Securities Industry Commentator by Bill Singer Esq

August 10, 2020
In a FINRA arbitration, Merrill Lynch sued a former employee claiming, in part, misappropriation of trade secrets and unfair competition. Merrill sought compensatory damages and at least $3.285 million plus interest on the employee's Promissory Note. In a stunning rebuke, the FINRA arbitrators ordered Merrill it to pay the former employee $476,500 in compensatory damages; $288,734 in attorneys' fees pursuant to the parties' contractual agreements; $22,408.67 in costs; and allowed the employee to retain the full balance of the Note. Was the Note merely transitional compensation or the payment for the employee's book of business? So . . . comes tax time, how the hell does the employee file? Is the award a capital gain? Is it ordinary income? 

FINRA Announces Results of Governor Elections / Firms Elect Wendy Lanton as Small Firm Governor, Re-Elect Jim Nagengast as Large Firm Governor (FINRA Release)
As set forth in part in the FINRA Release:

FINRA announced today the results of its election of two Governors to its Board of Governors. At today's Annual Meeting of FINRA firms, small firms elected Wendy Lanton, Chief Operations/Compliance Officer, Lantern Investments, Inc., as a Small Firm Governor. Large firms re-elected Jim Nagengast, Chief Executive Officer (CEO) of Securities America Financial Corporation Inc. and President of Securities America Inc., as a Large Firm Governor.

Bill Singer's Comment: In recent years, FINRA's Board of Governors has disenfranchised its Small Firm community through under-representation on the overall Board and also on the Standing Committees. Worse, the Board has failed to discharge is role in reining in FINRA's runaway expenses and costs, and has proven inept in reversing the seemingly inexorable loss of member firms. Although candidates for Governors always talk the talk, once elected, they tend to fail to walk the walk. For the nearly three decades of my active involvement in contested NASD/FINRA Board elections, the promises made were never kept. Instead of industry reform, too many Governors used their position to further their business interests or to attempt to deflect regulatory investigations. Once elected, even the most firebrand of reformers often succumbed to the Board's peer pressure. Worse, far too many Governors merely saw their roles as collecting an annual paycheck and not rocking the boat in deference to Wall Street's powerful interests. 

It was with great sadness that I learned that Small Firm Governor Stephen Kohn lost his bid for re-election. Unlike any current sitting Governors and unlike the overwhelming majority of his predecessors, Stephen made the effort and kept his promises -- he spoke up on behalf of the industry's wholly disenfranchised associated persons and on behalf of the beleaguered FINRA Small Firm community. Kohn kept his word, and fought the good fight for associated persons and Small Firms after his 2017 election. Without question, he had earned a second term. In these horrific times of pandemic, the loss of Governor Kohn's advocacy on the FINRA Board is devastating.

That being said, I have heard many good things about the newly elected Small Firm Governor Wendy Lanton. I wish her well. As one of the founders of the FINRA contested election process, I passionately support the nomination-by-petition process and always respect the outcome of a fair election. It is now time for Wendy Lanton to take the baton from Stephen Kohn and run with it.

As the FINRA community fends off the deleterious impact of the COVID crisis and as it will inevitably try to navigate the treacherous waters of 2021, we are in the hands of a particularly unimpressive Board of Governors. One would think that service as a Governor on a Wall Street regulator would not permit dual or multiples services as Director or Governor on other entities. Inexplicably, FINRA's By-Laws impose no such outside business activity restriction on its sitting Governors -- or even on its Chair! Even more troubling, a number of Governors are listed as having the status of "Former" or "retired," which means that they are not quite on the field with the rest of us but sitting in the stands. It's a nice view. It's just not the same as being a player in the game. 

With the exception of newly-elected Governor Lanton, I will not support the re-election of any current FINRA Governor, appointed or elected. I urge all FINRA member firms to purge the present Board through upcoming elections and via petitions to the FINRA Nominating Committee. Similarly, I would urge the implementation of a one-term limit on future Board service, and a prohibition against multiple service on other boards. 

Finally, I note that less than half of FINRA's Small Firm members bothered to vote in the election. Yes, there is COVID. Yes, there is financial devastation. Yes, most of you don't really give a crap about such nonsense during such dire times. Then again, if you don't care, who will? If you don't vote, then your vote is meaningless. It is said that the public always gets the politicians it deserves. Perhaps, the FINRA Small Firm community is owed nothing more.
Michael Bressman, formerly of FCG Advisors and FCG Wealth Management was named in an Indictment filed in the United States District Court for the District of Massachusetts and then had his case transferred to the United States District Court for New Jersey. Bressman pled guilty to one count of securities fraud and one count of investment advisor fraud, and he was sentenced to two years in prison plus 18 months of supervised release, and he was ordered to pay $793,680 in restitution and to forfeit $793,680. As alleged in part in the DOJ Release:

Bressman misused his access to an omnibus or "allocation" account to obtain nearly $800,000 in illicit trading profits over a six-year period ending in February 2018. He used the allocation account to place trades and cherry-picked profitable trades, which he then transferred to his own account and the account of family members, while placing unprofitable trades in other customers' accounts.

FINRA Imposes Fine and Suspension for Rep's Willful Nondisclosure of Tax Liens
In the Matter of Steven Michael Voce, Respondent (FINRA AWC 2019064184001)

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, Steven Michael Voce submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that JSteven Michael Voce entered the industry in 2000 and from May 4, 2018 through Octovber 24, 2019, he was associated with FINRA member firm G. W. Sherwold Associates, Inc.. The AWC alleges that Steven Michael Voce "does not have any disciplinary history with the Securities and Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization." In accordance with the terms of the AWC, FINRA found that Voce had willfully violated Article V, Section 2(c) of
FINRA's By-Laws and FINRA Rules 1122 and 2010; and the self regulator imposed upon him a $5,000 fine and an four-month suspension from association with any FINRA member in all capacities. The AWC contains this paragraph:

Respondent understands that this settlement includes findings that he willfully omitted to state a material fact and willfully misrepresented material facts on a Form U4, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, the omission and misrepresentations make him subject to a statutory disqualification with respect to association with a member. 

As alleged in part in the AWC: 

On December 7, 2014, the IRS filed a tax lien against Voce for $213,258. On July 17, 2015 and November 10, 2015, the State of California filed two tax liens against Voce for $70,992 and $22,307, respectively. Voce received notice of the three liens shortly after they were filed. Voce failed to amend his Form U4 to report the three liens. In addition, Voce filed two Form U4 Amendments that were inaccurate regarding the IRS tax liens. Specifically, on June 12, 2015 and June 16, 2015, Voce filed Form U4 Amendments that did not disclose the IRS tax liens, which was unsatisfied at the time of the amendments. Accordingly, Voce willfully failed to disclose three reportable events on his Form U4, and filed two Form U4 Amendments that were inaccurate, which constituted material information.