If you are a regular reader of this blog, you know that one of my pet peeves with FINRA is its unrelenting zeal to bar people, permanently, from the securities industry. Seemingly without much regard for the actual conduct at issue, or for the existence of mitigating circumstances. It is literally a running joke in my office: after every call with the Department of Enforcement about settlement, the lawyer who handles the calls has others guess what FINRA insists it needs from the respondent to settle. The reason this is a joke – or at least what passes for humor in our world – is that nearly 100% of the time, what FINRA wants is…wait for it…a bar. It doesn’t matter who our client is, or what they supposedly did wrong, or whether a customer was harmed, or whether they are still in the industry, or whether they have been working for two or 20 years in the industry with a clean record: if you guess “permanent bar,” you win!
Now, FINRA bridles at such accusations. FINRA management often touts just how fair and reasonable they are. Robert Cook, the head of FINRA, Jessica Hopper, the head of Enforcement (and before her Susan Schroeder): they all talk (or talked) about their even-handed approach to disciplinary actions, and how the sanctions meted out are tailored carefully to the offense at issue. That sounds good, but just doesn’t comport with reality. What FINRA likes to do, and wants to do, is bar people.
You don’t have to take my word for it. At the end of March, FINRA published a blog post entitled “Working on the Front Lines of Investor Protection – Barring Bad Actors from the Industry.” Read it. It is a one-page self-congratulatory puff piece in which FINRA openly brags about how many people it has barred: “In the last two years alone, FINRA barred more than 730 brokers from the brokerage industry – an average of one per day – for a vast range of misconduct.” Wow! One per day! Imagine how happy FINRA must be that 2020 is a leap year!
And make no mistake, FINRA is downright excited about its statistics. The post ends with this statement: “Thus, we are particularly proud that, in numerous instances, FINRA staff were able to bar a bad actor from the industry within just a few weeks of the discovery of the underlying misconduct, saving investors and the markets from further harm.” FINRA is “proud” not just of the fact that it bars one person per day, but that it goes after those bars so quickly.
I just don’t get this as a source of “pride.” When I worked for the NASD 20 years ago as a regional attorney prosecuting enforcement actions, what made me proud is not the particular sanctions I was able to get, but, rather, the fact that I never once lost a case that I brought. That meant that I had properly evaluated the facts uncovered during the exam, correctly concluded that a rule had been violated, and accurately assessed my ability to prove the allegations to the satisfaction of the hearing panel. Indeed, my bonus at the time wasn’t impacted in the slightest by the magnitude of the sanctions awarded in my cases; more importantly, my receipt of a bonus hinged on me not losing a case as a result of my failure to meet my burden of proof.
Today, it seems that FINRA operates quite differently. Given the frequency with which FINRA seeks permanent bars, and its public, prideful trumpeting of its numerical success in obtaining bars, it is hard to argue that it really doesn’t matter to FINRA whether it gets a bar or not. To FINRA, getting a bar provides bragging rights, I suppose. I am not sure who FINRA is trying to impress. The investing public? The SEC? The media? I will tell you one group that is not impressed, and that is the group that consists of FINRA member firms and their associated persons. To them, this is not a game, not a joke, and not a matter of flaunting the statistical equivalent of sticking an enemy’s head on a pike. All they want is to be treated fairly and reasonably, and I don’t think that’s too much to ask. Sadly, that doesn’t make good headlines, so don’t waste your time looking for another blog post from FINRA touting the number of, say, Cautionary Action Letters it issues.