For 20 years, one registered person timely and fully disclosed her outside business activity to her employer FINRA member firm. Inexplicably, a few years ago, she apparently embarked upon another outside business but failed to notify her firm -- that proved a costly lapse. Today's BrokeAndBroker.com Blog examines the ensuing regulatory settlement involving her failed disclosure.
Case In Point
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority (“FINRA”), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Deborah S. Giffin submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Deborah S. Giffin, Respondent (AWC #2013038786501, March 13, 2015).
In 1995, Giffin entered the securities industry and since 2006 has been registered with FINRA member firm Woodbury Financial Services Inc. The AWC asserts that Giffin had no prior formal disciplinary history with the Securities and Exchange Commission, any state securities agency, or any self-regulatory agency.
Two Decades of Compliance
The AWC makes it clear that since 1994, Giffin “has been involved with a fully disclosed outside business activity, Giffin Planning Services. . .” Pursuant to that outside business activity (“OBA”), Giffin provides financial planning and receives commissions on fixed life insurance. So far, so good – and so far, compliant!
Going to the Rulebook
Many registered persons engage in other professions and careers; and such OBAs require prior written notice to your employer pursuant to FINRA Rule 3270. In addition to FINRA's rules, member firms' in-house policies and procedures typically impose a further obligation to obtain the firm's approval, which, oddly, is not actually required under FINRA Rule 3270. Consider the following [Ed: yellow highlight supplied]:
FINRA Conduct Rule 3270. Outside Business Activities of Registered Persons
No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Passive investments and activities subject to the requirements of NASD Rule 3040 shall be exempted from this requirement.
*** Supplementary Material ***
.01 Obligations of Member Receiving Notice. Upon receipt of a written notice under Rule 3270, a member shall consider whether the proposed activity will: (1) interfere with or otherwise compromise the registered person’s responsibilities to the member and/or the member’s customers or (2) be viewed by customers or the public as part of the member’s business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered. Based on the member’s review of such factors, the member must evaluate the advisability of imposing specific conditions or limitations on a registered person’s outside business activity, including where circumstances warrant, prohibiting the activity. A member also must evaluate the proposed activity to determine whether the activity properly is characterized as an outside business activity or whether it should be treated as an outside securities activity subject to the requirements of NASD Rule 3040. A member must keep a record of its compliance with these obligations with respect to each written notice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1).
4 Years Late
Starting in late 2010, the AWC alleges that Giffin conducted most of her insurance business through (and received most of her insurance commissions from) Ensphere Marketing Group. Unfortunately, the AWC alleges that it was not until October 2014 that Giffin disclosed her Ensphere OBA to Woodbury, in violation of the firm’s written supervisory policies and FINRA Rule 3270 and 2010.
In accordance with the terms of the AWC, FINRA imposed upon Giffin a $5,000 fine and a 45-day suspension in all capacities.
Bill Singer's Comment
From 1994 through the onset of the Ensphere Marketing disclosure issue, FINRA acknowledges that Giffin had timely and fully disclosed to her employer the existence of her Giffin Planning Services OBA. When confronted with that history and fact pattern, a number of questions came to my mind:
- Why did Giffin fail to timely submit notice in 2010 about Ensphere Marketing?
- Was it an oversight?
- Did she not believe Ensphere constituted a reportable OBA?
- Did she believe that all OBA was covered under her prior notice for Giffin Planning?
FINRA may have asked those and other questions; and the self-regulatory organization may have gotten the answers. Sadly, the AWC doesn't offer us any explanations or answers to the questions that I noted. When publishing a regulatory settlement involving an otherwise compliant veteran registered rep who is now being fined $5,000 and suspended for 45-days, FINRA should provide further content and context explaining to us what prompted the Giffin's violation.
In light of FINRA's half-hearted presentation of the underlying facts, the 45-day suspension seems excessive given Giffin's prior OBA compliance and her blemish-free industry record as set forth in the AWC (her online FINRA BrokerCheck disclosure discloses only one reportable customer complaint in 2008 that was settled pursuant to a full refund of all annuity premiums). Still -- Giffin was represented by legal counsel for the AWC and Giffin signed off on the settlement, which implies that she was ultimately satisfied with the result.
On March 27, 2015, after a month of trial testimony and three days of deliberations, a California Superior Court jury found that Plaintiff Ellen Pao had not been discriminated against by venture capital firm Defendant Kleiner Perkins Caufield & Byers. Early evening reports were that the jury was at 8 to 4 on similarly dismissing claims of retaliation -- but at least 9 jurors were required and the judge sent the panel back for further deliberations. Upon the jury's return, they also acquitted by 9 to 3 on the retaliation claims. Pao's three-year lawsuit seeking $16 million in lost wages was rebuffed at the trial stage. For those of you truly interested in understanding the issues in dispute, the BrokeAndBroker.com Blog offers in unedited full-text, Pao's original and amended Complaints and Kleiner Perkins' Answers. READ
In today's BrokeAndBroker.com Blog, we have what I often refer to as a "yes, but" case. I'm sure you have encountered such ambivalence with many matters in your life. You get it why something was wrong. You may even agree with the punishment. On the other hand, your mind seems to prod you with "however" and "but," and you're left uneasy. Consider this recent FINRA AWC settlement in which a registered person is suspended by the self-regulator in 2015 for a 2011 loan made by a friend. READ
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Wall Street is supposed to be protected by smoke detectors in the form of endless amounts of rules and regulations, massive volumes of written supervisory procedures, and a legion of regulators and in-house compliance staff. Of course, as with all such alarm systems, you have to make sure that you take the damn device out of the box, put the batteries in, and properly install it in the right location. History suggests that this has not always been the case for the financial services community. Consider this recent regulatory settlement in which you have to wonder just what the hell was or wasn't going on in terms of detecting and responding to warning signs. READ
In 2006, after suffering several miscarriages, UPS driver Peggy Young became pregnant; and, in consideration of her prior pregnancies, her doctor instructed her to not lift over 20 pounds during the first 20 weeks of her pregnancy (and, thereafter, to limit the lifting to 10 pounds). That medical advice was contrary to UPS's policy requiring its drivers to lift packages of up to 70 pounds or up to 150 pounds with assistance. In response to Young's doctor's advice, UPS told Young that she could not work. As a result, Young stayed home without pay and subsequently lost her medical coverage.
Young filed a federal lawsuit in federal District Court in Maryland against UPS , alleging that the employer had acted unlawfully in refusing a workplace accommodation; and she alleged that the employer had accommodated other drivers with similar disabilities. Young said that her co-workers were willing to help her with heavy packages. The District Court granted UPS' Motion of Summary Judgment, which was sustained on appeal by the United States Court of Appeals for the Fourth Circuit. Both the District and Circuit courts found that Young failed to establish a prima facie case for pregnancy discrimination because she could not prove that similarly situated UPS employees had received more favorable treatment than she did. She appealed to the United States Supreme Court. Available online at BrokeAndBroker.com, read the 4th Circuit and Supreme Court opinions, read the oral argument transcript, and listen to the oral argument. READ
In the great 1967 film "Cool Hand Luke," we get that iconic line about "What we've got here is failure to communicate." The scene involves the beat-down of a prisoner, played by Paul Newman, by a prison Captain, played by Strother Martin. In 2015, in a Securities and Exchange Commission case, we have a more droll example of the communication admonition. In these more modern days, it appears that a convicted felon's mail just can't seem to find him. All of which brings to mind the other bit of dialog by Strother Martin in that same iconic scene, "Some men, you just can't reach." READ
Written: March 24, 2015
On March 24, 2015, the United States Supreme Court issued its Opinion inOmnicare, Inc., Et Al. v. Laborers District Council Construction Industry Pension Fund Et Al. (Slip Opinion; Supreme Court of the United States; Certiorari To The United States Court Of Appeals For The Sixth Circuit; No. 13–435; March 24, 2015) Kagan, J., delivered the Opinion with Justices Roberts, Kennedy, Ginsburg, Breyer, Alito, and Sotomayor joining. Scalia, J. concurred in part and concurred in the judgment. Thomas, J. concurred in the judgment. Available online at BrokeAndBroker.com, read the 6th Circuit and Supreme Court opinions, read the oral argument transcript, and listen to the oral argument. READ
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Customer Wins $378,000 in Ultra Short ETF Lawsuit
Consumer advocates and regulators tend to dislike so-called "exotic" or "leveraged" Exchange Traded Funds ("ETFs"). Many of the concerns are legitimate; however, too often the criticism demonizes the product rather than the laziness and stupidity of those who invest without an understanding of what they're buying. In contrast to the naysayers, professional traders and savvy amateurs often love a number of the unusual ETFs. No matter where you come down on the debate, there is simply no excuse for a lack of due diligence before investing -- and there should be no tolerance for any brokerage firm or stockbroker who fails to fully explain to a customer the risks of any recommended investment. Consider this recent FINRA arbitration case in which a customer sues a former brokerage firm and stockbroker over losses from one such ETF. READ
On March 27, 2015, after a month of trial testimony
and three days of deliberations, a California Superior Court jury found that
Plaintiff Ellen Pao had not been discriminated against by venture
capital firm Defendant Kleiner Perkins Caufield & Byers. Early evening reports were that the jury was at 8 to 4 on similarly dismissing claims of retaliation -- but at least 9 jurors were required and the judge sent the panel back for further deliberations. Upon the jury's return, they also acquitted by 9 to 3 on the retaliation claims. Pao's three-year lawsuit seeking $16 million in lost wages was rebuffed at the trial stage.
On the heels of the
just-announced verdict, I've seen the headlines and snarky
commentaries. Depending upon the viewpoint and perspective, this is a dramatic
victory or a disgraceful loss. Pao is either depicted in prose that would best
serve as a hagiography or has been reduced to the role of a disgruntled former
employee and scorned woman. Similar
childish and simplistic renderings of this lawsuit would suggest that Silicon
Valley has emerged largely vindicated or that industry is vilified beyond
recovery. On and on it goes with references
to Asians, to men, to women, to white and/or old boys' clubs, and, well, you know, it is all
part of the same lazy journalism, blogging, and tweeting that now serves the
role of what we once called
I'm not going to add to the
circus. In that spirit, I will not burden you
with my opinions as to the merits and outcome of Pao v. Kleiner
Perkins. What I will note and ask that
you consider is that a jury of men and women sat in a San Francisco courtroom,
listened to the evidence, and discharged their respective duties. The verdict against Pao may be over-turned by the judge or on appeal. It may stand. Like it or not. Respect it or not. I leave that to you.
For those of you truly
interested in understanding the issues in dispute, the BrokeAndBroker.com Blog
offers in unedited full-text, Pao's original and amended Complaints and Kleiner