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A Lack of Finality: The Trevor Saliba Saga at FINRA and the SEC
September 6, 2022
In today's featured case, we start things off in 2011, when NMS Capital Group, LLC (wholly owned by Trevor Saliba) purchased MCA Securities LLC (whose name was changed to NMS Capital Securities). By 2016, Saliba came within FINRA's crosshairs, but six years later, his case is still not fully resolved. As with far too much of what is passed off these days as Wall Street regulation, we got periods of activity, periods of inactivity, and, ultimately, things that never quite move forward or backward but spin their wheels.
2017 FINRA OHO Decision
With that spoiler alert in place, let's go back to 2017 and FINRA Department of Enforcement, Complainant, v. Trevor Michael Saliba, Sperry Randall Younger, Richard Daniel Tabizon, and Arthur Mansourian, Respondents (FINRA Office of Hearing Officers ("OHO") Extended Hearing Panel Decision, Discip. Proc. No. 2013037522501 / December 15, 2017)
https://www.finra.org/sites/default/files/OHO-Saliba-2013037522501-121517.pdf:
In 2011, Respondent Trevor Michael Saliba purchased FINRA member firm MCA Securities, LLC ("MCA Securities") through an entity that he owned, NMS Capital Group, LLC ("NMS Capital Group"). After completing the purchase, Saliba changed the name of the firm to NMS Capital Securities LLC ("the Firm" or "NMS Capital Securities") and filed a Continuing Membership Application ("CMA") with FINRA's Membership Application Program ("MAP") seeking approval of the ownership change. While its review of the CMA was pending, MAP imposed certain restrictions on the Firm, including a prohibition against Saliba serving in any principal or supervisory capacity. Ultimately, MAP denied the CMA, MAP's denial was affirmed by FINRA's National Adjudicatory Council ("NAC"), and the Firm withdrew from FINRA membership.On March 24, 2016, FINRA's Department of Enforcement filed an eight cause Complaint against Saliba; Sperry Randall Younger, who served as the Firm's Chief Executive Officer ("CEO") and its Chief Compliance Officer ("CCO") during a portion of the CMA process; Richard Daniel Tabizon, who also served as the Firm's CCO during a portion of the CMA process and as a Firm principal during the entire process; and Arthur Mansourian, who was registered with the Firm in a non-principal capacity during the CMA process. In substance, the Complaint alleged that (1) Saliba functioned as a principal during the CMA process, causing the Firm to violate the restrictions imposed by MAP; (2) Saliba made false statements and provided false documents and incomplete information to FINRA; (3) Younger gave false testimony to FINRA and failed to reasonably supervise Saliba to ensure the Firm's compliance with the restrictions; and (4) Saliba, Tabizon, and Mansourian provided backdated firm compliance documents to FINRA examiners and caused the Firm to maintain incomplete and inaccurate books and records. Respondents filed Answers to the Complaint denying the charges and requested a hearing.A hearing on the charges was held before a FINRA Extended Hearing Panel during the period September 18 through 23, 2017. The Panel heard testimony from 13 witnesses and received approximately 200 exhibits in evidence. For the reasons set forth in this Decision, the Panel concluded that Enforcement proved, by a preponderance of the evidence, that Respondents violated FINRA and NASD rules in most respects alleged in the Complaint. The Panel further concluded that, considering all the relevant circumstances, the appropriate sanctions for the violations were to bar all four Respondents from association with any FINRA member firm in any capacity.
at Page 2 of the OHO Decision
2019 NAC Decision
So . . . in 2017, five years ago in September, FINRA held about a week of hearings involving 13 witnesses and some 200 exhibits; and, after deliberations, an OHO Panel issued a December 2017 Decision imposing, in part, a rash of Bars. In response, Saliba, Younger, and Mansourian filed timely applications for review by the FINRA's National Adjudicatory Council ("NAC"). And then the entire year of 2018 sort of goes by without any resolution of the appeal. And then, abracadabra, in January 2019, the NAC issues its appellate decision. FINRA Department of Enforcement, Complainant, v. Trevor Michael Saliba, Sperry Randall Younger, Richard Daniel Tabizon, and Arthur Mansourian, Respondents (FINRA NAC) Decision, Discip. Proc. No. 2013037522501 / January 8, 2019)
https://www.finra.org/sites/default/files/NAC_2013037522501_Saliba_010819_0.pdf. Following a hearing, the NAC concluded that [Ed: footnotes omitted]:
Saliba violated FINRA Rule 2010 by acting as a principal in violation of the interim restrictions imposed by Member Regulation (Cause 1). For this violation, Saliba is barred in all capacities. Saliba also violated FINRA Rules 8210 and 2010 by failing to cooperate with FINRA and providing false and misleading documents and information to FINRA (Causes 2, 3, 5). For these violations, Saliba is separately barred in all capacities. Saliba also violated FINRA Rule 2010 by participating in the falsification of compliance forms (Cause 6). For this violation, Saliba also is barred in all capacities. Younger provided false information to FINRA, in violation of FINRA Rules 8210 and 2010. For this violation, Younger is barred in all capacities. Younger also violated NASD Rule 3010 and FINRA Rule 2010 by failing to supervise Saliba. For this violation, Younger is separately barred in all capacities. Mansourian violated FINRA Rule 2010 by participating in obtaining backdated compliance forms that were to be provided to FINRA and caused the firm to maintain inaccurate books and record in violation of FINRA Rules 4511 and 2010 by using his personal email to obtain the backdated forms.For these violations, Mansourian is barred in all capacities. We affirm the Hearing Panel's order that respondents pay, jointly and severally, $12,184.82 in hearing costs, and we order that respondents Saliba, Younger, and Mansourian pay, jointly and severally, appeal costs in the amount of $1,733.28.
at Page 28 - 29 of the NAC Decision
2021 SEC Opinion/Order
In February 2019, Saliba and Mansourian appealed the NAC's findings to the SEC. As with the passage of time at FINRA, things did not move with any deliberate speed at the federal regulator. We should keep in mind that Saliba's troubles seem to have begun with the 2011 CMA, took the form of a 2016 FINRA Complaint, moved into a 2017 OHO Decision, and left the confines of the self-regulatory-organization after the issuance of a 2019 NAC Decision. Inexplicably, the entire year of 2020 passes at the SEC without any resolution of Saliba's appeal. Which brings us to April 2021: In the Matter of the Applications of Trevor Michael Saliba and Arthur Mansourian For Review of Disciplinary Action Taken by FINRA (SEC Opinion and Order, '34 Act Rel. No. 91527, Admin. Proc. File Nos. 3-18989 and 3-18990 / April 9, 2021)
https://www.sec.gov/litigation/opinions/2021/34-91527.pdf. Following its review, the SEC issued this Order in part:
https://www.sec.gov/litigation/opinions/2021/34-91527.pdf. Following its review, the SEC issued this Order in part:
ORDERED that FINRA's findings of violations against Trevor Michael Saliba and Arthur Mansourian are sustained, except that FINRA's findings that Saliba violated FINRA Rule 2010 by providing falsified memos to FINRA's Department of Member Regulation, and FINRA Rules 8210 and 2010 by providing falsified memos to FINRA's Department of Enforcement, are remanded to FINRA for further proceedings consistent with our opinion; and it is furtherORDERED that the sanctions imposed by FINRA on Saliba and Mansourian are sustained, except that FINRA's imposition of a bar on Saliba based in part on the violations being remanded by this opinion is also remanded to FINRA for further proceedings consistent with our opinion, and FINRA's imposition of a bar on Mansourian is modified to a bar with a right to reapply for association with a FINRA member firm in two years.
Umm, seriously? FINRA issued a 2017 OHO Decision barring everyone. The NAC confirmed all those bars in 2019. And, in 2021, the best that the SEC can do in terms of investor protection and something akin to Due Process is remand a bar imposed by FINRA back to FINRA "for further proceedings consistent with our opinion?" In other words, let's just keep up with this endless volley-and-serve -- ball's in your court.
SEC Can't Find FINRA's Findings
In remanding Saliba's alleged violation of FINRA Rules 8210 and 2010 for purportedly providing falsified memos, in part, the SEC explained that [Ed: footnotes omitted]:
We cannot determine whether the NAC predicated Saliba's liability on a finding that (1) Saliba was responsible for falsifying the memos or knowingly producing falsified memos to FINRA; or (2) the memos were falsified and Saliba should have known that he was providing falsified memos to FINRA. In order for us to properly discharge our review function, we must know whether the NAC concluded Saliba was acting intentionally and knowingly or merely negligently. This is true both with respect to FINRA's finding that Saliba violated Rules 8210 and 2010 by providing the Miller Memos and Eighth Younger Memo to Enforcement in response to a Rule 8210 request, and FINRA's finding that Saliba violated Rule 2010 by providing the Miller Memos and Eighth Younger Memo to Member Regulation.If the NAC concluded Saliba acted intentionally and knowingly, then it is not clear why it said it was "affirm[ing] the Hearing Panel's finding" that Saliba created or had someone create the Miller Memos and knowingly provided them to FINRA. The Hearing Panel found that "the evidence was not sufficient for the Panel to find that Saliba personally created, or caused the creation of, the [Miller] Memos." And if the NAC concluded Saliba acted merely negligently, it did not explain why Saliba's negligence would establish violations of FINRA Rules 8210 and 2010 on the facts of this case. FINRA relied on its decision in Merrimac Corporate Securities, Inc., to support liability, but on appeal of that decision we sustained liability because "the record establishe[d] that Merrimac and Nash knew that DSR forms had been falsified at the time the firm and Nash responded to the Rule 8210 requests for information."We note further that the NAC devoted only a single sentence to its additional finding that Saliba had earlier violated Rule 2010 by providing the memos to Member Regulation. That single sentence did not discuss the case law applicable to violations of Rule 2010 that are not predicated on a violation of another FINRA rule. . . .
at Page 17 of the SEC Opinion
Six years into Saliba's regulatory nightmare, he's told by the SEC that the federal regulator can't quite figure out the rationale -- the basis -- for FINRA's imposition of a Bar upon Saliba based upon his alleged falsification of memos. Apparently, the costs and expenses imposed upon Saliba with now having to go back to the self-regulatory-organization where this mess started in 2016 is of no concern to anyone. Similarly, the SEC seems happy to play a friendly game of volley and serve rather than trying to win the point. No small wonder that Saliba threw his hands up in disgust with the two regulators and ran to the courthouse steps.
2022 9Cir Opinion
Saliba petitioned the United States Court of Appeals for the Ninth Circuit ("9Cir") to review the SEC's determination to sustain FINRA's imposition of two industry bars and a finding that he had violated FINRA Rules 8210 and 2010. Trevor Michael Saliba, Petitioner, v. United States Securities & Exchange Commission, Respondent (Opinion, United States Court of Appeals for the Ninth Circuit ("9Cir"), No. 21-71114 / August 31, 2022)
https://brokeandbroker.com/PDF/Saliba9CirOp220831.pdf.
9Cir denied Saliba's petition as it related to the SEC's sustaining of FINRA's two Bars; however, the Court concluded that it lacked jurisdiction to review the SEC's finding that Saliba had violated FINRA Rules 8210 and 2010, and, accordingly, dismissed that latter aspect of his appeal.
A Final Order That's Not
In framing the jurisdictional question before it, 9Cir saw it as a question about:
[W]hether the Commission's opinion constitutes a "final order" within the meaning of the statute in light of the fact that the Commission's opinion affirmed two bars and remanded a third bar for further proceedings by FINRA. We conclude that the Commission's opinion is a final order as to the two industry bars sustained for Saliba's violations of FINRA Rule 2010 by defying the Interim Restrictions and backdating compliance forms; however, the Commission's opinion is not a final order as to its determination that Saliba violated FINRA Rules 8210 and 2010 by failing to produce his computers, because the sanction for this violation has been remanded for further proceedings by FINRA.
At Pages 10 - 11 of the 9Cir Opinion
9Cir finds that the SEC's Opinion is, in fact, a Final Appealable Order pertaining to the two FINRA Rule 2010 Bars; however, the SEC Opinion is not a Final Appealable Order for FINRA's finding that Saliba violated FINRA Rules 8210 and 2020 because that latter issue was remanded back to FINRA by the SEC Order. Now ya see it. Now ya don't. How does 9Cir explain this comin' and goin' state of finality? In part, the federal appellate courts offers this:
As to the remaining issue-whether Saliba violated FINRA Rules 8210 and 2010 by falsely testifying about and failing to produce his computer-the jurisdictional analysis is different because the corresponding sanction relating to that violation was remanded by the Commission. Nevertheless, the parties both maintain that this issue is still part of a "final order." Applying the Bennett test, the parties conclude that the Commission's opinion on this issue is the consummation of the decision-making process because the Commission will not reconsider whether this violation occurred. This, however, ignores the fact that a sanction for this violation is still being deliberated by FINRA. . . .
At Page 14 of the 9Cir Opinion
I mean, you know, what the hell?
The SEC Opinion marks the "consummation" of some decision-making process but when FINRA is still deliberating a sanction after having imposed said sanction but for the fact that the SEC remanded the sanction back to FINRA for lack of an explanation as to the basis for said sanction, well, 9Cir says that all of the aforementioned renders the SEC's Final Order as not so much "final" but still an "order," but the federal court won't consider the appeal of the FINRA Bar because it's now under reconsideration because the SEC said that FINRA pretty much wasted everyone's time when it failed to explain why it did what it did.
Ya got that?
No Legal Consequences
In an effort to further clarify its bifurcated response to the appealable finality of the SEC Order, 9Cir focuses on the fact that given the absence of any FINRA Sanction, Saliba's mere violations of Rules 8210 and 2010, absent more, "has no legal consequences for him and no impact on the day-to-day operation of his firm." at Page 14 of the 9Cir Opinion. Notwithstanding the SEC concerns (which truly seem legitimate) that there are consequences attendant to a finding that a Respondent provided untruthful responses, 9Cir persists in characterizing such an argument at "speculative and insufficient to constitute "legal consequences" . . . at Page 15 of the 9Cir Opinion. In bolstering its finding, 9Cir offer this further fillip: "This Court may still consider this issue in a future appeal if Saliba timely petitions this Court from a new final order of the Commission affirming a sanction for this issue." at Page 16 of the 9Cir Opinion.
at Pages 15 - 16 of the 9Cir Opinion
Bill Singer's Comment
And now, dear readers, this traveling circus makes its way back to FINRA's fairgrounds. The tents will be raised yet again. The lawyers hired. The festivities will begin. And then, after the tents come down and the animal shit swept up, yet again, this whole carnival will likely wind its way back to the SEC and, who knows, maybe back to the 9Cir. By that time, if past is prologue, maybe another five or so years will have come off the calendar. And who knows how many tens-of-thousands of dollars in legal fees will be paid by Saliba for a second bite at a rotten appeal. And who knows how much otherwise valuable regulatory time at FINRA and the SEC will be wasted on this nonsense.
I am NOT defending Saliba. I am NOT excusing his conduct. For the sake of argument, let's say that Saliba likely engaged in some misconduct and will likely find himself barred for something when this is all said and done. The question that I raise, like the aforementioned circus tents, is what is the consequence for FINRA's misconduct in failing to render an intelligible decision? What sanctions (likely none) will the SEC impose upon FINRA for not saying what it meant, and not meaning what it said? Of more import, how does this failed system of self regulation protect the public and the industry?