As the song goes, time keeps on slipping, slipping, slipping into the future. While Steve Miller may not have had FINRA and the SEC in mind when he wrote that lyric, the shoe certainly fits. Because here’s the thing about the passage of time, at least in FINRA/SEC world: typically, regulators pay it little attention. They take forever to finish exams. They take forever to figure out what to do once they’ve completed an exam. They take forever to issue decisions. I mean, who cares that a registered rep may have a “yes” answer for years on his U-4 reflecting an investigation that never ends, right? Who cares if a fully litigated case has been awaiting a decision for years? Certainly not regulators. They blithely go about their business in plodding fashion, as the weeks, months, and (sometimes) years go by, indifferent to the consequences of their foot-dragging on the people and firms they regulate.
Just consider some examples.
My partner Heidi and I defended – and won – an SEC administrative proceeding in 2015. When Obama was president. After the ALJ issued his Initial Decision, the Division of Enforcement appealed to the Commission which, to exactly no one’s surprise, reversed the ALJ and found (at least some) liability. We then appealed to the DC Circuit Court of Appeals. In a decision issued in April 2019, the Court upheld some of the SEC’s findings, reversed others, and vacated the sanctions, pending a remand back to the SEC to reconsider the sanctions in light of the Court’s decision narrowing the liability findings. Here we now are, three years and six months later, and still no decision from the SEC. Comically (or not, if you’re my clients), this despite the fact that the SEC has granted itself 21 extensions of time within which to issue its decision.
And this is hardly an outlier. I have a case on appeal to the SEC from a NAC decision that has been pending now for over three years. The SEC has granted itself ten extensions since June 2020. Still no sign of a decision.
I was involved in another case that is now on appeal to the SEC from an ALJ’s Initial Decision. After 14 self-authorized extensions and over three years, still no decision.
It is well past the point where I can provide any sensible advice to my clients about when they should expect decisions. All I can do is shrug.
FINRA is also guilty of ignoring the passage of time…except when it’s in FINRA’s best interest not to do so. Anyone who defends regulatory matters can attest to the fact that FINRA will oftentimes sit on exams, for no apparent reason. I love telling the story, from a decade ago, where I was defending an OTR. We got to the end of the day, but hadn’t completed it. The examiner asked about our availability the next day, but neither my client nor I could do it. So, for a few weeks thereafter, I exchanged emails with the examiner about possible dates to resume the OTR; alas, we couldn’t find a date that worked for us both. Jumping ahead to the punchline: here we are ten or so years later, and I never heard from the examiner again.
I have had clients who have received a Wells letter – meaning it is a U-4 disclosure event for them, and not a great one – only to have FINRA do nothing for years (sometimes only then to mysteriously drop the case). I have clients who have been told that a matter is being referred to Enforcement, only to have no follow-up from Enforcement. Neither of these things is a rarity.
Predictably, however, but sadly, in many instances where FINRA has gone on extended radio silence, out of the blue they will suddenly reach out and say, I know that you haven’t heard from us in a year, but, hey, now I need your response to an 8210 request. Like, in a week. Because, you know, our investor protection concerns mandate that we cannot tolerate any delays in the prosecution of this matter, so you have to answer now, now, NOW.[1]
I am going to end with the most recent example I have encountered, and maybe the most remarkable. I represent a client who is named as a respondent in a FINRA Enforcement action. Sadly, he suffered a stroke. Based on that, we sought and obtained a three-month continuance in the hearing date. When it became evident, however – importantly here, not evident to me, but, rather, to his doctor, who wrote a note outlining his opinion – that he was still suffering the effects of the stroke, thereby making preparation for and attendance at the hearing impossible, we filed another motion to continue the hearing dates again.
Remarkably, and callously (if you ask me), Enforcement opposed the motion. Even more remarkably, however, the Hearing Officer denied the motion (which was supported by the doctor’s note). According the Order, the doctor’s note wasn’t good enough, not detailed enough. But, putting that aside, and more to the point of this blog post, the Hearing Officer justified her Order in part by noting that “the requested continuance would be contrary to the primary purpose of Rule 9222, which is ‘to ensure prompt resolution of [FINRA’s] disciplinary proceedings, which is necessary to enable [FINRA] to carry out its regulatory mandate and fulfill its responsibilities in protecting the public interest.’”
Prompt resolution?? Consider that the complaint was filed in October 2021. It deals with two offerings, one of which was conducted in 2013 and the other in 2015. Do the math: FINRA waited eight long years to file this complaint, but then refused to move the hearing back even a few months – to give a stroke victim time to recover, mind you – because of those pesky investor protection concerns.[2]
The double standard applied here is patent. It is, simply, unfair for regulators to take all the time in the world when it suits them, despite the price firms, reps and advisors can pay for that dilly-dallying, but then turn around and insist on swift justice – at any cost – when they feel like it.
[1] A buddy of mine who practices in New York claims that it happens every August: in the two-week period before school starts and everyone is out of the office on vacation soaking up the last bit of summer sun, FINRA will suddenly reach out about a case that’s been quiet for a year and announce that a Wells letter is coming. He insists that this cannot be coincidental, but I can’t say for sure one way or the other.
[2] In the interest of full disclosure, I must point out that after our motion was denied, the Hearing Officer later granted a motion by a co-respondent to continue the hearing in order for him to obtain a new lawyer. So, the hearing did end up getting continued, but not out of concern for my client’s health.