An irreverent Wall Street Blog
SEC Slams Brakes On FINRA In A Hurry To Get Things Done
January 25, 2017Online FINRA BrokerCheck records for Destina Mantar as of January 25, 2017, disclose that she graduated the Ataturk High School of Science in Istanbul, Turkey in 2011, and Duke University in Durham, North Carolina in 2015. In July 2015, Mantar was employed by Goldman Sachs & Co. and in August 2015, she became registered with that firm. BrokerCheck discloses that Mantar's registration with Goldman Sachs ended in November 2015. What went wrong with such a promising career? Something happened concerning Mantar's taking of a Goldman Sachs internal skills assessment -- but as to exactly what Mantar did or didn't do isn't spelled out. About the only thing we know for certain is that she started at Goldman in July and was gone by November. Where things become far more ominous is when the Financial Industry Regulatory Authority starts asking questions, doesn't get answers, and bars Mantar. At some point, time just ran out for Mantar. Or did it?
Failing to Follow Goldman's Directions
Getting a tad ahead of ourselves, the Financial Industry Regulatory Authority ("FINRA") barred Mantar for failing to respond to its demands for information and explanations concerning her termination from Goldman Sachs. We will get into the details of that disciplinary action in due course. Upon learning of FINRA's Bar, Mantar filed an appeal of that action with the Securities and Exchange Commission ("SEC"). In the Matter of the Application of Destina Mantar for Review of Action Taken by FINRA (Opinion, SEC; '34 Act Rel. No. 79851; Admin. Proc. File No. 3-17544 / January 19, 2017), we learn that Mantar filed an appeal from her FINRA Bar on September 14, 2016. FINRA opposed the dismissal based upon Mantar's alleged failure to exhaust administrative remedies. By way of pertinent background, the SEC Opinion explains [Ed: Footnotes omitted]:
From August 25, 2015 to October 15, 2015, Mantar was registered with FINRA as aGoldman Sachs general securities representative. On November 5, 2015, Goldman Sachs filed a Uniform Termination Notice for Securities Industry Registration ("Form U5") notifying FINRA that it had terminated Mantar for "failing to follow directions in taking [an] internal skills assessment."
FINRA Investigation
Upon receipt of Mantar's Form U5, on November 11, 2015, FINRA allegedly sent a FINRA Rule 8210 demand for information and documents to Mantar that requested, among other things:
FINRA Rule 8210a signed description of the events that led to Mantar's resignation and any related documents or memoranda and asked whether she cheated on any firm or FINRA-administered test or assessment. The request explained that a failure to respond fully, promptly, and without qualification as required under Rule 8210 could result in sanctions, including a permanent bar.
In pertinent part, FINRA Rule 8210: Provision of Information and Testimony and Inspection and Copying of Books requires:
(c) Requirement to ComplyNo member or person shall fail to provide information or testimony or to permit an inspection and copying of books, records, or accounts pursuant to this Rule.(d) NoticeA notice under this Rule shall be deemed received by the member or currently or formerly registered person to whom it is directed by mailing or otherwise transmitting the notice to the last known business address of the member or the last known residential address of the person as reflected in the Central Registration Depository. With respect to a person who is currently associated with a member in an unregistered capacity, a notice under this Rule shall be deemed received by the person by mailing or otherwise transmitting the notice to the last known business address of the member as reflected in the Central Registration Depository. With respect to a person subject to FINRA's jurisdiction who was formerly associated with a member in an unregistered capacity, a notice under this Rule shall be deemed received by the person upon personal service, as set forth in Rule 9134(a)(1).If the Adjudicator or FINRA staff responsible for mailing or otherwise transmitting the notice to the member or person has actual knowledge that the address in the Central Registration Depository is out of date or inaccurate, then a copy of the notice shall be mailed or otherwise transmitted to:
(1) the last known business address of the member or the last known residential address of the person as reflected in the Central Registration Depository; and(2) any other more current address of the member or the person known to the Adjudicator or FINRA staff who is responsible for mailing or otherwise transmitting the notice.
If the Adjudicator or FINRA staff responsible for mailing or otherwise transmitting the notice to the member or person knows that the member or person is represented by counsel regarding the investigation, complaint, examination, or proceeding that is the subject of the notice, then the notice shall be served upon counsel by mailing or otherwise transmitting the notice to the counsel in lieu of the member or person, and any notice served upon counsel shall be deemed received by the member or person. . .
No Response
As to FINRA's attempts to serve its Rule 8210 demands on Mantar, the SEC Opinion states that:
FINRA sent the request by certified and first-class mail to the address listed as Mantar's residential address in FINRA's Central Registration Depository (the "CRD address") after checking a public records database that listed Mantar's CRD address as her current address. The request directed Mantar to respond by November 25, 2015. Mantar did not respond.FINRA sent a second request on December 2, 2015. This request, which FINRA sent toMantar's CRD address by certified and first-class mail, also warned that a failure to comply could result in disciplinary action. FINRA directed Mantar to respond by December 16, 2015, but again Mantar did not respond.
FINRA Rule 9552
As with many things in life, there are consequences to not following the rules. When Mantar did not timely respond to FINRA's letters, she enmeshed herself into even further difficulties. As set forth in FINRA Rule 9552: Failure to Provide Information or Keep Information Current:
(a) Notice of Suspension of Member, Person Associated with a Member or Person Subject to FINRA's Jurisdiction if Corrective Action is Not TakenIf a member, person associated with a member or person subject to FINRA's jurisdiction fails to provide any information, report, material, data, or testimony requested or required to be filed pursuant to the FINRA By-Laws or FINRA rules, or fails to keep its membership application or supporting documents current, FINRA staff may provide written notice to such member or person specifying the nature of the failure and stating that the failure to take corrective action within 21 days after service of the notice will result in suspension of membership or of association of the person with any member.(b) Service of Notice of SuspensionExcept as provided below, FINRA staff shall serve the member or person with such notice (or upon counsel representing the member or person, or other person authorized to represent others under Rule 9141, when counsel or other person authorized to represent others under Rule 9141 agrees to accept service for the member or person) in accordance with Rule 9134 or by facsimile or email. A copy of a notice under this Rule that is served on a person associated with a member also shall be served on such member. Papers served on a member by facsimile shall be sent to the member's facsimile number listed in the FINRA Contact System submitted to FINRA pursuant to Article 4, Section III of the FINRA By-Laws, except that, if FINRA staff has actual knowledge that a member's FINRA Contact System facsimile number is out of date, duplicate copies shall be sent to the member by overnight courier or personal delivery in conformity with paragraphs (a)(1) and (3) and (b)(2) of Rule 9134. Papers served on a member by email shall be sent to the member's email address listed in the FINRA Contact System submitted to FINRA pursuant to Article 4, Section III of the FINRA By-Laws and shall also be served by either overnight courier or personal delivery in conformity with paragraphs (a)(1) and (3) and (b)(2) of Rule 9134. Papers served on a person by facsimile or email shall be sent to the person's last known facsimile number or email address and shall also be served by either overnight courier or personal delivery in conformity with paragraphs (a)(1) and (3) and (b)(1) of Rule 9134. Papers served on counsel for a member, or other person authorized to represent others under Rule 9141, by facsimile or email shall be sent to the facsimile number or email address that counsel or other person authorized to represent others under Rule 9141 provides and shall also be served by either overnight courier or personal delivery in conformity with paragraphs (a)(1) and (3) of Rule 9134. Service is complete upon sending the notice by facsimile or email, mailing the notice by U.S. Postal Service first class mail, first class certified mail, first class registered mail, or Express Mail, sending the notice through a courier service, or delivering it in person, except that, where duplicate service is required, service is complete when the duplicate service is complete.(c) Contents of NoticeA notice issued under this Rule shall state the specific grounds and include the factual basis for the FINRA action. The notice shall state when the FINRA action will take effect and explain what the respondent must do to avoid such action. The notice shall state that the respondent may file a written request for a hearing with the Office of Hearing Officers pursuant to Rule 9559. The notice also shall inform the respondent of the applicable deadline for filing a request for a hearing and shall state that a request for a hearing must set forth with specificity any and all defenses to the FINRA action. In addition, the notice shall explain that, pursuant to Rules 8310(a) and 9559(n), a Hearing Officer or, if applicable, Hearing Panel, may approve, modify or withdraw any and all sanctions or limitations imposed by the notice, and may impose any other fitting sanction.(d) Effective Date of SuspensionThe suspension referenced in a notice issued and served under this Rule shall become effective 21 days after service of the notice, unless stayed by a request for a hearing pursuant to Rule 9559.(e) Request for HearingA member or person served with a notice under this Rule may file with the Office of Hearing Officers a written request for a hearing pursuant to Rule 9559. A request for a hearing shall be made before the effective date of the notice, as indicated in paragraph (d) of this Rule. A request for a hearing must set forth with specificity any and all defenses to the FINRA action.(f) Request for Termination of the SuspensionA member or person subject to a suspension pursuant to this Rule may file a written request for termination of the suspension on the ground of full compliance with the notice or decision. Such request shall be filed with the head of the FINRA department or office that issued the notice or, if another FINRA department or office is named as the party handling the matter on behalf of the issuing department or office, with the head of the FINRA department or office that is so designated. The head of the appropriate department or office may grant relief for good cause shown.(g) Settlement ProcedureUncontested offers of settlement shall be permitted under this Rule and shall conform to the requirements of Rule 9270, except that, if an uncontested offer of settlement, made under Rule 9270(e) after a hearing on the merits has begun, is accepted by the Hearing Officer, the Hearing Officer shall issue the order of acceptance, which shall constitute final FINRA action. Contested offers of settlement shall not be considered in proceedings initiated under this Rule.(h) DefaultsA member or person who is suspended under this Rule and fails to request termination of the suspension within three months of issuance of the original notice of suspension will automatically be expelled or barred.
Pre-Suspension Notice
Not having heard from Mantar, FINRA sent her a Pre-Suspension Notice on May 12, 2016, which informed her that in the continuing absence of any response, she would be suspended on June 6, 2016.The Pre-Suspension Notice admonished Mantar that she would need to request a hearing before June 6th pursuant to FINRA Rule 9552(e) in order to delay the implementation of the suspension. FINRA further advised Mantar that once the suspension was implemented, she would be barred on August 15, 2016, unless she had fully complied with the Rule 8210 demands.
Suspension Notice
In the continuing absence of any response from Mantar, FINRA sent her a Suspension Notice dated June 6, 2016, and reiterated the pendency of the Bar absent her full compliance.
Mantar Suspended
According to online FINRA Disciplinary and Other FINRA Actions / August 2016 under the heading:
Page 41 of August 2016 FINRA ActionsIndividuals Suspended for Failure to Provide Information or Keep Information Current Pursuant to FINRA Rule 9552(d)(The date the suspension began is listed after the entry. If the suspension has been lifted, the date follows the suspension date.)Destina Mantar (CRD #6363802)New York, New York(June 6, 2016)FINRA Case #201504770780135
Mantar Barred
In the absence of Mantar's response to the Suspension Notice, on August 15, 2016, FINRA sent to her a Bar Notice. According to online FINRA Disciplinary and Other FINRA Actions / October 2016 under the heading:
Individuals Barred for Failure to Provide Information or Keep Information Current Pursuant to FINRA Rule 9552(h)(If the bar has been vacated, the date follows the bar date.)Destina Mantar (CRD #6363802)New York, New York(August 15, 2016)FINRA Case #2015047707801
Page 35 of October 2016 FINRA Actions
Certified and First-Class Mailings
The SEC Opinion asserts that the Pre-Suspension, Suspension, and Bar Notices were all sent to Mantar's CRD address by certified and first-class mail; and that the regulatory had previously confirmed public records listing Mantar's CRD address as current. Each of the certified mailings were allegedly returned to FINRA as "not deliverable as addressed" and "unable to forward."
August 2016 Mantar Response
The SEC Opinion asserts that on August 30, 2016, Mantar sent a written response to FINRA that included a signed statement responsive to the Rule 8210 demands and an explanation that she had only first learned of FINRA's investigation and suspension on August 15, 2016, when applying for employment with a FINRA member firm. Mantar's August 30th Response asserted that she was prepared to explain her non-receipt of the 8210 and suspension communications.
In response to Mantar's communications, FINRA rebuffed her request to reconsider its actions and her offers of full compliance with its investigation. Mantar interpreted the regulator's responses as informing her that "it was too late to lift the bar, and that [she] had an option to appeal through [the] SEC."
September 2016 SEC Appeal
On September 15, 2016, Mantar filed a timely application with the SEC for
review of FINRA's Bar. The SEC Opinion characterizes Mantar's appeal as arguing that:
[S[he responded to the inquiries when she learned of FINRA's investigation and had not received the original requests and notices because she traveled away from her residence for long periods after her termination, "conducted all her personal affairs on-line," and "rarely if ever" used her mailbox.
In moving that the SEC dismiss Mantar's appeal, FINRA argued that she had:
Page 4 of the SEC Opinionfailed to exhaust her administrative remedies and is precluded from appealing the bar.FINRA does not dispute the completeness of Mantar's August 30 response, but argues that its timing rendered it tantamount to a complete failure to respond and insufficient to exhaust her administrative remedies.
Insufficient Evidence of Exhaustion
In addressing FINRA's contention that Mantar's August 30 Response did not constitute an exhaustion of her administrative remedies, the SEC noted that it could not discern any:
basis in the record for concluding that FINRA reviewed Mantar's August 30 response and determined that a bar was nonetheless appropriate despite her professed unawareness of its requests and her prompt response thereafter. Accordingly, we find that the record does not contain sufficient evidence for us to evaluate FINRA's argument that Mantar failed to exhaust her administrative remedies before filing her timely appeal with the Commission, and we remand for further proceedings.
Page 4 of the SEC Opinion
In response to FINRA's position that it had properly served Mantar, the SEC confirmed its long-standing position that the onus of updating one's CRD address is squarely on the registered person and an out-of-date address will not serve as an excuse for any untimely responses to regulatory notices, which are generally deemed received when mailed to the last-known CRD record. Notwithstanding that policy, the SEC admonished:
But we have not held in the context of expedited proceedings that mailing documents to an individual's CRD address is always sufficient to support a dismissal for failing to exhaust administrative remedies. Indeed, several of the cases that FINRA cites to support its motion to dismiss involved FINRA disciplinary actions rather than expedited proceedings . . .
Pages 4 -5 of the SEC Opinion
The SEC honed in on the distinction between an expedited and a disciplinary proceeding:
In cases challenging a bar imposed in expedited proceedings where there is reason to believe the applicant did not have actual notice of FINRA's information requests or notices, we have regularly remanded the matter back to FINRA. 13
Footnote 13: Kevin M. Murphy, Exchange Act Release No. 79016, 2016 WL 5571633, at *4 (Sept. 30,2016); Robert J. Langley, Exchange Act Release No. 50917, 2004 WL 2973866, at *3 (Dec. 22,2004); Ryan R. Henry, Exchange Act Release No. 53957, 2006 WL 1565128, at *3 (June 8, 2006); James L. Bari, Exchange Act Release No. 48292, 2003 WL 21804686, at *2 (Aug. 6, 2003); see also Parris, 2016 WL 4446331, at *5 (setting aside a bar imposed for Rule 8210 violations in an expedited proceeding but stating that "FINRA may still take any action against [the applicant] permitted under its rules" for a Rule 8210 violation); id. at *7 n.25 (citing Evansen, 2015 WL 4518588, at *2-4 (sustaining bar imposed in disciplinary proceeding for Rule 8210 violation after FINRA had vacated a bar imposed under Rule 9552)).
In accordance with the policies enunciated above, the SEC remanded the matter back to FINRA. In providing their rationale, Chair White, Commissioner Stein, and Commissioner Piwowar explained that:
Pages 7 - 8 of the SEC Opinion[M]antar may have lacked actual notice of FINRA's requests for information until the date the bar became effective; that she responded to FINRA's requests two weeks later -- before filing a timely appeal with the Commission; and that FINRA did not provide an explanation in the record as to why barring her pursuant to an expediting proceeding was appropriate notwithstanding the response she sent to FINRA. In remanding, we do not intend to suggest any view as to a particular outcome.