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Failure to Launch Three FINRA Rule 8210 AWC Settlements
July 7, 2023
Pursuant to its Rule 8210, FINRA has the right to demand information or testimonial appearance. Be that as it may, I take issue with FINRA's somewhat loosey-goosey drafting of AWCs that charge respondents with failing to comply with Rule 8210 demands. At best, my concern is a quibble, and, at worst, a bit of overly punctilious grammar policing. Regardless, an inconsistency among the AWCs caught my eye and I present it to you and FINRA for what it's worth.
Jacobson 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, Brad Michael Jacobson submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Brad Michael Jacobson, Respondent (FINRA AWC 2022074784201 / July 5, 2023 )
https://www.finra.org/sites/default/files/fda_documents/2022074784201%20Brad%20Michael%20Jacobson%20CRD%204859099%20AWC%20gg.pdf
https://www.finra.org/sites/default/files/fda_documents/2022074784201%20Brad%20Michael%20Jacobson%20CRD%204859099%20AWC%20gg.pdf
The Jacobson AWC asserts that Jacobson had entered the industry in 2004, and by 2011, he was associated with Wells Fargo Clearing Services, LLC. The AWC alleges that:
[I]n a Uniform Termination Notice for Securities Registration (Form U5) dated April 25, 2022, the firm reported that it terminated Jacobson because he engaged in an unapproved outside business activity and “submitted a service request to obtain a debit card issued for himself drawn on a client’s business account.”
The AWC alleges in its "Overview" that:
Jacobson violated FINRA Rules 8210 and 2010 by failing to provide information and documents requested pursuant to FINRA Rule 8210 in connection with FINRA’s investigation concerning Jacobson’s alleged conversion of a firm customer’s funds and participation in an unapproved outside business activity.
In response to FINRA's investigation of the allegations in the above-cited Form U5, the AWC alleges in that:
On May 24, 2023, as part of its investigation into whether Jacobson engaged in an unapproved outside business activity and converted a Wells Fargo customer’s funds, FINRA sent a request to Jacobson pursuant to FINRA Rule 8210 for the production of information and documents by June 7, 2023. The Rule 8210 Request informed Jacobson that a failure to produce the requested information and documents constitutes a violation of FINRA Rule 8210 exposing him to sanctions, including a bar from the securities industry. To date, Jacobson has not provided the requested information and documents to FINRA. As stated in Jacobson’s communications with FINRA staff on June 7th and 14th, 2023, and by this agreement, Jacobson acknowledges that he received FINRA’s request and will not produce the information or documents requested at any time.
By refusing to provide the information and documents as requested pursuant to FINRA Rule 8210, Jacobson violated FINRA Rules 8210 and 2010.
In accordance with the terms of the AWC, FINRA imposed upon Jacobson a Bar from associating with any FINRA member in all capacities.
Perera 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, Surage Kamal Roshan Perera submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Surage Kamal Roshan Perera, Respondent (FINRA AWC 2023078427601 / July 6, 2023 )
https://www.finra.org/sites/default/files/fda_documents/2023078427601
%20Surage%20Kamal%20Roshan%20Perera%20CRD%204716321%20AWC%20vr.pdf
https://www.finra.org/sites/default/files/fda_documents/2023078427601
%20Surage%20Kamal%20Roshan%20Perera%20CRD%204716321%20AWC%20vr.pdf
The Perera AWC asserts that Perera was first registered in 2003, and from April 2018 through September 2022, he was registered with Aegis Capital Corp. The AWC alleges that:
On September 12, 2022, Aegis filed a Form U5 stating that Perera had voluntarily terminated his association with the firm. Perera is not currently registered or associated with a FINRA member firm. . . .
The AWC alleges in its "Overview" that:
Perera refused to appear for on-the-record testimony in response to a FINRA Rule 8210 request. Therefore, Perera violated FINRA Rules 8210 and 2010.
In response to FINRA's investigation of the allegations in the above-cited Form U5, the AWC alleges in that:
On May 25, 2023, FINRA sent a request to Respondent for on-the-record testimony pursuant to FINRA Rule 8210 in connection with FINRA’s investigation into allegations that Perera had defrauded a customer while he was associated with Aegis. As stated in both his counsel’s phone call with, and email to, FINRA staff on June 9, 2023, and by this agreement, Respondent acknowledges that he received FINRA’s request and will not appear for on-the-record testimony at any time. By refusing to appear for on-the-record testimony as requested pursuant to FINRA Rule 8210, Respondent violated FINRA Rules 8210 and 2010.
In accordance with the terms of the AWC, FINRA imposed upon Perera a Bar from associating with any FINRA member in all capacities.
Caldwell 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, Helen Grace Caldwell submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Helen Grace Caldwell, Respondent (FINRA AWC 2022074603801 / July 6, 2023 )
https://www.finra.org/sites/default/files/fda_documents/2022074603801
%20Helen%20Grace%20Caldwell%20CRD%201957501%20AWC%20vr.pdf
https://www.finra.org/sites/default/files/fda_documents/2022074603801
%20Helen%20Grace%20Caldwell%20CRD%201957501%20AWC%20vr.pdf
The Caldwell AWC asserts that Caldwell was first registered in 1991, and from July 3, 2012 to November 12, 2021, she was registered with Citigroup Global Markets Inc., and, thereafter, from to September 2022, with Wells Fargo Clearing Services. The AWC alleges that:
[O]n August 10, 2022, Citigroup filed an amended Form U5 disclosing that its internal review had concluded that Caldwell “did not adequately disclose her outside business activity, and was soliciting firm clients to invest in her outside business activity, several of whom subsequently made investments.”
. . .
]O]n September 15, 2022, Wells Fargo filed a Form U5 disclosing that Caldwell had been discharged “following an internal review concerning the accuracy of disclosures that [Caldwell] made to the Firm and [Caldwell’s] compliance with the Firm’s Outside Activities and Outside Investment Policy.”
The AWC alleges in its "Overview" that:
Caldwell declined to provide on-the-record testimony as requested pursuant to FINRA Rule 8210, in violation of FINRA Rules 8210 and 2010.
In response to FINRA's investigation of the allegations in the above-cited Form U5, the AWC alleges in that:
On May 17, 2023, in connection with an investigation into the circumstances giving rise to the amended Form U5 filed by Citigroup and the Form U5 filed by Wells Fargo, FINRA requested, pursuant to FINRA Rule 8210, that Caldwell appear for on-the-record testimony. As stated in an email sent by Caldwell’s counsel on June 12, 2023, and by this agreement, Caldwell acknowledges that she received FINRA’s request and will not appear for on-the-record testimony at any time. Therefore, Caldwell violated FINRA Rules 8210 and 2010.
In accordance with the terms of the AWC, FINRA imposed upon Caldwell a Bar from associating with any FINRA member in all capacities.
Bill Singer's Comment
In accordance with its Rule 8210, FINRA demanded that Respondents Jacobson, Perera, and Caldwell cooperate with its investigation.
Respondents didn't comply.
Faced with the non-compliance, FINRA barred the three Respondents.
I take no issue with FINRA's right to demand information or testimonial appearance pursuant to its Rule 8210. I take no issue with requiring an associated person to respond or appeal. More often than not, I take no issue with the imposition of a Bar.
Be that as it may, I take issue with FINRA's somewhat loosey-goosey drafting of the three AWCs at issue. Upfront, I admit that my issue is, at best, a quibble, and, at worst, a bit of overly punctilious grammar policing. Regardless, an inconsistency among the AWCs caught my eye and I present it to you and FINRA for what it's worth.
Failing, Refusing, and Declining
In the "Overview" portions of the three AWCs, it is alleged that [Ed: highlighting added]:
Jacobson violated FINRA Rules 8210 and 2010 by failing to provide information and documents requested pursuant to FINRA Rule 8210 in connection with FINRA’s investigation concerning Jacobson’s alleged conversion of a firm customer’s funds and participation in an unapproved outside business activity.
= = =
Perera refused to appear for on-the-record testimony in response to a FINRA Rule 8210 request. Therefore, Perera violated FINRA Rules 8210 and 2010.
= = =
Caldwell declined to provide on-the-record testimony as requested pursuant to FINRA Rule 8210, in violation of FINRA Rules 8210 and 2010.
Jacobson: From Failing to Refusing
According to the Jacobson AWC, he was Barred for "failing" to provide information and for "refusing to provide the information and documents as requested pursuant to FINRA Rule 8210, Jacobson violated FINRA Rules 8210 and 2010." FINRA presents Jacobson's conduct as a failure and a refusal to provide information.
Perera: Refused
According to the Perera AWC, he was Barred because he "refused to appear" for an OTR. There is no allegation of any "failure" to appear in this AWC. FINRA presents Perera's conduct as a refusal to appear.
Caldwell: Declined
According to the Caldwell AWC, she was Barred because she "declined to provide on-the-record testimony" and subsequently acknowledged that "she will not appear . . ." There is no allegation of any "failure" to appear in this AWC. FINRA presents Caldwell's conduct as a declination to appear.
FINRA Rule 8210: the Language of Failure
In pertinent part, FINRA Rule 8210: Provision of Information and Testimony and Inspection and Copying of Books, states that [Ed: highlighting added]:
(c) Requirement to Comply
No member or person shall fail to provide information or testimony or to permit an inspection and copying of books, records, or accounts pursuant to this Rule.
As such, FINRA's Rule 8210 imposes a requirement to comply with demands for information or testimony under that rule -- and the Rule states that no member or person "shall fail to provide . . ." Consequently, Rule 8210 contemplates a failure to provide as non-compliance. There is no reference to a refusal. There is no reference to declining to cooperate. I didn't write the Rule. FINRA did. Not my words. FINRA is the drafter.
FINRA Rule 9552: the Language of Failure
Speaking of FINRA's words, let's not forget FINRA Rule 9552: Failure to Provide Information or Keep Information Current, which, in part, admonishes as follows [Ed: highlighting added]:
(a) Notice of Suspension of Member, Person Associated with a Member or Person Subject to FINRA's Jurisdiction if Corrective Action is Not Taken
If a member, person associated with a member or person subject to FINRA's jurisdiction fails to provide any information, report, material, data, or testimony requested or required to be filed pursuant to the FINRA By-Laws or FINRA rules, or fails to keep its membership application or supporting documents current, FINRA staff may provide written notice to such member or person specifying the nature of the failure and stating that the failure to take corrective action within 21 days after service of the notice will result in suspension of membership or of association of the person with any member. . . .
FINRA Sanctions Guidelines: the Language of Failure
Finally, FINRA's Sanctions Guidelines includes this section [Ed: highlighting added] :
Failure to Respond, Failure to Respond Truthfully, Providing a Partial but Incomplete Response, or Failure to Respond in a Timely Manner to Requests Made Pursuant to FINRA Rule 8210
at Page 30 of the Sanctions Guidelines at https://www.finra.org/sites/default/files/Sanctions_Guidelines.pdf
On Page 30 of the Sanctions Guidelines there is no use of the word "refusal" or any variation appear; nor do I see a reference to a declination to appear. FINRA imposes sanctions for "failure." Moreover, the "Principal Considerations in Determining Sanctions" consist of three italicized headings [Ed: highlighting added]:
Failure to Respond or Respond Truthfully
Providing a Partial but Incomplete Response
Failure to Respond in a Timely Manner
Providing a Partial but Incomplete Response
Failure to Respond in a Timely Manner
Failure or Refusal or Declination?
On the one hand, FINRA alleges that Jacobson failed to comply and refused to comply. On the other hand, FINRA alleges that Perera refused to comply. On the other, other hand, FINRA alleges that Caldwell declined to provide OTR testimony. Nothing like three-handed regulation!
Unintentionally, FINRA raises an interesting point as to whether the regulator views a difference among failing, refusing, and/or declining to comply with Rule 8210 demands. And if there is no difference, then FINRA ought to ensure that it is not fostering an overly expansive lexicon that injects uncertainty into whether the sanctions imposed on a mere failure to comply should differ from sanctions imposed on a refusal to comply or on those who ever-so-politely decline to comply.
Ultimately, the three AWCs at issue suggest a lack of quality control at FINRA when it comes to ensuring that the regulator says what it means and means what it says. FINRA's rule specifies that a failure to comply with its Rule 8210 demands constitutes non-compliance and may be deemed a violation. Failure is the trigger. Failure is what should be alleged. Failure is what should be found. Failure is what constitutes the basis for the imposition of sanctions.
If I have failed to make my point, so be it. I refuse to write more. I decline to add another word.