I realize that the title of this blog post may sound self-serving, so I apologize for that up front, as it is not my intent. Still, there is a lesson here to be learned.
I got a phone call yesterday from a reporter asking me to comment on a disciplinary action that FINRA had just announced. According to the reporter, FINRA permanently barred Thomas James Stewart, a former registered rep, for using his firm’s parking garage validation stamp without authorization 50 times over the course of a four-month period, saving him a whopping $731 in parking fees he would otherwise have had to pay. The question posed to me was, what was my reaction to someone getting barred for stealing, essentially, $731 from his firm, and whether I thought that was too harsh of a sanction, given the underlying misconduct.
Well, clever lawyer that I am, before answering, I asked some questions of my own. Most importantly, I learned that this was a settled case – Mr. Stewart signed an AWC – not a litigated case. I also learned that Mr. Stewart was apparently not represented by counsel. (AWCs are signed by the respondent and the respondent’s attorney, and this AWC had no signature block for an attorney, which suggests that Mr. Stewart was unrepresented here.) As a result, I told the reporter that the case could not be viewed as evidence of some new “zero-tolerance” policy by FINRA, since the sanctions were the result of a negotiation, not an adjudication.
After I hung up, however, I began to think about the case, and it struck me that the real issue was not the magnitude of the sanction compared to the severity of the misconduct; rather, it was the fact that FINRA was likely only able to secure this seemingly harsh result as a consequence of the fact that Mr. Stewart was not represented by counsel. I seriously question whether any competent, experienced broker-dealer defense lawyer would have ever agreed to take a bar for such a modest amount of pilferage. But, FINRA doesn’t care about that. Of course FINRA will acknowledge a respondent’s right to an attorney, but, when no attorney appears, you can bet that FINRA will not hesitate in the slightest to take full advantage of that.
This attitude manifests itself in other areas. For instance, when FINRA sends out an 8210 “request” to take someone’s sworn testimony – an OTR – the boilerplate includes the recital that it is ok to bring your attorney. But, not every witness feels the need to bring counsel, or can afford to even if they want to do so. When that happens, FINRA’s glee is palpable. It means that no one is going to pose those pesky objections to the oftentimes poorly phrased questions, no one is going to keep the interviewers from delving into subject matters that may have no reasonable relationship to the exam, and no one is going to ensure that privileged communications are not disclosed, among other things. I am not kidding when I say I have seen transcripts of OTRs where FINRA has run roughshod over witnesses not accompanied by counsel. Having an attorney present won’t necessarily change the outcome of an exam, but, having an attorney does keep FINRA honest. As I am fond of saying, you can’t “win” an OTR, but you sure as heck can lose one, and having counsel present helps prevent that.
FINRA also takes advantage of counsel’s absence when it interviews customers. Now, remember, FINRA has no power to compel a customer to answer any questions, and must rely on customers agreeing voluntarily to participate in an interview. But, as I believe I’ve lamented before, FINRA doesn’t do a particularly good job of letting customers know that they are free to ignore requests for an interview. More to the point of this post, however, FINRA certainly says or does nothing to let a customer witness know that not only can they blow off the interviewer, but, if they deign to cooperate, they may elect to bring their counsel into the conversation. What this means is that in probably 99% of customer interviews, including interviews that culminate in the preparation of a Declaration or an Affidavit from the customer that FINRA will utilize in connection with the prosecution of an Enforcement action, no lawyer for the customer is involved. The result is that FINRA can basically bake into these documents whatever language it wants, language that, had it been reviewed by counsel, may very well have been phrased rather differently.
Look, I don’t know why Mr. Stewart agreed to take a bar for improperly using $731 worth of parking garage validations. According to the AWC, he is already out of the securities industry. Maybe he was simply happy being out, and had no intent of ever returning. If that was the case, then it was easy enough for him to take the bar; it got FINRA off his back and cost him nothing in terms of a monetary sanction. But, it is also possible that he just didn’t know that a bar for this offense was out of line. We will never know his true motivation, but his case serves as a lesson for every registered rep (and some customers, as well): when FINRA comes calling and “requests” something from you, you would be well served to consider enlisting the assistance of a lawyer immediately. Like they (almost) used to say on TV, you can pay me now, or pay FINRA later.
 Isn’t it funny how we use that phrase, “out of the industry” like it’s being “out of jail?” Clearly, there are lots of registered reps and broker-dealers still subject to FINRA’s jurisdiction who would argue that it’s a very apt comparison. I have known former registered reps who literally count down the days until they finally reach two years from the date of their resignation, just waiting to celebrate the moment when FINRA can no longer assert jurisdiction over them.