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Has FINRA Just Threatened To Shut Down Wall Street's Fantasy Leagues and Office Sports Pools?
December 22, 2017
A recent FINRA regulatory settlement troubles and angers BrokeAndBroker.com Blog publisher Bill Singer, Esq. FINRA is so intent on ringing up the cash register for fines and sending some small fry to the penalty box that the self-regulator fails to see that hundreds of thousands of industry employee who are in a fantasy sports league or who make a weekly wager on sports are technically in violation of one of FINRA's most frequently enforced rules. Among Bill's choice words for this featured FINRA settlement are hypocritical, asinine, inane, moronic, stupid, pandering, insincere, sanctimonious, self-righteous; specious, spurious, and glib.
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, Nicholas Kayal submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Nicholas Kayal, Respondent (AWC 2016051974301, December 19, 2017).
The AWC asserts that Kayal entered the securities industry in June 2016, when he associated with ADP Broker-Dealer, Inc. The AWC asserts that he had "no disciplinary history with the Securities and Exchange Commission, FINRA, and other self-regulatory organization or any state securities regulator"
OBA
The AWC asserts that Kayal had received a copy of ADP's written supervisory procedures ("WSP") and had agreed to comply with them. Among the procedures allegedly set forth in the WSP was a prohibition against registered representatives engaging in any outside business activities ("OBA") without the firm's prior written approval. Additionally, Kayal was subject to FINRA OBA Rule:
FINRA Conduct Rule 3270. Outside Business Activities of Registered PersonsNo 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 Rule 3280 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 Rule 3280. 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).
The AWC asserts that while associated with ADP, Kayal engaged in two OBA without providing prior written notice to the firm. I'm going to let the AWC speak for itself as to FINRA's allegations:
First, from August 2016 through his departure from the Firm, Kayal provided handicapping picks on a sports handicapping website for individuals who wager on sporting events, in exchange for compensation. In total, Kayal received $350 in compensation.Second, from September 2016 through his departure from the Firm, Kayal worked for a start-up venture founded by former media-industry colleagues of his by writing articles for its website about sports and appearing on the website's podcast. Although Kayal anticipated receiving compensation for this activity, the start-up venture did not ultimately compensate him.
Termination
The AWC alleges that ADP terminated Kayal's employment on October 28, 2016, for failing to inform the firm of outside business activity.
Sanctions
FINRA deemed Kayal's conduct to constitute violation of FINRA Rules 3270 and 2010. In accordance with the terms of the AWC, FINRA imposed upon Kayal a $5,000 fine and a 20-business-day-suspension from association with any FINRA member in any capacity
Bill Singer's Comment
This is what FINRA wastes its time on? This is purported misconduct that required a $5,000 fine and what adds up to an entire month's suspension?
Let's put all of this nonsense into perspective.
First, from August 2016 until his October 2016 termination, Kayal allegedly earned $350 from his sports picks -- let's say that's a three month period, which would work out to something like $117 a month or over a 30-day month, that's about $3.89 a day.
Second, the regulator's allegation about Kayal's "working for a start-up venture" is so over-the-top as to be absurd. Indeed, FINRA has a penchant for making the mundane seem complex and important, as evidenced in this ridiculous paragraph:
Second, from September 2016 through his departure from the Firm, Kayal worked for a start-up venture founded by former media-industry colleagues of his by writing articles for its website about sports and appearing on the website's podcast. Although Kayal anticipated receiving compensation for this activity, the start-up venture did not ultimately compensate him.
Let me strip FINRA's high dudgeon down to its basics:
Second, from September 2016 through his departure from the Firm:
- As in one month! Why don't you simply say that?? Is it because the actual timeframe doesn't sound as bad as pretending that it's a much longer period of alleged misconduct when you say "through his departure from the Firm?"
Kayal worked for a start-up venture founded by former media-industry colleagues of his by writing articles for its website about sports and appearing on the website's podcast:
- "Worked?" Writing articles and appearing on a podcast is "work?" And just what does the fact that Kayal allegedly worked for a "start-up venture" have to do with anything? Moreover, what's the point of further characterizing the venture as "founded by former media-industry colleagues?" If the venture was formed by strangers, is that better or worse? All of this verbiage reeks of trying to make something harmless seem horrific.
- Let me do my own editing and alter "writing articles for its website about sports" into the one-word of "blogging." Does uncompensated "blogging" constitute an outside business activity? If that's the case, would Kayal's writing an Instant Message or sending an email also constitute an OBA? If Kayal had written and spoken about politics or cooking, would that have made a difference?
Although Kayal anticipated receiving compensation for this activity, the start-up venture did not ultimately compensate him:
- If FINRA was truly concerned about fairness and accuracy, then the regulator could have characterized Kayal's cited conduct as simply "uncompensated." The hypocrisy in this AWC is that a respondent's thoughts are almost never relevant and FINRA's regulatory lawyers generally object if any Respondent's lawyer offers testimony as to what his client "thought," "believed" or "anticipated." Industry violations are predicated upon acts and conduct. There are no crimes of thought.
- I would like to point out to those oh-so meticulous regulators at FINRA that Rule 3270 does not proscribe an anticipation of receiving compensation but, in fact, specifically references a "reasonable expectation of compensation." I didn't write your idiotic OBA Rule. I'm not the one fining this shlub $5,000 and making him sit in the penalty box for a month -- you are and, as such, you should at least charge using the language of your Rule. If there is no difference between "expectation" and "anticipation," then use the word in the Rule. If there is a difference, then I don't see how Kayal violated the OBA Rule. Moreover, it's sort of moronic to hinge everything on a finding of "expectation" because many folks might simply argue that they would have "liked" to been paid and "hoped" to be paid but their thoughts never rose to the level of "expected." Now what? Is FINRA going to make a case about what someone should have thought? When I buy a lottery ticket, I hope to win. That doesn't transform my act of buying a lottery ticket into a meaningful "anticipation" of receiving compensation.
Yeah, I know, there's a rule. I also know that no associated person has any say on FINRA's rules and can't vote on approving such rules or on electing anyone to FINRA office.
Ummm . . . lemme ask you something . . . on that website where you're blogging and podcasting for free, as you might actually believe, are you getting any revenue from Google Ads or from Amazon? Oh, that's different, you say. And exactly how or why is that different? Isn't that revenue generated from your website? Aren't you engaging in compensated activity? Have you disclosed your blogging and podcasting to your FINRA member firm?
Are you in your FINRA member firm's weekly football pool. Did you pick an NCAA bracket this year? Are you in the office fantasy team pool? When you pay your annual entry fee or you cough up the weekly five bucks, do you have an "expectation" that you will win? I mean, c'mon, do you really spend all that time drafting a team or handicapping your weekly point spreads because you don't expect to win?