An irreverent Wall Street Blog
Sewage Release By Wall Street Regulators
August 24, 2017
You ever
notice all the self-congratulatory garbage that flows out of Wall Street's
regulators -- sort of like the release of raw sewage after a storm. And there's
so much of it! You got state-of-the-art regulatory websites. You got snazzy
regulatory social media pages. You got high-quality-production-value videos,
webcasts, and podcasts. You got the lecture circuit where one top exec or one top
commissioner stands before a select audience and extols how effective they've
been while, ever so sincerely, acknowledging that we can and should do better.
Been a pleasure addressing you all today. Sorry, gotta run and catch my
flight.
Oh, and let's not forget those
endless notices from regulators asking for yet another round of comments and
suggestions, which then get processed, then get considered, then get submitted
to a panel, then get revised, then get re-submitted for comment, then get
revised, then get formally submitted, and, then, if a commission or
Congressional committee ever signs off, may or may not get implemented by the
new exec or the new commissioners who replaced the old exec or the old
commissioners who started this process a few years ago.
As you read the self-serving communications and listen to the
self-serving speeches, you are struck by that feeling of deja vu. If you've been reading and listening to this nonsense as long as
I have, it's deja vu all over again, and again, and again.
How about we all get real? Let's be honest with each other. The spirit is
willing but the flesh is weak.
Wall Street regulation consists of ineffective regulations enforced by inept regulators. Just as water finds its own level, those running financial services firms seek deregulation. It's just a law of physics, as it were. And if the industry can't remove all the laws and rules on the books, it will gladly accept watered-down regulation as an alternative. You can't blame the scorpion for being a scorpion. That we would hope for more enlightenment doesn't alter the pull of gravity or the rising of the sun in the east and its setting in the west. Buyers want lower prices; sellers, higher. The regulated want less regulation. In contrast, you can't blame consumers for wanting more regulation to protect them from fraud. That is the tension that exists on Wall Street. That is the challenge for regulation and regulators.
Unfortunately, money talks and what unbalances the equilibrium of the competing industry and consumer forces on Wall Street is the corrosive politics of regulation whereby corrupt politicians and compromised regulators do the bidding of their patrons, and rarely, if ever, are the little guys able to compete with those with the big bucks. Making matters worse are the bureaucracies that are top-heavy with management by those who have achieved success by speaking softly, never rocking the boat, never stepping on toes, and only allowing the career regulatory staff so much independence and only tolerating so much consumer advocacy.
Sometimes, a regulator has to fire an examiner or investigator who has uncovered serious violations by a major industry player in order to keep the peace. After all, you can only ask a regulatory employee with integrity to look the other way so many times before it becomes annoying. How many more times does a senior regulator have to suggest (strongly suggest, if you get my drift) that an investigator bury a report before it's okay to fire that employee? At some point, these dedicated employees are just not team players and what good is a team if not everyone is on the same page?
Also, there are times when regulatory management gives hall passes to the industry's influential firms when they intentionally violate the rules or the laws, but, in contrast, slaps around a few industry whistleblowers who made waves or smaller firms that make inadvertent errors. Nothing wrong with that, right? That's just how things are. It all blows over in time, and by that time, I'll probably be out of regulation anyway and back at some cushy job in the private sector; maybe even working for one of the influential firms that I sort of looked out for when I was in regulation.
Having gotten all of that off of my chest, you might think that it was cathartic. It wasn't. It's frustrating for me to get older and see younger faces coming onto the scene oblivious to the history of failed regulation. It's exasperating to see the same cynical public-relations playbook getting hauled out by various regulators, yet again, and watching the Kabuki theater of the same masked performers delivering the same lines in front of the same scenery to the same invited audience. Of course, even I am part of the repetition and caught within the endless loop. How many more times will I render this same jeremiad before I pack it all in?
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, Dwarka Persaud ("David Persaud") submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Dwarka Persaud ("David Persaud"), Respondent (AWC 2017052711301, August 10, 2017).
The AWC asserts that Persaud first entered the securities industry in 1985 and in May 2015 he was registered with FINRA member firm Buckman, Buckman & Reid, Inc. The AWC asserts that "Persaud has no relevant formal disciplinary history with the Securities and Exchange Commission, any self-regulatory organization or any state securities regulator."
SIDE BAR: Read about the variations in FINRA AWCs pertaining to the presentation of a respondent's background: "FINRA's Foolish Inconsistency" (BrokeAndBroker.com Blog, June 9, 2017).
Heightened Supervision
The AWC asserts that
Further, the AWC alleges that when FINRA was conducting a routine firm examination, the regulator had asked Persaud to complete a Personal Activity Questionnaire ("PAQ"), which he completed and signed on October 10, 2016. Allegedly, Persaud indicated on the PAQ that he did not:
On June 25, 2015, the New Jersey Bureau of Securities advised the Firm that it was reviewing Persaud's application for registration through the Firm, and that it would only consider Persaud's continued registration if he and the Firm entered into a heightened supervision agreement imposed by the Bureau of Securities.
On June 29, 2015, Persaud and the firm signed a heightened-supervision agreement, which provided, in part, that he shall:
- be resident in the same office as his designated supervisor;
- not exercise any discretionary authority in a New Jersey customer account; and
- not share commissions with any individual.
Into the Breach
The AWC alleges that in violation of FINRA Rule 2010, Persaud violated the imposed agreement because he:
- primarily worked independently from his home office, and not from the same office as his designated supervisor;
- exercised discretionary authority in one or more New Jersey customer accounts; and
- shared commissions with another firm registered representative.
- use Linkedln or other social media or networking websites for business purposes;
- conduct securities business through a non-firm issued device;
- conduct business out of any location other than his assigned branch office;
- participate in any investment-related seminars, forums, or meetings; and
- service customers accounts on a discretionary basis, including but not limited to the use of time and price discretion.
FINRA deemed as false and misleading, the above responses provided to FINRA via the PAQ. The AWC asserts that:
Specifically, in truth: Persaud used Linkedln for business purposes; Persaud conducted securities business through a personal laptop and phones; Persaud conducted business from his home office; Persaud participated in at least two investment-related meetings with the public; and Persaud serviced at least one customer's accounts on a discretionary basis.
Voluntary Resignation
The AWC alleges that on June 2, 2017, Persaud voluntarily resigned from the firm.
Sanctions
In accordance with the terms of the AWC, FINRA imposed upon Persaud an 18-month suspension from association with any FINRA member in any and all capacities. The AWC further notes that as a result of Persaud's February 21, 2017, filing for Chapter 7 bankruptcy, no monetary sanction was assessed. for a period of 18 months.
Bill Singer's Comment
As may become apparent after you read the balance of my Comment, Persaud was someone who had not only popped up on (or sure as hell should have) the regulatory radar on a few instances during his 32-year-career but his background was of such concern to the New Jersey Bureau of Securities as to warrant its "imposition" of a heightened supervision agreement upon him as a pre-condition to registering him. It's what happens next -- or, more aptly, what doesn't happen next -- that I find infuriating.
Nonfeasance?
Let's start with a date: June 29, 2015, which was when Persaud signed the heightened supervision agreement and New Jersey processed his registration. Of the three key conditions in that agreement, let's just focus on the requirement that Persaud be resident in the same office as his designated supervisor.
The AWC asserts that Persaud primarily worked independently and out of his home office. That is in violation of his agreement to work from the same office as his designated supervisor. Given that Persaud voluntarily resigned from Buckman, Buckman & Reid, Inc. on June 2, 2017, we can infer from the AWC's presentation of facts that during a two-year period from the June 2015 imposition of the heightened supervision agreeement until his resignation, Persaud was not always physically present in his designated supervisor's office.
The State of New Jersey refused to register Persaud unless he agreed to specified terms of supervision, of which one of the key conditions was that he could only work in the office where his designated supervisor was located. Okay, that's wonderful. My hat's off to New Jersey for coming up with that mandatory worksite restriction. On the other hand, how the hell did Persaud manage to work primarily from his home for two-years? You'd sort of think, sort of expect, that New Jersey would have done some random spot checks after imposing a mandatory worksite on Persaud.
- Did the State of New Jersey send an investigator even once to check up on Persaud?
- Did the State send a written demand to Persaud and/or his designated supervisor for a notarized affidavit under penalty of perjury that he was complying with the mandatory worksite obligation?
- Did FINRA bother to make itself aware of the New Jersey-imposed heightened supervision agreement?
- Did FINRA conduct random visits of Persaud's worksite to ensure compliance with the New Jersey agreement?
- Did FINRA request confirmation in writing from Persaud and/or his designated supervisor as to the mandatory worksite requirement?
- Do different Wall Street regulators communicate with each other or do they bury themselves within their own silos and pursue a policy of benign neglect?
The Persaud AWC reveals the impotency of Wall Street regulation. Too much of what purports to be regulation is nothing more than imposed agreements that are never verified. Too much of a regulator's oversight is a cover-your-ass questionnaire that gets waved around by a regulator to show that it did something notwithstanding that it did something half-assed and too late to matter.
Don't be fooled by all the make-work rolled out by Wall Street's cops. FINRA's PAQ was completed and returned by Persaud in October 2016. Persaud voluntarily resigned from Buckman, Buckman & Reid, Inc. on June 2, 2017 -- that's eight months after he returned to FINRA the PAQ. The AWC is dated August 10, 2017, which is nearly 10 months after the PAQ was submitted and over two-years after the New Jersey Bureau of Securities imposed its supervision agreement. As such, no regulator actually caught Persaud while he was dealing with the public in violation of the heightened supervision agreement. Finally, Persaud is side-lined for only 18 months despite not honoring a state-imposed heightened supervision agreement and falsely answering FINRA's PAQ.
And now that my rant is over, let me share a few tidbits of information that are not divulged in FINRA AWC and, I'm just guessing here, may infuriate you to the same level of outrage where I am presently stewing.
23 FINRA Member Firms
Under FINRA's online BrokerCheck file for Persaud as of August 24, 2017, under the heading "Registration History," there are 23 firms listed since August 1985. To his credit, not a single employer appears to have fired him for misconduct during that three-decade-plus career.
Michigan Revocation
Under the BrokerCheck heading "Regulatory -- Final" there are two disclosures including the AWC reported in today's blog. The other matter discloses that in 1989, the State of Michigan revoked Persaud's registration due to failure to pay a $15 balance of the $30 renewal fee, In responding to that regulatory event, Persaud's "Statement" asserts that "Monmouth Investments went out of business and I was not aware of the fee."
Customer Awards
Under the BrokerCheck heading "Customer Dispute -- Award/Judgment" are two listed disclosures.
- In 2016, a FINRA Arbitration Award finding Persaud liable for $48,680.03 in compensatory damages plus interest and for $2,000 in attorneys' fees (the fees are noted in online FINRA arbitration records). The alleged damages arose during his registration with FINRA member firm Garden State Securities, Inc.. The customer sought $100,000 in damages and the allegations alleged churning, unsuitability, breach of fiduciary duty, common law fraud, breach of contract, and violation of the New Jersey Uniform Securities Act.
- In 2002, FINRA Arbitration Award finding Persaud liable for $10,000 in compensatory damages. The alleged damages arose during his registration with FINRA member firm J.W. Barclay and Co., Inc. The customer sought $225,000 in damages and the allegations included churning, unsuitability, extensive commissions, and failing to discount commission despite the high level of trading. Online FINRA arbitration records disclose that J.W. Barclay was separately found liable for $30,000 in compensatory damages.
Customer Settlement
Under the BrokerCheck heading "Customer Dispute - Settled" there is one disclosure indicating that in 2011, Garden State Securities, Inc. received a FINRA Arbitration Statement of Claim from a customer seeking $218,325 in damages. The case purportedly settled for $55,000 of which Persaud is disclosed as having contributed $13,750.
Customer Disputes
Under the BrokerCheck heading "Cusomer Dispute -- Closed-NoAction/Withdraw/Dismissed/Denied" are two matters dating back to 2015 and 1997.
Customer Disputes Pending
Finally, under the BrokerCheck heading "Customer Dispute -- Pending" we find two disclosures. One was received in October 2016 by Buckman Buckman and Reid seeking $40,000 in damages; and, a second customer complaint was received in January 2015 by Garden State Securities, Inc. seeking $45,110 in allegedly unauthorized trading damages.