Epic Rant About A Tepid FINRA Regulatory Settlement

Ya got yer folks who like takin' tests. Ya got yer folks who don't mind takin' tests but just don't do well on them. Ya got yer folks who don't like takin' tests. Ya got yer folks who don't like takin' tests and just don't do well on them. Then ya got yer folks who think they've figgered it all out and, well, you know, like takin' or not like takin' tests, damn, why not just get someone else to take the damn test for ya and not have to bother with the whole showin' up in person thing. Today's BrokeAndBroker.com Blog explores the interaction between the Financial Industry Regulatory Authority and one of those folks who apparently didn't want to bother with having to sit down and take a test and found someone else to substitute for him.

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, Michael Dryden submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Michael Dryden, Respondent (AWC 2015045496902, January 29, 2018).  

The AWC alleges that Dryden entered the securities industry in 2002 and was first registered in 2003. By May 2011, Dryden was registered with FINRA member firm Credit Suisse Securities (USA) LLC, where he is a  Managing Director and was the Head of Special Situations Finance within Global Asset Finance in the Securitized Products Department at the Firm from at least 2013 until September 2016 when he became Head of Global Asset Finance. The AWC asserts that Dryden "has no disciplinary history with FINRA, the Securities and Exchange Commission, any other self-regulatory organization or any state securities regulator."

FINRA Rule 1250: Continuing Education Requirements

This Rule prescribes requirements regarding the continuing education of certain registered persons subsequent to their initial qualification and registration with FINRA. The requirements shall consist of a Regulatory Element and a Firm Element as set forth below.(b) Firm Element

. . .

(b) Firm Element

(1) Persons Subject to the Firm Element

The requirements of this subparagraph shall apply to any person registered with a member who has direct contact with customers in the conduct of the member's securities sales, trading and investment banking activities, any person registered as an operations professional pursuant to Rule 1230(b)(6) or a research analyst pursuant to NASD Rule 1050, and to the immediate supervisors of such persons (collectively, "covered registered persons"). "Customer" shall mean any natural person and any organization, other than another broker or dealer, executing securities transactions with or through or receiving investment banking services from a member.

(2) Standards for the Firm Element

(A) Each member must maintain a continuing and current education program for its covered registered persons to enhance their securities knowledge, skill, and professionalism. At a minimum, each member shall at least annually evaluate and prioritize its training needs and develop a written training plan. The plan must take into consideration the member's size, organizational structure, and scope of business activities, as well as regulatory developments and the performance of covered registered persons in the Regulatory Element. If a member's analysis establishes the need for supervisory training for persons with supervisory responsibilities, such training must be included in the member's training plan.

(B) Minimum Standards for Training Programs - Programs used to implement a member's training plan must be appropriate for the business of the member and, at a minimum must cover the following matters concerning securities products, services, and strategies offered by the member:

(i) General investment features and associated risk factors;

(ii) Suitability and sales practice considerations;

(iii) Applicable regulatory requirements; and

(iv) With respect to registered research analysts and their immediate supervisors, training in ethics, professional responsibility and the requirements of Rule 2241.

(C) Administration of Continuing Education Program - A member must administer its continuing education programs in accordance with its annual evaluation and written plan and must maintain records documenting the content of the programs and completion of the programs by covered registered persons.

(3) Participation in the Firm Element

Covered registered persons included in a member's plan must take all appropriate and reasonable steps to participate in continuing education programs as required by the member.

(4) Specific Training Requirements

FINRA may require a member, individually or as part of a larger group, to provide specific training to its covered registered persons in such areas as FINRA deems appropriate. Such a requirement may stipulate the class of covered registered persons for which it is applicable, the time period in which the requirement must be satisfied and, where appropriate, the actual training content.

eLearning

In accordance with FINRA Rule 1250(b), Credit Suisse employed, among other things, an online eLearning system. As the AWC explains the eLearning system, it:

delivered various training modules to its registered representatives that they were personally required to complete.

A couple of takeaways from the AWC's characterization. Note that the eLearning system delivers training modules. I love the whole online-world's vocabulary. So . . . sure, the way eLearning works is that you place an order and they "deliver" training modules, sorta like how you get a delivery of Chinese food which they tell you will take 20 minutes, tops, but, you call after an hour and then they tell you that it's on its way, and then you call back 30 minutes later, and they act surprised and tell you it should've been there already -- you think? -- and then when it gets there you give the delivery person a nice tip, say goodbye, and when you sit down to eat, you don't have two egg rolls but they sent you dumplings, which, okay, that's not so bad, but you ordered Chicken and Broccoli and what you got looks a bit like General Tso's, which you used to like but now it's, like, too sweet, but, you're starving, so, hell, you'll eat it anyway, but, there's no packets of mustard and they forgot to include the fortune cookie. So, sure, eLearning delivers training modules.

Oh . . . another thing . . . note that the AWC asserts that Credit Suisse's employment of the eLearning system module delivery thing came with the caveat that the firm's registered representatives "were personally required to complete" the delivered modules. That's a nice touch, no? FINRA has this mind-numbing rule about how you have to complete a Firm Element portion of you Continuing Education requirement and, go figure, who'd thunk it, but, the way Credit Suisse interpreted the gist of the rule is that the registered reps required to take the training are "personally required to complete" the coursework. No wonder folks pay that firm big bucks. Look at how they made that connnection about mandatory continuing ed and the need for each registered person to actually personally do the coursework.

Personally Completing Modules

The AWC asserts that from the relevant period of at least October 2013 through February 2015 , Credit Suisse required its registered representatives to use unique log-in credentials to access the eLearning system and then personally complete their assigned eLearning modules through their firm computers. The AWC asserts that during the relevant period Managing Director Dryden (who was also a supervisor) and his administrative assistant received notices that Dryden was required to complete certain eLearning modules by a given deadline. 

At this point, dear readers, I want to use the precise language of the AWC to convey FINRA's version of events:

[R]ather than complete each eLearning module himself, as required, Dryden, during the Relevant Period, provided his log-in credentials to two administrative assistants and requested that they complete certain trainings for him. Dryden permitted administrative assistants to complete at least nine eLearning modules for him during the Relevant Period. Among the eLearning modules he permitted others to complete were his 2014 Annual Compliance Certification; "2013 Effective Supervision at Credit Suisse"; "Understanding Money Laundering, Terrorist Financing, Sanctions and Corruption" and training on "Operational Risk, Business Continuity and Information Security-2014." 

FINRA Sanctions

FINRA deemed Dryden's conduct to constitute his failure to observe high standards of commercial honor and just and equitable principles of trade in violation of FINRA Rule 2010. In accordance with the terms of the AWC, FINRA imposed upon Dryden a Censure and a requirement to requalify as a General Securities Principal by passing the Series 24 examination. Pointedly, FINRA included the following in the AWC:

OTHER FACTORS

In determining the sanctions in this matter, FINRA considered that Dryden has been subject to Firm imposed internal discipline in connection with the conduct described herein. That discipline included a Firm imposed fine representing approximately 20 percent of Diyden's 2015 incentive compensation payment, the issuance of a disciplinary letter, and a requirement that Dryden retake selected eLearning modules.

Bill Singer's Comment

Nice firm Credit Suisse. Nice big FINRA member firm Credit Suisse. 

Nice regulator FINRA. Nice self-regulatory-organization FINRA. 

So . . . lemme see here . . . Dryden, a supervisor and Managing Director of that nice, big FINRA member firm Credit Suisse gets slammed, mauled, and devastated by a Censure and Series 24 requal by that nice self-regulatory-organization FINRA and the whole things is done in such a nice fashion via a nice, almost cordial, settlement. Pretty impressive how well self regulation works and how it manages to sanction every firm and every individual fairly and consistently.

From my perspective, I truly appreciate the tremendous amount of drafting, editing, spin, and hypocrisy that went into characterizing Dryden's alleged violation as nothing more pedestrian than his having "provided his log-in credentials to two administrative assistants and requested that they complete certain trainings for him." After some 36 years on the Street, that sounds about right to me.  A powerful Managing Director at a major FINRA member firm knows that he is personally required to park his fat ass in a chair and go through the horrific ordeal of taking what everyone considers a waste-of-time continuing ed course and this big swingin' you know what "provided" his log-in to a couple of underlings. I'm sort of wonderin' here -- just throwin' it out for the sake of prompting a dialog -- but anyone want to bet whether the underlings that were provided the log-in were women? Maybe. Maybe not. 

Then we come to that next breath-taking bit of FINRA wordsmithery. After Dryden graciously provided his log-in to two subordinates, he then magnanimously "permitted" the administrative assistants to complete at least nine modules. I mean why did FINRA even bring charges against this guy? He didn't force a subordinate to take a test. He didn't threaten anyone. There was no implication that you better take this or else. Course not. It's all so genteel. The big guy provided his log-in and offered the life-enriching, career-betterment opportunity of permitting a lowly assistant to complete an eLearning module. I mean, geez, that would be like the opportunity to touch the face of God.

And to FINRA's credit, just to show the industry and the public about how serious the self-regulator takes the whole Wall Street regulation thing, it really lambasted Dryden by chastizing him for by making it clear that he had also:

permitted others to complete were his 2014 Annual Compliance Certification; "2013 Effective Supervision at Credit Suisse"; "Understanding Money Laundering, Terrorist Financing, Sanctions and Corruption" and training on "Operational Risk, Business Continuity and Information Security-2014." 

Wow!  I don't know about you but I'm going to sleep much better tonight knowing that our financial markets are in the death-grip of such diligent regulators! FINRA ain't foolin' around and it sure as hell ain't takin' no prisoners when it comes to enforcing its continuing ed requirements and underscoring its commitment to such critical things as supervision, money laundering, terrorist financing, corruption, and information security. I mean, c'mon now, it's not like FINRA turned a deaf ear and blind eye to a high-level executive at a major firm permitting his underlings to complete required training or anything. 

I think we can all agree that a Censure is a very potent arrow in FINRA's quiver. After all, few warriors on Wall Street can survive the ordeal of a Censure. If you think that I'm over-stating the case, go ask around. It's considered absolutely devastating to be censured. Why you can barely survive such a harsh sanction. From what I hear, there are actually several Starbucks that will not serve a FINRA-censured registered rep and UBER may refuse to pick up such a passenger. And no, I didn't forget that FINRA also required Dryden to requalify as a principal. That too is almost like a fine or a suspension but for the fact that it doesn't involve paying any money or not getting paid while you aren't allowed to come to work. Of course, FINRA made it clear that :

In determining the sanctions in this matter, FINRA considered that Dryden has been subject to Firm imposed internal discipline in connection with the conduct described herein. That discipline included a Firm imposed fine representing approximately 20 percent of Diyden's 2015 incentive compensation payment, the issuance of a disciplinary letter, and a requirement that Dryden retake selected eLearning modules.

Omigod!!! FINRA didn't impose a fine on Dryden because, now get this, Credit Suisse "fined" him by paying him about 20% less of a bonus -- or as the AWC phrases it, an "incentive compensation payment." FINRA also considered that Credit Suisse issued a disciplinary letter to Dryden. Okay, I see where this is going. FINRA issues a Censure and the firm issues a disciplinary letter. I'm not sure why anyone would be skeptical of such a paper-intensive method of regulation. Finally, FINRA took great comfort in learning that Credit Suisse required Dryden to "retake selected eLearning modules." That'll show 'im!

Funny thing, I got a pretty good memory. About four years in "Deutsche Bank Sales Assistant Takes Stockbroker Offline" (BrokeAndBroker.com Blog, January 8, 2014), I wrote about In the Matter of Jason Goldstein, Respondent (AWC 2012033318101, December 11, 2013), in which the AWC alleged that registered rep Goldstein had provided his sales assistant with his online password and "requested" that the assistant take certain training courses for him. FINRA imposed upon Goldstein a $5,000 fine and a 20-business-day suspension from association with any FINRA member firm in any and all capacities. Seems like the same set of facts as with the Dryden AWC but Goldstein had to pay $5,000 and sit out for something like an entire month in all capacities.  Of course, Goldstein doesn't appear to have been a Managing Director and FINRA just didn't seem disposed to consider whether his employer had put a nasty disciplinary letter in Goldstein's file or only paid him 80% of his incentive compensation. Here we are four years later and we can see how much progress FINRA has made in viewing the big picture and pulling some of its punches.

I think I'll just stop here and go back to my cold General Tso's chicken. Anyone know what they make those chicken nuggets from?

• FINRA
• Rule 1250
• Test
• Testing
• Continuing Education
• Continuing Ed
• Managing Director
• Subordinates
• Sales Assistants
• BrokeAndBroker
• Bill Singer