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How Many FINRA Enforcement Lawyers Does It Take To Prosecute a Default Case?
January 10, 2022
The other day, FINRA published a DEFAULT DECISION -- and that characterization is, in fact, set out in the official document in both UPPER CASE and BOLD. As to what warranted such a glaring title, well, we got this in the Syllabus:
Respondent is fined $5,000 and suspended for 30 business days from associating with any FINRA member in any capacity for willfully failing to timely amend his Form U4 to disclose a Chapter 7 bankruptcy petition and making false and inaccurate statements to his employer firm.
FINRA Department of Enforcement, Complainant, v. Joseph John Weinrich, Respondent (Default Decision, FINRA Office of Hearing Officers, Discip. Proc. No. 2018058611601)
https://www.finra.org/sites/default/files/fda_documents/2018058611601%20Joseph%20John%20Weinrich%20CRD%20461987%20OHO%20Decision%20jlg.pdf
I can see why FINRA should fine and suspend an associated person for willfully failing to amend his Form U4. I know the rationale for imposing such sanctions and I wholeheartedly concur. Having said that, I am also aware of the fact that over 800,000 Americans have died from Covid, and, we're still getting slammed by the pandemic, and, well, keeping things in perspective, FINRA went after some guy because of his non-disclosure of a bankruptcy. Not stealing from or defrauding a customer. Not hiding a felony. It's about not disclosing a bankruptcy. Still, I'm not gonna be a hypocrite here. Remembering my days as a former industry regulator, I'm still onboard with the fine and suspension because FINRA's gotta do what it's gotta do when it comes to policing the Street.
On the other hand (like you didn't see that coming?), after I finished reading the one sentence Syllabus, I came upon this disclosure in the DEFAULT DECISION:
AppearancesFor the Complainant: Loyd Gattis, Esq., Gerald W. Sawczyn, Esq., Tiffany Buxton, Esq., and Richard Chin, Esq., Department of Enforcement, Financial Industry Regulatory AuthorityFor the Respondent: No appearance
Seriously?? FINRA actually needed to enlist four -- count 'em: 4 -- Enforcement lawyers in order to prosecute a non-appearing Respondent? And in the midst of a two-year pandemic? How does FINRA afford the cost of a default hearing? Omigod . . . can you imagine how many FINRA Enforcement lawyers the regulator would have assigned to the case if the Respondent had opted to appear? That cost could easily bankrupt FINRA! All of which reminds me of the wonderful scene from the Marx Brothers' "Animal Crackers":
As I made my way into the "Introduction" portion of the DEFAULT DECISION, I learned that Respondent Weinrich was "formerly a registered representative." Formerly? As in the guy is out of the biz, didn't appear at his hearing, and FINRA still needed four Enforcement lawyers? Okay, sure, what the hell -- business must be booming at Wall Street's self-regulatory-organization and the place must be flush with cash.
Hold onto yer hats because this is only gonna get more idiotic -- trust me!
Right there on the first page of the DEFAULT DECISION, we're told that:
After Enforcement filed the Complaint, Respondent failed to appear in two pre-hearing conferences.
Not only didn't Weinrich show up for the Final Hearing, but he didn't even appear for two pre-hearing conferences. And still, FINRA needed four Enforcement lawyers?
As we make our way from the first to the second page of the DEFAULT DECISION, we learn that FINRA's Office of Hearing Officers ("OHO") Hearing Officer scheduled:
a telephonic hearing in which Respondent was ordered to show cause why he should not be held in default. Respondent failed to appear in the show-cause hearing.At my direction, Enforcement filed a motion for entry of default decision ("Default Motion"). Respondent did not file an opposition to the Default Motion. For the reasons stated below, I find Respondent in default, deem admitted all allegations in the Complaint against him, grant the Default Motion, and issue this Default Decision.
Oh for godsakes, now you're holding a show-cause hearing for a guy who didn't appear for two pre-hearing conferences? Yeah, yeah, I know, the rules require these things proceed in that fashion, and, okay, it's likely for the protection of the Respondents to give 'em yet another opportunity to avoid blowing up their careers. On the other hand, it sure as hell shouldn't have come as a surprise to the four Enforcement lawyers or the OHO Hearing Officer that Weinrich blew off the show-cause hearing too. And yet, we still got four FINRA Enforcement lawyers hammerin' away at this no-show Respondent? As to the underlying, substantive facts that warranted all this staffing, consider that we're told [Ed: footnotes omitted]:
2. Facts Showing a ViolationOn May 18, 2017, Respondent and his spouse filed a joint Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the District of Kansas. Respondent had notice of his bankruptcy petition at that time. He was registered with FINRA through his association with Moloney when he filed for bankruptcy. He failed to amend his Form U4 within 30 days to disclose his petition. Between May 2017 and May 2018, when his association with Moloney ended, he amended his Form U4 four times. He failed to disclose his petition when he filed these amendments. Respondent's failure to disclose his bankruptcy petition continued until October 2019.Respondent was required to report his bankruptcy petition in his Form U4 within 30 days of filing the petition, but he failed to do so. His failure violated Article V, Section 2(c) of FINRA's By-Laws and FINRA Rules 1122 and 2010.
Weinrich filed for bankruptcy in 2017, which, just doin' the quick math, is about five years ago. Sure as hell seems like FINRA had Weinrich dead to rights. So, why did it require four FINRA Enforcement lawyers to walk into the middle of the street at high noon and empty each one of their six-shooters? How many lawyers does FINRA need to take on a shadow?
As to FINRA's added fillip of characterizing Weinrich's non-disclosure as "willful," which will render him subject to an industry "statutory disqualification," this is how the rationale offered in the DEFAULT DECISION [Ed: footnote omitted]:
Respondent's bankruptcy petition was material. Reasonable regulators, employers, and customers would view the bankruptcy petition as significantly altering the total mix of information made available about Respondent. The length of time Respondent failed to disclose the petition-two years-would raise concerns about his ability to manage his financial affairs, the financial pressures he was facing, and his ability to comply with FINRA By-Laws and Rules.* * *Respondent violated Article V, Section 2(c) of FINRA's By-Laws and FINRA Rules 1122 and 2010 by his willful failure to amend his Form U4 to disclose his bankruptcy petition, as alleged in the first cause of action. Because Respondent's violation was willful and the information he failed to disclose was material, he is subject to statutory disqualification from the securities industry.
I have no quibble with FINRA's rationale given the underlying facts. As I said at the outset of this article, I take no issue with FINRA's sanctions. The facts are what they are. Weinrich's default is what it is. Game. Set. Match. One thing to keep in mind, however, is that FINRA's sanctions did not start and end with a $5,000 fine and a 30-business-day suspension. The invocation of a finding of "willful" non-disclosure alters the seemingly modest sanctions into a career killer. In actuality, Weinrich is out of the biz. Once those 30 days of suspension tick off, he can't just pick up where he left off. He could ask a FINRA member firm to sponsor his employment as a disqualified person via the submission of a "Membership Continuance Application ("MC-400 Application"). Sure, he could do that . . . good luck. Alas, yet another industry career goes down in regulatory flames, and, given the allegations and the defaults, apparently not without some justification, and, more to the point, Weinrich has no one to blame other than himself..
Permit me to offer you one last bit of info -- and then let's see how you feel about the totality of DEFAULT DECISION [Ed: footnotes omitted]:
A. Respondent's BackgroundWeinrich is 89 years old. Respondent was employed in the securities industry beginning in 1970 and over the years was associated with several FINRA member firms. In August 1999, Respondent became registered with FINRA as a General Securities Representative (GSR) through an association with Moloney Securities Co. ("Moloney"), a FINRA member firm. His association with Moloney was terminated in May 2018. He became registered with FINRA as a GSR through an association with B.B. Graham & Co. ("Graham"), a FINRA member firm, in December 2019. His association with Graham was terminated in July 2020. Since that time, Respondent has not been registered or associated with a FINRA member firm
God bless FINRA! Four Enforcement attorneys, one OHO Hearing Officer, pre-hearings, an Order to Show Cause, a show-cause hearing, a default hearing, a DEFAULT DECISION, and a raging Covid pandemic -- and all of that to go after an 89-year-old Respondent who had been in our biz since 1970 and was last terminated in July 2020.
What part of 89-years-old and out of the biz for 17 months seems to have escaped the folks at FINRA?
Yeah, I know, FINRA's gotta do what it's gotta do -- as I have conceded. Regardless, if this is how FINRA works, then it's approach to regulation is a belabored, bloated joke. While four Enforcement lawyers were assigned to go after a no-show, 89-year-old, bankrupt, at least three of those lawyers could have been assigned to go after some active, in-the-biz, fraudster, who is ripping off widows and orphans and depleting life savings and destroying lives.
Once, a long time ago, four bad guys chased one good-guy Deputy. At high noon, with only himself to serve as prosecutor, judge, and jury, Marshall Will Kane stood alone against Frank Miller, Ben Miller, Jack Colby, and Jim Pierce. By himself, Marshall Kane battled for truth, justice, and the FINRA way of life -- or something like that. In 2022 Covid America, everything is reversed. Four guys in white hats chasing one guy in a black hat, and the bad guy skedaddled outta town last year.