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FINRA Sanctions Stockbrokering Paper Pushing Lawyer
December 27, 2019
In today's featured Wall Street regulatory settlement, we got a lawyer. He was lawyering while stockbrokering. The lawyering earned the stockbroker about $19 an hour over a six-month span. This stockbrokering lawyer (or lawyering stockbroker, if you prefer) also made about $90,000 over a 17-month stretch doing document scanning and uploading. So . . . we got a stockbrokering-paper-pushing-lawyer, so to speak. In this gig economy, how does all that gigging get you into trouble with FINRA? Ah, now that's why this is today's featured story!
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, Kawa Saeed Foad submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, for violation of FINRA Rules 3270 and 2010, FINRA imposed upon Foad a deferred $7,500 fine and a three-month suspension from associating with any FINRA member firm in any capacity. In the Matter of Kawa Saeed Foad, Respondent (FINRA AWC 2018059134401)
https://www.finra.org/sites/default/files/fda_documents/2018059134401
%20Kawa%20Saeed%20Foad%20CRD%205374361%20AWC%20va.pdf,
The AWC asserts that Kawa Saeed Foad entered the industry in 2007; and between January 2014 and July 2018, he was registered with FINRA member firm Questar Capital Corporation. The AWC asserts that Foad "does not have any disciplinary history with the Securities and Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization." As set forth in part in the AWC:
Foad Worked as a Law Firm Partner.In April 2018, Foad founded a law firm with a law school friend. Foad owned 49% of the law firm and his partner held the remaining ownership interest. Both Foad and his partner received salaries from the law firm. During the Relevant Period, Foad received a salary of approximately $18,000 from the law firm.Foad and his partner provided a variety of services, including negotiating and drafting of various agreements, board minutes, and other corporate documents. The law firm also handled several litigation matters.On October 24, 2018, Foad terminated his affiliation with the law firm.Foad Worked for a Technology Company.During the Relevant Period, Foad worked as an employee of a technology company in the healthcare industry, providing a one-in-all platform. including revenue cycle management services (i.e., insurance claims processing). Specifically, Foad scanned and uploaded documents to an electronic data room including employment agreements, severance agreements, documentation of purchased equipment, descriptions of instances of threatened litigation, insurance policies, and other documents. Foad typically scanned and uploaded documents at his home during non-market trading hours. During the Relevant Period. Foad earned approximately $90,000 from the technology company. Foad did not contact investors in the technology company and did not discuss the company with any Questar customers.Foad Failed to Disclose his Outside Business Activities and Submitted Two Inaccurate Compliance Questionnaires to QuestarFoad did not provide Questar with advance written notice of either of his outside business activities. Moreover, he completed two annual compliance questionnaires during the Relevant Period in which he certified that he would not engage in any outside business activity without prior notification to and written consent from Questar. Among other details, the questionnaires described outside business activities as any kind of activity for which an individual received or expected to receive any compensation.By engaging in outside business activities without providing prior notice to Questar, Respondent violated FINRA Rules 3270 and 2010.
Bill Singer's Comment
The first transgression cited by FINRA was that Foad practiced law at his own law firm -- which he started in April 2018 and he ended that partnership in October 2018. That's a six-month lifespan for the law practice. As asserted in the AWC, Foad was paid an $18,000 salary during those six months, which works out to about $3,000 a month, which, if you divide a month into 20 working days, that's about $150 a day, and if you divide each day into 8 hours, that works out to about $18.74 an hour -- a tad above minimum wage. With the federal minimum wage at $7.25 and some states/localities as high as $15, Foad wasn't exactly raking it in. You might think that this stockbroker/lawyer issue is new and unique. It's not: "FINRA Fines And Suspends Lawyer For Practicing Law" (BrokeAndBroker.com Blog / May 2, 2012). http://www.brokeandbroker.com/1421/sirois-finra-outside-business-merrill-lynch/
The second transgression cited by FINRA was that Foad worked as a healthcare industry employee where he "typically scanned and uploaded documents at his home during non-market trading hours." Notably, Foad did not contact investors in his employer's tech company and did not discuss the tech company with any Questar customers. During what the AWC deems the "Relevant Period" from February 2016 to July 2018 (that's 17 months), Foad earned $90,000 -- apparently he was a more valued scanner/uploader than a lawyer.
The third transgression cited by FINRA was that Foad did not provide Questar with advance written notice of his practice of law or his scanning/uploading -- which, go figure, FINRA deems to constitute outside business activities ("OBA").
The fourth transgression cited by FINRA was that Foad completed two annual compliance questionnaires ("ACQs") during the Relevant Period in which he certified that he would not engage in any OBAs without prior notification to and written consent from Questar. Apparently, Foad did not disclose the law practice and the scanning/upload OBAs on the two ACQs.
Not spelled out in the AWC is why Foad failed to disclose the alleged OBAs. Was the non-disclosure the by-product of calculated deceit, or, in contrast, did Foad simply not believe that his law practice and prodigious paper-copying and paper-pushing rose to the level of disclosable outside activities? I don't know the answer. I wish that the AWC had given us some more content and context to clarify Foad's mind-set. Just going by a strict interpretation of FINRA Rule 3270, the lawyering and paperworking seem to fall under the ambit of the regulation.
http://www.brokeandbroker.com/index.php?a=topic&topic=obahttp://brokeandbroker.com/PDF/Rule3270OBAAnalysis.pdf
Having conceded that Foad likely violated FINRA Rule 3270 and that he should have been more attentive when filling out his ACQs, I'm happy to find him guilty as alleged. So . . . what the hell did Foad do that warranted three months on the sideline and a bill for $7,500? Given that the fine is "deferred," that suggests that Foad has left the biz and isn't planning on returning anytime soon (if at all). Perhaps FINRA Staff figured, what the hell, let's load up on this former rep by piling on three months of suspension that will likely never be served (after all, it appears that Foad has pursued employment outside of the FINRA community), and, for good measure, let's hit him with a fine that may never get paid. Ah yes, the wonderful world of Wall Street self-regulation.