. The issue made its way to the NAC (the National Adjudicatory Council – FINRA’s appellate tribunal), which, following an evidentiary hearing, ruled against FINRA, granted the application, and held that she did not, in fact, violate the state order. You can read that decision here.
The NAC’s ruling was very detailed in its conclusions, finding not only that her conduct was not violative of the terms of the Consent Order, but that she acted reasonably and in good faith throughout the suspension term. Needless to say, our client was thrilled.
Oddly, despite that ruling, and its crystal clear reasoning, the DOE nevertheless decided to go forward with an Enforcement proceeding based on the exact same conduct that had already been considered by the NAC. In other words, what the NAC had already found to be proper, the DOE now alleged was “unethical” and violative of Rule 2010.
Like I said, bewildered and outraged.
After an unsuccessful attempt to convince the DOE to drop the case, we filed a Motion for Summary Disposition, arguing that the DOE’s case was barred by the doctrines of collateral estoppel and res judicata – fancy legal jargon that forbids you from suing someone twice for the same thing.
Needless to say, we were super pleased when we received the Hearing Officer’s order this week, granting our motion and dismissing the complaint. Motions for Summary Disposition are rarely filed by respondents, probably because they are practically never granted. (Our research revealed only one or two other successful motions in the last 25 years).
We were even more pleased when we read the Hearing Officer’s reasoning. Not only did he agree with us on all points – and find that the NAC’s prior ruling precluded the Enforcement proceeding – he sent a loud and firm message to the Enforcement attorneys who filed the case, and FINRA generally. Here are his concluding thoughts:
That her good-faith efforts at compliance fell short of perfection does not inexorably lead to the conclusion that she acted unethically. And holding a person liable for even the most minor mistakes regardless of the ethical implications of the person’s actions would not serve to enhance the ethical standards of FINRA members.
To paraphrase (perhaps too generously): mistakes will happen in the intricate, ever evolving world of compliance; prosecuting members for minor mistakes, made despite a good faith effort to comply, serves NO purpose, protects no one, and is a total waste of time and effort.
You can review the Hearing Officer’s Order here.