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FINRA's Foolish Inconsistency
June 9, 2017Consistency is the hobgoblin of small minds.
Ah yes, that famous line we learned in high school and trot out when we need to sound smart. The thing about famous sayings, though, is that most folks don't quite remember the actual words. The other thing about famous sayings is that they tend to get wrongly attributed to many authors. I once heard someone explain that a "hobgoblin" was a type of boot and that the saying meant that consistency was like a worn boot that doesn't fit well and gives you a headache. Okay, that's one explanation. Except, you know, a hob-nail boot is not a hobgoblin. Yes, hobgoblins might wear hob-nail boots but that's irrelevant -- and, yes, an irrelevant is a large gray pachyderm that's not feeling well.Then there's the mistake in the quote about "small" minds. In the original, it is actually "little" minds. Small . . . little, okay, you're right, not that big a deal; however, if we're going to walk around in tight footwear we might as well know if we're complaining about a boot that's too small or too little. Right?In the original quote, it's not that all consistency is foolish; in the original it's a "foolish" consistency that's being considered. That's a bit more of a distinction than the small and little minds thing. Of course, all these minor distinctions between small and large and foolish and plain-old foolish are usually pointed out by some annoying jerk, who was likely the kid who corrected you in elementary school when you said that you could get lead poisoning from stabbing yourself with a pencil and Mister-Know-It-All corrected you by stating that pencils are made from graphite. Like what? Nobody ever died of graphite poisoning? To which the jerk would say "no." To which you would ask what time it was. To which he would say 11 o'clock. To which you would yell "Numbers! No rebounds, no echoes, no nuggies." To which he would say "rebounds." To which you would say "No . . . I just called no rebounds." To which he would say, "I didn't hear that." You would say "Tough." He would say "Then I'm calling echoes." To which you would say I said "No rebounds and no echoes." He would say "No you didn't." You'd say "Yes, I did." And on and on it would go with a foolish consistency so annoying that your feet would swell and your hob-nailed boots would become too tight, too small, too little, and your small mind would get a headache.As to who said the line about foolish consistency, I have heard the quote attributed to Thoreau to Socrates to Churchill and to Einstein. All wonderful guesses but all wrong. The author of the quote is Ralph Waldo Emerson in "Essays: First Series (1841)," and the language comes from the second essay:"Self Reliance." Now that you've invested all this lost time in all this useless information about the consistency quote, let me at least reward you with the actual language from the pertinent paragraph of Emerson's essay:A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. With consistency a great soul has simply nothing to do. He may as well concern himself with his shadow on the wall. Speak what you think now in hard words, and to-morrow speak what to-morrow thinks in hard words again, though it contradict every thing you said to-day. - 'Ah, so you shall be sure to be misunderstood.' - Is it so bad, then, to be misunderstood? Pythagoras was misunderstood, and Socrates, and Jesus, and Luther, and Copernicus, and Galileo, and Newton, and every pure and wise spirit that ever took flesh. To be great is to be misunderstood.From "Self Reliance" / EssaysFINRA's Foolish InconsistencyAll of which brings me to the point of today's BrokeAndBroker.com Blog, albeit by a circuitous but very literary route. If the measure of greatness is to be misunderstood as a result of a foolish consistency then the Financial Industry Regulatory Authority ("FINRA") has nothing to worry about because the self-regulatory organization is the epitome of inconsistency.Each day, I read all of FINRA's newly posted Disciplinary Decisions. It's a lonely life but someone has to live it. Thank me for it later. In any event, it drives me nuts that FINRA won't use a consistent description for whether or not a given Respondent had a prior history. Consider the following, recent regulatory settlements (the "AWCs") and note the wide ranging choice of words that FINRA uses to describe what may have happened before the settlement and whether it is of any relevance to our consideration of the current regulatory misconduct which is being settled.Verzi: June 7, 2017For the purpose of proposing a settlement of rule violations alleged by the FINRA, without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Anthony Joseph Verzi submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Anthony Joseph Verzi, Respondent (AWC 2016051829801, June 7, 2017):
Verzi has no relevant formal disciplinary history with the Securities and Exchange Commission, any self-regulatory organization or any state securities regulatorOkay, so, lemme see here, the Respondent has no "relevant" "formal disciplinary history" with the SEC or any SRO or any state securities regulator. That's a nice effort to bring some precision to presenting a Respondent's background. On the other hand, what exactly would be an "irrelevant" disciplinary history? Also, let me ask, what is the difference between a "formal" and "informal" disciplinary history? Which now forces me to ask if there are irrelevant, informal disciplinary histories? Finally, I see no mention of any criminal history with any federal, state, or local prosecutor -- is such disclosure not meant to be included in FINRA's standard "relevant formal disciplinary history?" Also, what about a history with the Commodities Futures Trading Commission or the Consumer Financial Protection Board or similar financial services regulator?Cox: June 6, 2017One day before Verzi, FINRA issued on June 6th another AWC and consider its recitation of the Respondent's history.For the purpose of proposing a settlement of rule violations alleged by the FINRA, without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, James Keith Cox submitted an AWC which FINRA accepted. In the Matter of James Keith Cox, Respondent (AWC 2015047812901, June 6, 2017).
Cox has no prior disciplinary history.That doesn't have quite the oomph of the Verzi AWC's statement about the Respondent's disciplinary history. Missing from this statement is that whole bit about the SEC, any SRO, or any state regulator. What are we to make of that? Why is that more expansive language in one AWC but not the other? Then there's the issue that in the Cox AWC, it's no longer about a "relevant formal" disciplinary history but only "prior" disciplinary history. What happened to the "relevant" limitation? What happened to the "formal" limitation? Does Cox's prior disciplinary include irrelevant and informal matters? Which raises the interesting question of who determines at FINRA whether a prior disciplinary history is "relevant" and what is the Rule on which such a finding is predicated? Also, what constitutes an "informal" disciplinary matter? Finally, what's the point of talking about a "prior' disciplinary history -- isn't it somewhat redundant to use both "prior" and "history?" Sort of reminds me of the Department of Redundancy Department.Sal Equity Trading: June 5, 2017For the purpose of proposing a settlement of rule violations alleged by the FINRA, without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Sal Equity Trading, GP submitted an AWC, which FINRA accepted. In the Matter of Sal Equity Trading, GP, Respondent (AWC 2015044231701, June 5, 2017):
The firm has no relevant disciplinary history.Once again, where's that whole bit about the SEC, any SRO, or any state regulator? Why does the Sal Equity Trading AWC only address "relevant" disciplinary history, whereas, one day later, FINRA addresses "prior disciplinary history?" Is there a difference between "prior" and "relevant" histories and, if not, why doesn't FINRA use a consistent statement?
Bonds: June 5, 2017
On the same June 5th that FINRA published the Sal Equity Trading AWC, we find yet another AWC with yet another way of not saying the same thing in a consistent manner. For the purpose of proposing a settlement of rule violations alleged by the FINRA, without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, M. Tyler Bonds submitted an AWC, which FINRA accepted. In the Matter of M. Tyler Bonds, Respondent (AWC # 2016052641501, June 5, 2017):
OMG!!! Now, we've lost the words "formal," "prior," and "relevant"!!! This Respondent has no disciplinary history but we can't tell if that includes formal and/or informal matters or relevant and/or irrelevant matters. Worse, did the Bonds AWC consider any prior history?We also don't know if the AWC intended to apply the more expansive SEC, SRO, and States standard that seems to have vanished from the regulator's lexicon.Bonds has no disciplinary history
Other than the FINRA-imposed suspension detailed below, Ladrido has no other relevant formal disciplinary history with the Securities and Exchange Commission, any state securities regulator, or any self-regulatory organization.
What a difference a day makes or two or three or more. Now we find an introductory clause about "Other than the FINRA-imposed suspension detailed below . . ." That's not a bad turn of a phrase but how come that admonition is missing from virtually all other FINRA AWCs?
Bill Singer's Comment
FINRA respondents have a right to expect consistency in how their regulator charges and how it publishes its decisions or settlements. When reviewing any given week of FINRA published regulatory materials, I get the uneasy feeling that the regulator has employed a number of college students as unpaid interns and given them assignment to draft AWCs. I also get the uneasy feeling that after these unpaid kids grind out their assignments and get their course credits, that there isn't all that much of a "quality control" function at FINRA. Now I know that my feelings are wrong (or at least I hope so) and that FINRA's daily offering of AWCs, Offers of Settlements, Decisions, Press Releases, etc. are drafted by highly skilled scriveners but, you know, c'mon folks, someone has to compare apples with apples and make sure that you're not trying to pass off an avocado and a couple of persimmons in the same barrel.
Ralph Waldo Emerson warned about a foolish consistency but not about a sensible consistency. FINRA would do well to re-read Emerson's quote. In the end, these endless variations in AWCs only muddle the database of settlements and set us off on a hunt for consistency that takes on aspects of the game "Where's Waldo."