Earlier this year, as part of its 2016 Examination Priorities, FINRA spent a lot time discussing the “culture of compliance” at broker-dealers, the notion that firms need to create an atmosphere where compliance with rules and regulations is more than just lip service, but, rather, where it is a priority established by firm management – the so-called “tone at the top” – and regularly nourished. FINRA even went so far as to suggest ways in which such an amorphous concept could be exhibited and, theoretically, tested. At the time, like many, I questioned just how long it would take FINRA actually to bring an Enforcement case based on a firm’s lack of a culture of compliance. Well, the wait didn’t turn out to be particularly long.
This month, FINRA released its decision in Meyers Associates, and there is some fascinating and scary language in there that you need to know about, especially if you are the “head” of a small broker-dealer.
According to the summary, in an eight-count complaint, Bruce Meyers, the firm’s owner and principal, and his firm were charged with sending misleading and unbalanced advertising materials, failing to enforce adequate supervisory procedures, and failing to maintain accurate books and records. The hearing panel concluded that Enforcement had proven most of its case, fined the firm $700,000, fined Mr. Meyers $75,000, and barred him from acting in a supervisory or principal capacity. So, not a small or minor case. But, that’s not the point.
The point is what the panel said about Mr. Meyers, and the vocabulary it utilized:
- “Meyers is the head of Meyers Associates; no one stands above him”
- “As the head of Meyers Associates, Meyers sets the tone for his Firm”
- “Despite his own and the Firm’s disciplinary history, . . . Meyers has little interest in ensuring that Meyers Associates has a strong culture of compliance”
- “Meyers testified that he is not involved with the compliance of the Firm, has ‘no compliance experience’ and ‘no knowledge of compliance per se,’ and does not intend to acquire such knowledge”
- “Meyers, as CEO and self-described ‘boss of the Firm,’ should have ensured that the CFO had created and maintained adequate WSPs. . . . Instead, he ignored the CFO’s shortcomings because he did not value compliance at the Firm.”
“Culture of compliance” and “tone at the top” are, clearly, more than catch-phrases; they are standards of conduct that FINRA is expecting to be met. While Mr. Meyers and his firm both had a fairly lengthy disciplinary history — the firm had ten prior events, and Mr. Meyers six — thereby simplifying FINRA’s ability to demonstrate that he didn’t seem to care particularly about compliance, the concepts bandied about in the decision are applicable to the “head” of any firm, and especially small firms, where the distance between the “top” and the registered representatives is short. Anyone who chooses to ignore FINRA’s increased attention here to these concepts is living in the past, and is in peril of receiving treatment similar to that which Meyers got.
 The Section 5 claim was dismissed before the hearing. For what it’s worth, the case was prosecuted by my new partner, Michael Gross, who has just returned from “the dark side” to private practice, and specifically to Ulmer & Berne, where he worked as an associate before spending over eight years with FINRA in its Enforcement Department.