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BrokerCheck Dispute Says FINRA Wrongly Says SEC Bar is Permanent
June 9, 2016
If nothing else, many lawyers love a good word puzzle. Countless millions of dollars -- dare I say, billions or trillions? -- have been spent in litigation over the meaning of a paragraph, sentence, clause, or even a single word. Quite often, the battle lines are drawn when there is a commonsense, everyday meaning for a particular term but there is also a whole other definition set forth by the courts and common law. For those of you done with today's crossword puzzle, let me offer you another bit of diversion. How would you define the core difference between a regulatory Bar and a regulatory Suspension? Many would answer that a Bar begins on a date certain but does not end on a date certain; whereas, a suspension begins on a date certain and ends on a date certain. In more understandable terms, the general idea behind a Bar seems to be that you're out of the business until someone allows you back in, which may never happen; and the concept of a suspension is that you can come back in the business after you've served the requisite days, weeks, months, or years. The problem, however, is that some securities regulators impose multi-year Bars. Another problem is that some suspensions result in what is essentially the "bar" of a Statutory Disqualification. Like I said, lawyers with big-dollar billable hourly rates love this stuff. Consider this recent petition to the Securities and Exchange Commission by a barred individual.
The SEC OIP
As with most things that are SEC regulatory matters, we start with an Order Instituting Administrative Proceedings; and, as such, in the case of one respondent, Eric David Wanger, we begin with: In the Matter of Eric David Wanger and Wanger Investment Management, Inc., Respondents. (ORDER INSTITUTING ADMINISTRATIVE AND CEASE-ANDDESIST PROCEEDINGS PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933, SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, SECTIONS 203(e), 203(f) AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940, AND SECTION 9(b) OF THE INVESTMENT COMPANY ACT OF 1940; '33 Act Rel. No. 9288; '34 Act Rel. No. 66053; Invest. Adv. Act Rel. No. 3342; Invest. Co. Act Rel. No. 29893; Admin. Proc. File No. 3-14676 / December 23, 2011) ("the OIP"). The SEC News Digest (Issue 2011-247, December 23, 2011) offered this synopis:
In the Matter of Eric David Wanger and Wanger Investment Management Inc.On December 23, 2011, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Section 21C of the Securities Exchange Act of 1934, Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 and Section 9(b) of the Investment Company Act of 1940 (Order) against Eric David Wanger (Wanger) and Wanger Investment Management Inc. (Wanger Management).In the Order, the Division of Enforcement (Division) alleges that Wanger and Wanger Management repeatedly marked the closing price of certain stocks held by the Wanger Long Term Opportunity Fund II, LP (Fund) to artificially inflate the Fund's performance results in an attempt to attract new investors and keep current investors. The Division also alleges that Wanger and Wanger Management engaged in wrongful principal securities transactions with the Fund to repay unauthorized transfers of funds from the Fund's account to Wanger Management's account. The Division further alleges that Wanger and Wanger Management failed to timely file required forms with Commission reporting purchases of securities as required by Section 16(a) of the Securities Exchange Act of 1934 and Rule 16a-3 thereunder.A hearing will be scheduled before an Administrative Law Judge to determine whether the allegations contained in the Order are true, and to provide the Respondents an opportunity to dispute these allegations, and to determine what, if any, remedial sanctions are appropriate and in the public interest.The Order requires the Administrative Law Judge to issue an initial decision no later than 300 days from the date of service of this Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rels. 33-9288; 34-66053; IA-3342; IC-29893; File No. 3-14676)
Order Making Findings and Imposing Sanctions
Without admitting or denying the findings, Respondent Wanger and Respondent Wanger Investment Management submitted Offers of Settlement, which the SEC accepted. In the Matter of Eric David Wanger and Wanger Investment Management, Inc., Respondents. (ORDER MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933, SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, SECTIONS 203(e), 203(f), AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940, AND SECTION 9(b) OF THE INVESTMENT COMPANY ACT OF 1940; '33 Act Rel. No. 9331; '34 Act Rel. No. 67335; Invest. Adv. Act Rel. No. 3427; Invest. Co. Act Rel. No. 30126; Admin. Proc. File No. 3-14676 / July 2, 2012). As set forth, in part, in the Order Making Findings and Imposing Sanctions:
46. As a result of the conduct described above, Wanger willfully violated Sections 17(a)(1) and 17(a)(3) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer and sale of securities and in connection with the purchase or sale of securities.47. As a result of the conduct described above, Wanger Investment Management willfully violated Section 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer and sale of securities and in connection with the purchase or sale of securities.48. As a result of the conduct described above, Wanger willfully violated Section 16(a) of the Exchange Act and Rule 16a-3 thereunder, which require timely and accurate filings of Forms 4 with the Commission. 949. As a result of the conduct described above, Wanger Investment Management willfully aided and abetted and caused the Fund's violations of Section 16(a) of the Exchange Act and Rule 16a-3 thereunder, which require timely and accurate filings of Forms 4 with the Commission.50. As a result of the conduct described above, Wanger and Wanger Investment Management willfully violated Section 206(3) of the Advisers Act, which states that it is unlawful for an investment adviser, "acting as principal for his own account, knowingly to sell any security to or purchase any security from a client . . . without disclosing to such client in writing before the completion of such transaction the capacity in which he is acting and obtaining the consent of the client to such transaction."51. As a result of the conduct described above, Wanger and Wanger Investment Management willfully violated Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder, which prohibit fraudulent conduct by an investment adviser.52. As a result of the conduct described above, Wanger willfully aided and abetted and caused Wanger Investment Management's violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder, which prohibit fraudulent conduct by an investment adviser.
Having set forth the violations, the SEC imposed the following:
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the actions agreed to in Respondents' Offers.Accordingly, pursuant to Section 8A of the Securities Act, Section 21C of the Exchange Act, Sections 203(e), 203(f), and 203(k) of the Advisers Act, and Section 9(b) of the Investment Company Act, it is hereby ORDERED that:A. Respondent Wanger shall cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Sections 10(b) and 16(a) of the Exchange Act and Rules 10b-5 and 16a-3 thereunder, and Sections 206(1), 206(2), 206(3), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder.B. Respondent Wanger be, and hereby is: barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; and prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter. with the right to apply for reentry after one (1) year to the appropriate self-regulatory organization, or if there is none, to the Commission.C. Any reapplication for association by the Respondent Wanger will be subject to the applicable laws and regulations governing the reentry process, and reentry may be conditioned upon a number of factors, including, but not limited to, the satisfaction of any or all of the following: (a) any disgorgement ordered against the Respondent Wanger, whether or not the Commission has fully or partially waived payment of such disgorgement; (b) any arbitration award related to the conduct that served as the basis for the Commission order; (c) any self regulatory organization arbitration award to a customer, whether or not related to the conduct that served as the basis for the Commission order; and (d) any restitution order by a self regulatory organization, whether or not related to the conduct that served as the basis for the Commission order.D. Respondent Wanger shall, within 15 days of the entry of this Order, pay a civil money penalty in the amount of $75,000 to the United States Treasury. If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 3717. Such payment shall be: (A) made by wire transfer, United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand delivered or mailed to the Securities and Exchange Commission, Office of Financial Management, 100 F St., NE, Stop 6042, Washington, DC 20549; and (D) submitted under cover letter that identifies Eric David Wanger as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Robert J. Burson, Division of Enforcement, Securities and Exchange Commission, 175 W. Jackson Blvd., Suite 900, Chicago, IL, 60604.E. Respondent Wanger Investment Management shall cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Sections 10(b) and 16(a) of the Exchange Act and Rules 10b-5 and 16a-3 thereunder, and Sections 206(1), 206(2), 206(3), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder.F. Respondent Wanger Investment Management is censured.G. Respondent Wanger Investment Management shall, within 15 days of the entry of this Order, pay disgorgement of $2,269.81 and prejudgment interest of $121.94 to the United States Treasury. If timely payment is not made, additional interest shall accrue pursuant to SEC Rule of Practice 600. Payment shall be: (A) made by wire transfer, United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Securities and Exchange Commission, Office of Financial Management, 100 F St., NE, Stop 6042, Washington, DC 20549; and (D) submitted under cover letter that identifies Wanger Investment Management as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Robert J. Burson, Division of Enforcement, Securities and Exchange Commission, 175 W. Jackson Blvd., Suite 900, Chicago, IL, 60604.
BrokerCheck "Permanent Bar"
For all intents and purposes, the SEC case is over and we now move away from the federal regulator to a thorny issue involving the Financial Industry Regulatory Authority's ("FINRA's") BrokerCheck website. Assuming that you were perusing Eric Wanger's online BrokerCheck record as of June 9, 2016, this is what the opening page of his online file shows:
The SEC has permanently barred this individual from acting as a broker and investment adviser, or otherwise associating with firms that sell securities or provide investment advice to the public.
Permanent Bar Or Merely a Bar With The Right To Reapply?
A. Respondent Wanger shall cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Sections 10(b) and 16(a) of the Exchange Act and Rules 10b-5 and 16a-3 thereunder, and Sections 206(1), 206(2), 206(3), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder.B. Respondent Wanger be, and hereby is: barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; and prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter. with the right to apply for reentry after one (1) year to the appropriate self-regulatory organization, or if there is none, to the Commission.
Okay, so, Wanger is ordered to Cease-And-Desist and is "barred" with the "right to apply for reentry after one (1) year . . ." Is BrokerCheck correct that the SEC imposed a Permanent Bar? If you ask Respondent Wanger, he would tell you that he is none too happy with FINRA's characterization of his SEC-imposed Bar as being permanent. In the Matter of the Application of Eric David Wanger. (Order Directing the Filing of Briefs, SEC, '34 Act Rel. No. 78019; Admin. Proc. File No. 3-17226 / June 8, 2016). As explained in pertinent part:
Bill Singer's Comment[W[anger claims that the BrokerCheck posting "alter[s] the SEC Bar Order and re-interpret[s] the words . . . that now perforce has permanently blocked Respondent[] of his right to seek employment . . . ."At this time, the Commission requests the views of the parties as to the preliminary matter of whether the Commission has jurisdiction to review Wanger's application pursuant to Section 19 of the Securities Exchange Act of 1934 . . .
Nowhere in this article do I offer my opinion on Wanger's contentions and I intend to keep it like that. For the trolls out there who love to put words into my mouth and "infer" that I advocate for a particular ruling, you're making it all up. Readers of the BrokeAndBroker.com Blog should analyze the issues as they deem best and reach whatever conclusions you desire.
I have an idea what FINRA will argue and how the SEC will rule but neither of those positions are necessarily dispositive of this linguistic battle. In the end, we're going to get some pronouncement from the SEC, which Wanger may or may not appeal to the federal courts. This could be a long and bumpy ride.
Still . . . ya gotta wonder. Was Rod Steward singing about "Forever Young" or did that come with an expiration date of, say, 21 years? And then, what about that iconic "Strawberry Fields Forever?" Did the Beatles really mean "forever" as in "permanent" or did they mean just for a long, long time?