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FINRA Censures and Fines Former Raymond James SVP for Signing Letters of Credit for Customer
October 13, 2022
From August 2019 to August 2020, a former Raymond James SVP signed two letters of credit and one amendment totaling $3 million. In October 2020, the SVP was RIFed out of his job. In December 2020, his former employer amended his Form U5 to alleged that the SVP had signed and issued unapproved letters of credit. All of which set the stage for a 2022 FINRA regulatory settlement whereby the former SVP was fined and suspended. Except, the more we consider the facts, the more questions arise as to why a fine and why a suspension.
The AWC
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, Amit Kumar Bhatia submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted.
In the Matter of Amit Kumar Bhatia, Respondent (FINRA AWC 2020068346501)
In the Matter of Amit Kumar Bhatia, Respondent (FINRA AWC 2020068346501)
https://www.finra.org/sites/default/files/fda_documents/2020068346501
%20Amit%20Kumar%20Bhatia%20CRD%205305020%20AWC%20gg.pdf
The "Background" section of the AWC asserts [Ed: footnote omitted]:
In November 2010, Bhatia first registered with FINRA as an Investment Banking Representative (IB) through an association with Raymond James & Associates (CRD No. 705). Bhatia terminated his association with Raymond James in December 2010, and he did not associate with a FINRA member firm again until 2019. Bhatia re-registered with FINRA as an IB through an association with Raymond James in July 2019. In October 2020, Bhatia's FINRA registration terminated when Raymond James filed a Form U5 stating that he had been discharged due to a "reduction in force" and disclosing an "[i]nternal review of unauthorized purported letters of credit" regarding Bhatia. In December 2020, Raymond James filed an amended Form U5 stating, "The Firm's review concluded that Associate signed and issued purported letters of credit without Firm approval." Although Bhatia is not currently registered with any FINRA member firm, FINRA retains jurisdiction over him pursuant to Article V, Section 4 of FINRA's By-Laws.
As asserted in part in the AWC:
In accordance with the terms of the AWC, FINRA imposed upon Bhatia a $5,000 fine and three-month suspension from associating with any FINRA member in all capacities.Beginning in March 2019, Bhatia was employed as a Senior Vice President in Raymond James' Credit Finance group and then the firm's Debt Restructuring and Recapitalization group within the Investment Banking Division. Bhatia's job responsibilities at the time included developing corporate financing packages for the firm's investment banking customers. In August 2019, Customer A, then a former senior executive of Raymond James' Investment Banking Division, asked Bhatia to sign letters of credit in support of Customer A's business activities. Customer A told Bhatia that he could sign the documents in his capacity as Senior Vice President in the Investment Banking Division. However, Raymond James did not provide letters of credit to firm customers, and Bhatia never confirmed with Raymond James that he had authorization from the firm to sign letters of credit on behalf of the firm.Between August 2019 through August 2020, Bhatia signed two documents that purported to be letters of credit, and one amendment for each of these purported letters of credit, for Customer A, totaling approximately $3 million in credit, without his firm's knowledge or authorization. Customer A provided these letters of credit and amendments to a lender. When Raymond James discovered the unauthorized letters of credit in September 2020, it advised Customer A that the letters of credit he had provided to the lender were not valid. Raymond James was never required to meet any obligations under the purported letters of credit. Bhatia did not receive any compensation in exchange for signing the purported letters of credit.By executing and issuing the purported letters of credit without authorization from Raymond James, Bhatia violated FINRA Rule 2010.
Bill Singer's Comment
As I often say, it's just not my place to question any settlement such as a FINRA AWC because I don't know what I don't know; and after some 40 years lawyering on Wall Street, I do know that lots of stuff gets left out of settlement agreements as part of the negotiations that prompted the settlement. Further, the costs of defending against regulatory charges are often substantial and a settlement by which you cut your losses, pay a fine, do the time, and then get on with your life is often a compelling and cost-effective alternative to fighting it out. So . . . to be clear, I wish Respondent Bhatia the best and hope that he has gotten on with his life.
One Month in 2010
As to what I find unsettling about the Bhatia AWC, that's a complicated issue. Frankly, I'm not sure that I've seen a "Background" chronology like that before. Bhatia was first registered in November 2010 with Raymond James; but that tenure only lasted to December 2010. Notably, the AWC concedes that the "Bhatia terminated his association" in December 2010, so there's no allegation by the self-regulatory-organization of any misconduct during that employment. Okay, fine, but, I mean, y'know, what the hell was that one-month stint all about?
July 2019 -- the return
For reasons that are not set forth in the AWC, after leaving the industry in December 2010, Bhatia "did not associate with a FINRA member firm again until 2019. Bhatia re-registered with FINRA as an IB through an association with Raymond James in July 2019." As such, don't let the dates confuse you: Bhatia was registered for only one month in 2010 and then after nearly a decade out of the biz, he re-registered in July 2019 with Raymond James. Again, I got no idea about why or the wherefores, and the AWC is mum on all of that.
October 2020 RIF -- the December 2020 Amended U5
About 15 months into Bhatia's second stint, Raymond James "discharged" him due to a "reduction in force." Okay, that much I get. Apparently business was soft in October 2020 and Raymond James cut some staff -- after all, we were in the midst of the Covid pandemic by then. Of course, things get a tad muddied at this point because after the AWC asserts that Bhatia was RIFed out of his job, FINRA then alleges that the Form U5 also disclosed:
an "[i]nternal review of unauthorized purported letters of credit" regarding Bhatia. In December 2020, Raymond James filed an amended Form U5 stating, "The Firm's review concluded that Associate signed and issued purported letters of credit without Firm approval." . . .
March 2019??? What Happened to July 2019 Start Date?
The AWC asserts that:
Beginning in March 2019, Bhatia was employed as a Senior Vice President in Raymond James' Credit Finance group and then the firm's Debt Restructuring and Recapitalization group within the Investment Banking Division.
Not sure if you noted that discrepancy but we got the AWC asserting that Bhatia was employed "in March 2019" but the AWC also asserts that "Bhatia re-registered with FINRA as an IB through an association with Raymond James in July 2019."
Okay, which is it?
Did he return to Raymond James in March 2019 or in July 2019?
Regardless of the actual start date, the AWC alleges that in his SVP capacity, Bhatia developed "corporate financing packages for the firm's investment banking customers." The AWC alleges in part that:
[I]n August 2019, Customer A, then a former senior executive of Raymond James' Investment Banking Division, asked Bhatia to sign letters of credit in support of Customer A's business activities. Customer A told Bhatia that he could sign the documents in his capacity as Senior Vice President in the Investment Banking Division. However, Raymond James did not provide letters of credit to firm customers, and Bhatia never confirmed with Raymond James that he had authorization from the firm to sign letters of credit on behalf of the firm.
If Bhatia's second stint at Raymond James started in July 2019, that's only a month or less into that employment; and, in August 2019, a former senior executive of the firm's Investment Banking Division asked Bhatia to sign letters of credit for a customer. Except that not a fair representation of the transaction. First off, Customer A wasn't merely a Raymond James customer. To the contrary, Customer A was a former senior executive in the firm's Investment Banking Division, you know, that very same division under which Bhatia was employed.
The Former Senior Exec Said It's Okay
Pointedly, Bhatia's job involved "developing corporate financing packages for the firm's investment banking customers," and shortly after he starts that job, a former senior executive asks Bhatia to sign letters of credit for that former executive's business activities. Notably, the former exec told the newbie "Bhatia that he could sign the documents in his capacity as Senior Vice President in the Investment Banking Division" One could make a fair argument that Bhatia may have relied on the more experienced exec's assurances that the signatures were okay -- whether that reliance was reasonable is open to debate but should be somewhat fact dependent.
In making its case, FINRA alleges that "Raymond James did not provide letters of credit to firm customers, and Bhatia never confirmed with Raymond James that he had authorization from the firm to sign letters of credit on behalf of the firm." Fair enough, except Bhatia was new to the job and had been assured by a former senior exec that an IB Division SVP "could sign the documents in his capacity."
One Year of Slumber
Over the ensuing year from August 2019 to August 2020, Bhatia signed two letters of credit and one amendment totaling $3 million. Accordingly, the AWC alleges in part that when "Raymond James discovered the unauthorized letters of credit in September 2020, it advised Customer A that the letters of credit he had provided to the lender were not valid. Raymond James was never required to meet any obligations under the purported letters of credit." Again, let's recall that by 2020 it was full-onset Covid pandemic. Also, Bhatia's cited misconduct occurred over one year but only involved two -- count 'em -- letters of credit and only one amendment; that Raymond James only awoke from its compliance slumber in September 2020.
A Slippery Slope
Why did Bhatia sign the documents at issue? A likely explanation is that he relied upon the former senior executives assurances because that individual had worked in the same IB Division and was a firm customer and, you know, it may be a slippery slope of misplaced confidence but it's still nothing that smacks of conspiracy or fraud or anything willful -- and no such charges are levelled by FINRA against Bhatia. Finally, and I would argue of great import, the AWC concedes that "Bhatia did not receive any compensation in exchange for signing the purported letters of credit." On top of that, don't forget that "Raymond James was never required to meet any obligations under the purported letters of credit."
Seriously? A Fine and Suspension for This??
FINRA looked at everything above and alleged in the AWC that by "executing and issuing the purported letters of credit without authorization from Raymond James, Bhatia violated:"
FINRA Rule 2010: STANDARDS OF COMMERCIAL HONOR AND PRINCIPLES OF TRADE
A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.
Gimme a break!
I see nothing, absolutely nothing, as in no goddamn evidence of anything, that Bhatia's signing of two Letters of Credit and one amendment at the urging of a former Raymond James IB Division senior executive after at best a few weeks on the job or at worst a few months rose to the level of a monstrous breach of whatever constitutes Wall Street's "high standards of commercial honor and just and equitable principles of trade."
What does FINRA think Bhatia did that even remotely deserves the tag of dishonorable? For the record, I see NOTHING of that ilk.
Which then takes us into the realm of Bhatia having engaged in unjust and inequitable principles of trade? Seriously? Y'all wanna mark that territory with the facts in this AWC?