Securities Industry Commentator by Bill Singer Esq

July 26, 2022

Fidelity Brokerage Services LLC filed a FINRA Arbitration Statement of Claim against a former employee citing her alleged misuse of confidential customer information. Then, on a second track, Fidelity chugs into federal court with another lawsuit, which prompted amended complaints and counterclaims, and the addition of a non-FINRA-member-firm. On top of that, the former employee filed her own claims involving alleged age and sex discrimination. What's arbitrable? What's not? Where should all of this get decided? Should one of the litigation trains get stopped in its tracks? 

Reporter Arvelund covers the SkyBridge/Scaramucci crypto mess and raises a number of troubling questions about regulation (or its absence). Wall Street's irrespressible bon vivant, Bill (that's really his first name -- it's on his birth certificate) Singer, that international man of mystery and securities lawyer, pops up in this article behind the disguise of William "Bill" Singer -- which is not what his mother named him but, then again, what lawyer really wants to have the initials of B.S. For now, Singer basks in the glow of his alter ego William.

In the Matter of the Arbitration Between Theresa Irene Stone, et al., Claimants, v. Securities America, Inc., et al., Respondents (FINRA Arbitration Award 21-00097)
A FINRA Arbitration Statement of Claim was filed by Claimants in January 2021. As set forth in part in the FINRA Arbitration Award:

In the Statement of Claim, Claimants asserted the following causes of action against Kerr, Rivera, and Terry: fraud/fraudulent inducement; negligent misrepresentation; breach of contract; breach of contract - intended third-party beneficiary; breach of the covenant of good faith and fair dealing; breach of duty of loyalty; and solicitation of clients. In addition, Claimants asserted the following causes of action against Respondents: misappropriation of trade secrets; interference with contractual relations; quantum meruit/unjust enrichment; civil conspiracy; and joint and several liability. The causes of action relate to the sale of a financial advisory practice in Santa Fe, New Mexico.

To fully appreciate the complex nature of this lawsuit, consider the caption:

Theresa Irene Stone Shawn 
Jeremy Waked
Maestro Global


Securities America, Inc. 
Kathleen Alexandrea Kerr 
Timothy James Rivera 
Jane Terry 

Counter Claimants 
Kathleen Alexandrea Kerr 
Timothy James Rivera 
Jane Terry 


Counter Respondents 
Theresa Irene Stone 
Shawn Jeremy Waked 

Third Party Claimant
Jane Terry 


Third Party Respondents
Raymond James Financial Services, Inc. 
Kirk Edward Bell 

Cutting to the chase, the FINRA Arbitration Panel rendered the following Award:

1. Terry is severally liable for and shall pay to Waked and Stone the sum of $1,589,570.00 in compensatory damages. 

2. Kerr, Rivera, and Terry are jointly and severally liable for and shall pay to Waked and Stone the additional sum of $2,872,473.00 in compensatory damages. 

3. Terry is severally liable for and shall pay to Waked and Stone interest on $1,589,570.00 at the rate of 15% per annum from the date of service of the Award until the Award is paid in full, pursuant to NM Stat § 56-8-4.A(2) (2019). 

4. Kerr, Rivera, and Terry are jointly and severally liable for and shall pay to Waked and Stone interest on $2,872,473.00 at the rate of 15% per annum from the date of service of the Award until the Award is paid in full, pursuant to N.M. Stat. § 56-8-4.A(2) (2019).

5. Securities America is liable for and shall pay to Waked and Stone the sum of $100,000.00 in compensatory damages. 

6. Securities America is liable for and shall pay to Waked and Stone interest on $100,000.00 at the rate of 15% per annum from the date of service of the Award until the Award is paid in full, pursuant to N.M. Stat. § 56-8-4.A(2) (2019). 

7. Terry is liable for and shall pay to Waked and Stone the sum of $1,000,000.00 in punitive damages pursuant to New Mexico law, Green Tree Acceptance, Inc. v. Layton, 108 N.M. 171, 769 P.2d 84 (1989), Sierra Blanca Sales Co. v. Newco Indus., Inc., 88 N.M. 472, 542 P.2d 52 (Ct. App. 1975), and 89 N.M. 187, 548 P.2d 865 (1976). 

8. Kerr, Rivera, and Terry are jointly and severally liable for and shall pay to Waked and Stone the sum of $723,558.90 in attorneys' fees pursuant to Paragraph V.6 of Claimants' Statement of Claim, see Safra Securities, LLC v. Gonzalez 18-2343 (764 Fed.Appx.125 (2019)). 

9. Kerr and Terry are jointly and severally liable for and shall pay to Waked the sum of $250,000.00 in emotional distress damages. 

10.Kerr and Terry are jointly and severally liable for and shall pay to Stone the sum of $250,000.00 in emotional distress damages. 

11.Respondents are jointly and severally liable for and shall pay to Claimants $600.00 to reimburse Claimants for the non-refundable portion of the filing fee previously paid to FINRA Dispute Resolution Services. 

12.The Panel hereby orders Respondents to return in no more than 14 calendar days from the date of service of the Award to Claimants, any and all information, materials, documents, files, or data, in whatever form, and any copies containing, reflecting, or referring to any of Claimants' confidential, proprietary, or trade secret data or information, not independently derived by Respondents. 

13.Kerr, Rivera, and Terry's Counterclaim is denied. 

14.Any and all claims for relief not specifically addressed herein are denied.

Notice of Annual Meeting of FINRA Firms and Election Proxy (FINRA Election Notice)

FINRA will conduct its Annual Meeting of firms on Friday, August 19, 2022, and the purpose of the meeting is to elect an individual to fill one small firm seat on the FINRA Board of Governors. All eligible small firms should submit a proxy, which must be signed by the executive representative of the firm eligible to vote in the election.

Time to clean house at the FINRA Board of Governors

The " Blog" and the "Securities Industry Commentator"
 urge all FINRA Small Firms to vote for:

Stephen A. Kohn, President
DMK Advisors Group, Inc.

Stephen Kohn has been employed in the financial services industry since 1984, to
which he has devoted most of his working life.

Mr. Kohn founded, owned and operated a FINRA small member firm, Stephen A.
Kohn & Associates, Ltd. (SAKL) located in Lakewood, Colorado since 1996. On January 1, 2020 ownership of SAKL was turned over to DMK Advisor Group, Inc. (DMK). He has assumed the role of president of DMK and, will continue as such well into the future.

In 2017, Mr. Kohn was elected by the Small Firm Membership to the FINRA Board
of Governors to represent Small Firm interests and issues at the highest levels. He
served on the Regulatory Policy and Audit Committees.

He has been twice elected to the National Adjudicatory Council (NAC) by FINRA's
small firms, first in 2009 and again in 2014. The NAC is FINRA's appellate division,
hearing appeals to enforcement decisions and other issues.

While on the NAC, Mr. Kohn served on the Sanction Guideline Review and Revision
Sub-Committee. This sub-committee was convened to review the Sanction
Guidelines to ensure that sanctions in appeals that are upheld by the NAC are fair
and appropriate and to recommend revisions as needed. He is also an industry
arbitrator and has served on the District 3 Committee.

Mr. Kohn holds the following securities licenses: Series, 7, 14, 24, 53, 63, 72, 73, 79
and 99. He graduated from C.W. Post College of Long Island University in 1964 with a
BA degree. He has served in the U.S. Coast Guard.
FINRA Small Firm advocate Stephen Kohn is running for the FINRA 2022 Small Firm Governor. Stephen is supported by many reform voices in the FINRA Small Firm community and is endorsed by Bill Singer, Esq., an outspoken critic of regulatory incompetency and the publisher of the "Securities Industry Commentator" and the " Blog." VOTE FOR STEPHEN KOHN!!!!
Michael Alan Stollery, 54, the Chief Executive Officer of Titanium Blockchain Infrastructure Services Inc. ("TBIS") pleaded guilty Friday for his role in a cryptocurrency fraud scheme involving TBIS's initial coin offering (ICO) that raised approximately $21 million from investors in the United States and overseas. As alleged in part in the DOJ Release, Stollery had:

touted TBIS as a cryptocurrency investment opportunity, luring investors to purchase "BARs," the cryptocurrency token or coin offered by TBIS's ICO, through a series of false and misleading statements. Although he was required to do so, Stollery did not register the ICO regarding TBIS's cryptocurrency investment offering with the U.S. Securities and Exchange Commission (SEC), nor did he have a valid exemption from the SEC's registration requirements.

Stollery admitted that, to entice investors, he falsified aspects of TBIS's white papers, which purportedly offered investors and prospective investors an explanation of the cryptocurrency investment offering, including the purpose and technology behind the offering, how the offering was different from other cryptocurrency opportunities, and the prospects for the offering's profitability. Stollery also planted fake client testimonials on TBIS's website and falsely claimed that he had business relationships with the Federal Reserve and dozens of prominent companies to create the false appearance of legitimacy. Stollery further admitted that he did not use the invested money as promised but instead commingled the ICO investors' funds with his personal funds, using at least a portion of the offering proceeds for expenses unrelated to TBIS, such as credit card payments and the payment of bills for Stollery's Hawaii condominium.
Stephen Buyer allegedly used inside information to buy $1.5 million in stocks
In a Complaint filed in the United States District Court for the Southern District of New York, former Indiana Congressman Stephen Buyer was charged with violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder.Related criminal charges were filed in a parallel action. As alleged in part in the SEC Release:

[A]fter leaving Congress in 2011, Buyer formed a consulting firm, the Steve Buyer Group, which provided services to, among other clients, T-Mobile. In March 2018, Buyer attended a golf outing with a T-Mobile executive, from whom he learned about the company's then nonpublic plan to acquire Sprint. Buyer began purchasing Sprint securities the next day, and, ahead of the merger announcement, he acquired a total of $568,000 of Sprint common stock in his own personal accounts, a joint account with his cousin, and an acquaintance's account. After news of the merger leaked in April 2018, Buyer saw an immediate profit of more than $107,000.

In 2019, according to the SEC's complaint, Buyer purchased more than $1 million of Navigant Consulting, Inc. securities ahead of the public announcement that it would be acquired by another one of Buyer's consulting clients, Guidehouse LLP. Buyer again spread the purchases across several accounts, including his own accounts, joint accounts with his wife and son, his wife's personal account, and the same acquaintance's account involved in the Sprint trading. The complaint alleges that, in August 2019, on the day that the Navigant acquisition was publicly announced, Buyer sold nearly all of the shares he had acquired across the various accounts and profited more than $227,000.
In Complaints filed in the United States District Court for the Southern District of New York:
The SEC alleged insider trading charges against nine individuals in connection with three separate alleged schemes. As alleged in part in the SEC Release:

Chief Information Security Officer Tipped Friends

In one action, the SEC alleges that Amit Bhardwaj, the former CISO of Lumentum Holdings Inc., and his friends, Dhirenkumar Patel, Srinivasa Kakkera, Abbas Saeedi, and Ramesh Chitor, traded ahead of two corporate acquisition announcements by Lumentum, thereby generating more than $5.2 million in illicit profits.

The SEC's complaint alleges that, through his work at Lumentum, Bhardwaj learned material nonpublic information (MNPI) about the company's plans to first acquire Coherent, Inc. and later acquire NeoPhotonics Corporation. Based on this MNPI, Bhardwaj allegedly purchased Coherent securities ahead of the January 2021 announcement of Lumentum's agreement to acquire Coherent and tipped his friend Patel, with the understanding that Patel would later share some of his ill-gotten gains. The SEC further alleges that, during October 2021, Bhardwaj shared MNPI about Lumentum's planned acquisition of NeoPhotonics with his friends Kakkera, Saeedi, and Chitor, who then amassed large positions of NeoPhotonics based on Bhardwaj's tips. After the November 2021 announcement of the NeoPhotonics acquisition, Chitor indirectly transferred funds to Bhardwaj's relative in India, as instructed by Bhardwaj.

In addition to the relief described above, the SEC's complaint seeks disgorgement of illicit profits with prejudgment interest from relief defendants Gauri Salwan, the Kakkera Family Trust, All US Tacos Inc., and Janya Saeedi. The case was investigated by Ann Marie Preissler, Joshua Geller, John Rymas, and Simona Suh of the MAU, and by Elzbieta Wraga of the New York Regional Office (NYRO). Ms. Preissler, Mr. Geller, and Ms. Suh will lead the SEC's litigation.

Investment Banker Tipped Friend

In another action, the SEC alleges insider trading by investment banker Brijesh Goel and his friend Akshay Niranjan, who was a foreign exchange trader at a large financial institution. The SEC alleges that the two men, close friends from business school, made more than $275,000 from illegally trading ahead of four acquisition announcements in 2017 that Goel learned about through his employment. The complaint further alleges Niranjan purchased call options on the target companies and later wired Goel $85,000 for Goel's share of the proceeds.

The case was investigated by Andrew Palid, David Makol, and Michele T. Perillo of the MAU, and by Chip Harper of the Boston Regional Office (BRO). Messrs. Harper and Palid along with Amy Burkart from BRO will lead the SEC's litigation.

Former FBI Trainee Tipped Friend

Finally, in a third action, the SEC alleges that Seth Markin, a former FBI trainee, and his friend Brandon Wong made approximately $82,000 and $1.3 million, respectively, from illegally trading ahead of the February 2021 announcement of a tender offer by Merck & Co., Inc., to acquire Pandion Therapeutics, Inc. The SEC's complaint alleges that Markin secretly reviewed the binder of deal documents about the planned tender offer from his then-romantic partner, who worked as an associate for a law firm representing Merck on the deal, traded on the MNPI, and tipped his close friend Wong. The complaint alleges that, after the announcement, Wong bought Markin a Rolex watch to thank him for the tip.

Delray Beach Woman Sentenced To 30 Months In Prison For Her Role In International Boiler Room Conspiracy (DOJ Release)
After pleading guilty to conspiracy to commit wire fraud in the United States District Court for the Middle District of Florida, Tracy Lee Jedlicki, 56, was sentenced to 30 months in prison; and ordered to forfeit $750,000, a 4.01 carat diamond ring, a 11-carat diamond necklace, and a South Florida residence worth more than $2 million; and, further, ordered to pay $3,244,592 in restitution. As alleged in part in the DOJ Release:

[J]edlicki and her coconspirators operated international boiler rooms in Panama and elsewhere.  The boiler rooms used high-pressure sales techniques to defraud individuals who believed they were investing substantial amounts of money in regulated financial products or markets, such as options in commodities and stocks. The majority of the victims targeted by the boiler rooms operated by Jedlicki and her coconspirators were located in Canada, the United Kingdom, Australia and New Zealand.

Jedlicki and her coconspirators then laundered fraud proceeds generated by the boiler rooms through several money laundering rings, to overseas accounts, with the launderers receiving a percentage of the funds they had moved. Jedlicki's duties included, among other tasks, arranging travel for boiler room workers to the boiler room locations, calling victims while posing as an employee of a fake investment firm to set up loading calls for coconspirators operating the boiler rooms, serving as a liaison between the boiler rooms and a money laundering organization, maintaining records of coconspirator wire transfer payments to foreign and domestic bank accounts, and reconciling payments between the boiler rooms and the money laundering organization.

Jedlicki herself received a 2% referral fee for referring victims' funds to a money laundering ring and used the funds to perpetuate the conspiracy and for her own personal enrichment.  Jedlicki and her coconspirators wired or caused to be wired victims' funds in the approximate amount of $3,244,592 to money laundering accounts in furtherance of the wire fraud conspiracy.
As set forth in the 2Cir's Syllabus:

This case presents the question whether a person who submits information about potential securities laws violations to the Securities and Exchange Commission is entitled under Section 21F of the Securities Exchange Act to receive a whistleblower award from the SEC when other federal agencies use that information to help secure a financial settlement with the alleged wrongdoer. On review, we agree with the SEC that  neither the settlements secured by the other agencies nor any investigative or  information-sharing activities undertaken by the SEC with respect to Hong's tip qualifies as a "judicial or administrative action brought by the [SEC]" under Section 21F. 15 U.S.C. § 78u-6. We further decide that the settlements are not "related actions" to any action brought by the SEC. Having so construed the statute, we reject Hong's arguments that he was entitled to an award and that the SEC was obligated to provide him with additional records regarding its investigation into the wrongdoer.

The petition for review is DENIED. The motion to dismiss is DENIED as moot.

Bill Singer's Comment:

The stench that reeks from the abuse of whistleblower Hong is set out in all its shame in this lament from 2Cir:

[W]e are mindful that this decision may strike some as inconsistent with the principal statutory goal of the Program-namely, Congress's desire to incentivize and reward whistleblowers who may risk their reputations and careers to help hold financial institutions responsible for unlawful behavior. But it is not our role to rewrite the limitations on eligibility set forth in the Exchange Act, nor to override the SEC's reasonable interpretations of that statute, in order to ensure that this goal is satisfied in every instance. 

at Pages 28 - 29 of the 2Cir Opinion
In 2020, Health and Wellness Lifestyle Clubs, LLC. ("HWLC") filed a FINRA Arbitration Statement of Claim naming as Respondents Carolyn Valentine and H. Beck, Inc. n/k/a Grove Point Investments, LLC. Valentine is a registered representative with FINRA member firm H. Beck. The arbitration arose from a purportedly failed transaction whereby HWLC sought to buy two country clubs owned by John Rainieri. First, HWLC sued Rainieri and others and the United States District Court for the Northern District of Ohio ("NDOH") granted Rainieri Summary Judgment on the breach of contract claim, which was affirmed by 6Cir, and the parties dismissed all claims without prejudice. Next, HWLC sued Valentine in Ohio State Court and she eventually obtained a jury verdict in her favor. Then the cited FINRA arbitration was docketed. Valentine and H. Beck filed Motions for Preliminary Injunctions to Enjoin the FINRA Arbitration with NDOH, which denied the motions and they appealed to 6Cir. 

In pertinent part, in dismissing the appeal, 6Cir holds that:

That is not the case here. The requests for a declaratory judgment and a permanent injunction, as well as the counterclaims, were not resolved by the denial of the preliminary injunction. Because those claims persist, the district court's denial of the motion for a preliminary injunction was not an appealable final order but an unappealable interlocutory order. 

In response to all this, Valentine leans on the fact that § 16(b) bars review only of interlocutory orders enjoining an arbitration "subject to" to the FAA. According to Valentine, the FINRA arbitration is not subject to the FAA because the FAA only governs arbitrations where there is a written agreement to arbitrate, and no such agreement exists here. 

We disagree. The relevant "agreement" to arbitrate is between Valentine and FINRA, not Valentine and HWLC. Valentine does not dispute that she is a member of FINRA and agreed, by virtue of the FINRA Code, to arbitrate at least certain kinds of disputes with customers pursuant to FINRA Rule 12200. "Numerous courts have held that FINRA Rule 12200 constitutes an enforceable arbitration agreement within the meaning of the FAA." Reading Health Sys. v. Bear Stearns & Co., 900 F.3d 87, 100 n.62 (3d Cir. 2018). And we have previously observed that the NASD code is an "agreement in writing" sufficient to invoke the FAA. Liberte Cap. Grp., LLC v. Capwill, 148 F. App'x 413, 416 (6th Cir. 2005). Because the NASD rules are "substantively equivalent" to the FINRA rules, we treat them the same. See Wilson-Davis & Co., Inc. v. Mirgliotta, 721 F. App'x 425, 428 n.2 (6th Cir. 2018). 

Valentine's argument in effect recasts the merits. The district court disagreed with Valentine's argument that HWLC was not her customer and held that she had "agreed" to arbitrate with it. That decision may have been wrong, and, indeed, we have serious concerns about the soundness of the district court's opinion and the way it tracked, nearly-word-for-word, the proposed findings of fact and conclusions of law submitted by HWLC. Nevertheless, Valentine's argument that HWLC was not actually her customer is irrelevant to whether arbitration under the FINRA Code is covered by the FAA and its provisions regarding appellate jurisdiction. See Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 628 (2009) (stating that jurisdiction over an appeal under the FAA "must be determined by focusing upon the category of order appealed from, rather than upon the strength of the grounds for reversing the order.") (quoting Behrens v. Pelletier, 516 U.S. 299, 311 (1996)). To hold otherwise would mean that any time a party argues that it did not agree to arbitrate, that arbitration is not covered by the FAA. 

Valentine provides no authority suggesting that arbitration under the FINRA Code- whether or not it has rightfully been invoked-is not an arbitration "subject to [the FAA]" within the meaning of § 16(b)(4). The order she appeals, therefore, is both (1) interlocutory and (2) one refusing to enjoin an arbitration subject to the FAA. Section 16(b) bars us from hearing appeals of those orders. We therefore must dismiss this case for lack of jurisdiction, while expressing no opinion on whether Valentine is correct that her claims do not belong in FINRA arbitration.

at Pages 7 - 8 of the 6Cir Opinion
After a jury in the United States District Court for the Southern District of Florida found Jason Van Eman, 44. guilty of conspiracy, wire fraud, and money laundering; he was sentenced to 262 months in prison and ordered to pay $9 million in restitution. As alleged in part in the DOJ Release: 

Van Eman held himself out as a film producer and financier, offering to fund independent motion pictures, Broadway shows, music festivals, and other productions.  Van Eman promised the victims (producers and others seeking financing), that his partner (a co-conspirator named Benjamin McConley) would match any cash that the victims contributed to their projects.  Then, with the combined starting capital (which made the projects more attractive to investors), McConley would apply for and secure financing from financial institutions.

Based on these lies, victims sent over $60 million to accounts controlled by the fraudsters.  Contrary to what Van Eman promised victims, his partner never matched their cash contributions or applied for financing.  Instead, Van Eman and his co-conspirators stole the victims' money by transferring it to their personal and corporate bank accounts, often within days of deposit.  To make the scam more believable, Van Eman and McConley recruited Benjamin Rafael, a bank employee, whose role was to assure victims that their cash contributions had been matched and that their money was secure - neither of which was true.

Van Eman, McConley, and Rafael used the stolen money to purchase luxury automobiles, personal watercraft, real estate, jewelry, home furnishings, designer clothes, hotel accommodations, and private and commercial air travel.  Van Eman used some of the stolen cash to fund movies in which he was cast as an actor.    

Bill Singer's Comment: For a list of Van Eman's acting credits, visit

Dear Ms. Casey and Mr. Auchincloss:

      Thank you for the opportunity to comment on the Strategic Plan Draft for Public Comment ("Draft Plan") of the Financial Accounting Foundation ("FAF").  We share the FAF's commitment to independent, objective standard-setting for financial accounting and reporting.  High quality financial accounting and reporting standards are central to the success of the United States' capital markets.  Accordingly, we write to urge the FAF to approach with care Goal #6: "Engage with stakeholders, regulators, and Congress to determine the appropriate way, if any, for the organization to contribute to future sustainability reporting."[1]  Introducing sustainability standard-setting to the FAF runs the risk of degrading the independence and effectiveness that are the hallmarks of the FAF's two standard-setting boards, the Financial Accounting Standards Board ("FASB") and the Governmental Accounting Standards Board ("GASB").

      The Draft Plan, citing the "growing demand by investors and other users of financial reports for greater consistency and comparability in reporting related to sustainability," pledges "to ensure our organization can constructively contribute, as appropriate, to any future standard-setting relating to sustainability reporting."[2]  Sustainability reporting is at the center of many conversations in corporate, institutional investor, and regulatory circles.  The FAF's interest in these conversations, therefore, is understandable, but should be tempered by an appreciation for the fundamental differences between accounting and sustainability standards.[3]  These differences underpin the argument against the FAF's involvement in sustainability standard-setting.[4]

Accounting and Sustainability Standards Are Fundamentally Different
      Throughout its five decade history, the FAF and the accounting standard-setters it oversees have sought "to establish and improve financial accounting and reporting standards."[5]  As the FAF itself has explained: "If companies . . . just made up numbers to represent their revenues, profits, or spending, the result would be economic chaos.  Investors wouldn't know where to invest."[6]  Standardized financial reporting makes sense of the would-be chaos and provides accurate, objective guidelines for communicating information about the financial condition and operational results of public companies.[7]  When the FAF established the FASB in 1973, it did so to "create and improve financial accounting standards that provide useful information to investors and others who rely on accurate financial information."[8]  Since that time, the main objective of the FAF has been to ensure that the FASB fulfills its mission of establishing and improving high-quality financial accounting and reporting standards.[9]  These standards give investors confidence in financial reporting and make it easier for them to compare financial reports across time periods and companies.[10]  The singular focus of financial reporting-painting an accurate financial picture of a company for investors-lends itself to objective, auditable, quantifiable, and comparable metrics.[11]

       Conversely, sustainability standards are imprecise, inconsistent, and unfocused.  Recent comments on the SEC's proposed climate rule[12] have cited the "incoherent"[13] and highly speculative nature of sustainability reporting and disclosure.[14]  Unlike financial accounting standard-setting, sustainability standard-setting suffers from a dearth of well-researched and established expertise.[15]  Sustainability standards are built on guesswork and data gaps.  Coping with long time horizons, obtaining hard-to-capture data, applying extremely complex modeling, identifying meaningful metrics, and similar challenges stand in the way of consistent, comparable, reliable sustainability reporting. 

      Even the perimeters and parameters of the set of issues that sustainability standards would cover are unclear.  Carefully prepared and audited financial statements provide investors with "the information they need to make decisions about how well an organization or government is managing its resources."[16]  Financial reporting benefits all investors (who by definition share an interest in financial returns), whereas sustainability reporting currently benefits only investors for whom sustainability factors into decision-making.  Sustainability standards are aimed at a broader stakeholder audience with a diversity of objectives, some of which may conflict with one another.  Absent a clear audience or objective, sustainability standards are unbounded in scope and subject matter.  The Consultation Paper on Sustainability Reporting produced by the International Financial Reporting Standards Foundation ("IFRS Foundation") defines "sustainability reporting" as "a catch-all phrase referring to information related to all environmental, social and governance (ESG) matters."[17]  The Commission similarly has noted that " 'ESG' encompasses a wide variety of investments and strategies."[18]  Whatever the topic, it can fit within one of these broad categories.  The FASB Staff Educational Paper on the Intersection of ESG Matters with Financial Accounting Standards notes that "the categorization of topics as environmental, social, or governance is a matter of judgment."[19] That judgment is beset with controversy.

Introducing ESG-Related Standard-Setting Would Undermine the Integrity of Current Accounting Standards and of the FAF as a Guardian of the Independence of those Standards
      The inability to define, let alone produce, accurate and consistent sustainability standards invites subjectivity and political influence. If FAF were to jump into the ESG standard-setting business, it would be drawn into any number of controversial topics.  Debates around ESG standards would make the debates around controversial accounting topics, such as Current Expected Credit Loss ("CECL")[20] and accounting for stock options,[21] look anodyne.  The temptation to resolve ambiguities in a manner that places a thumb on the scale to push capital to politically favored uses will be strong. 

      The FAF has worked hard to protect accounting standard-setting from such political influence.  Indeed, one of the key reasons for the FAF's multi-level structure is that the FAF Trustees can run interference for the FASB and GASB.  The Foundation serves as a cocoon within which the FASB can operate without undue political influence.  FASB's standards are not designed to push capital in politically favored directions.  The FASB Staff Educational Paper on the Intersection of ESG Matters with Financial Accounting Standards reiterates the importance of objectivity and signals to industry that any guidance from the FASB is not intended to influence capital allocation:

Financial accounting standards are not intended to drive behavior in any way, including benefitting one industry or business model over another or spurring businesses to take certain actions.  Instead, financial accounting standards are intended to provide investors and related users with decision-useful, neutral information that faithfully represents an entity's economic activity as a basis for investment and other capital allocation decisions.[22]

The 2021 Message from the FAF Chair and Executive Director notes that "the best financial accounting standards emerge from a process that is inclusive and transparent yet independent," and underscores that despite "near constant-pressure" to tailor accounting standards to serve particular objectives, the strength of the FAF's leadership comes from its integrity as an independent entity.[23]  This rigorous standard-setting and comprehensive review is preserved by the FAF's oversight and strategic counsel which "protect[s] the integrity of the process from undue influence."[24]  

      Entangling the FAF with standard-setting in a highly politicized area will tarnish the integrity the organization has maintained over the last half-century.  The Draft Plan does not specify how it might step into sustainability standard-setting, but others have speculated about what such a step might look like.[25]  The FASB might start writing standards that are not moored to financial materiality.  The FAF instead could set up a special sustainability standard-setting body alongside the FASB and GASB.  Or the FAF could endorse standards from third-party standard-setters. 

      The risks to the FAF from pursuing any of these paths are large.  Not only would taking on sustainability standard-setting divide the FAF's attention, staff, and resources, but it likely would contaminate financial accounting standard-setting.  The FAF's involvement, direct or indirect, in something so subjective would jeopardize the independence and neutrality of the current financial reporting standard-setting process which is so critical to the U.S. capital markets.[26]  We fear that substandard standard-setting practices would bleed over from the more speculative sustainability standard-setting side of the FAF to the financial accounting standard-setting side of the house.  The FAF's attempts to protect the independence of financial accounting standard-setting would be weakened by the inherently political sustainability standard-setting.

      Goal 6 of the Draft Plan highlights the creation of the ISSB and the SEC's proposed rulemaking for climate disclosures by public companies as recent developments that the FAF somehow should mirror.[27]  Yet, this goal does not discuss how doing so could undermine accurate and objective financial reporting, which the FAF uniquely is charged with protecting.[28]  Taking on a new, politically charged initiative would undermine the historic objective of the FAF-its ability to protect the independence of financial accounting standard-setting from political attempts to shape those standards.  The FAF lays out the following vision in its draft strategic plan:

The vision of the Financial Accounting Foundation is that the organization, including the Boards, will be recognized and trusted as the leader in financial accounting and reporting standard setting in the United States, and as a prominent leader and collaborator globally.[29]

A decision to step into the fraught sustainability standard-setting fray, tempting as it may be, would impede achievement of that vision.  For that reason, please consider removing Goal #6 from the Draft Plan.

      We appreciate having the opportunity to comment publicly on the Draft Plan and would be happy to speak with you about the issues we have raised in this letter.



Hester M. Peirce                                                                                            Mark T. Uyeda Commissioner                                                                                                Commissioner

[1] Financial Accounting Foundation, Strategic Plan Draft for Public Comment, at 9 (May 2022),

[2] Id.

[3] Letter from Scott DeViney, CPA, Chair, Financial Management Standards Board, Association of Government Accountants, et al. to Financial Accounting Foundation (June 24, 2022) at 1 (
%20Management%20Standards%20Board%20of%20the%20AGA) (". . . sustainability reporting is a fundamentally different subject matter than financial reporting within historical financial statements and thus we view it as outside the scope of authority of the FASB and the GASB.").

[4] See, e.g., Letter from Richard "Dood" Forrestel, Jr., CPA, Treasurer, Cold Spring Construction Company to Financial Accounting Foundation (May 24, 2022) (
20Construction%20Company) ("My take is sustainability reporting is a slippery slope and should be scoped out of FASB's playing field. That is not to say sustainability per se . . . lacks importance but I see it as having no place in Norwalk. My fear is that FASB's future agenda will be highjacked by non-accountants with their own agenda. Let's stick to our knitting and not delve into places where we don't belong."); Letter from Richard Eckstrom, President, NASACT, et al. to Kathleen L. Casey, Chair, FAF Board of Trustees and John W. Auchincloss, Executive Director, FAF (July 21, 2022) at 3 (
%20the%20National%20Conference%20of%20State%20Legislatures) ("As the purpose of sustainability reporting significantly differs from financial accounting and reporting, we believe Goal #6 is outside the mission of the FAF.").

[5] Financial Accounting Foundation, About The FAF, (last visited July 19, 2022).

[6] Financial Accounting Foundation, The Importance of Generally Accepted Accounting Principles (GAAP), at 0:23 - 0:34, (last visited July 19, 2022).

[7] Financial Accounting Foundation, About GAAP, (last visited July 19, 2022).

[8] Financial Accounting Foundation, 2021 Annual Report, at 6 (March 18, 2022),

[9] Id. at 5.

[10] Financial Accounting Foundation, supra note 6, at 1:11 - 2:00.

[11] See Hester Peirce, Commissioner, SEC, Statement on the IFRS Foundation's Proposed Constitutional Amendments Relating to Sustainability Standards (July 1, 2021),

[12] The Enhancement and Standardization of Climate-Related Disclosures for Investors, Rel. No. 34-94867 (May 9, 2022),

[13] Letter from Benjamin Zycher, Senior Fellow, American Enterprise Institute to the Securities and Exchange Commission (June 17, 2022) at 13-14 ( (describing the deeply speculative nature of aggregate GHG emissions and the infeasibility of a single firm calculating its specific risk in contributing to global warming).

[14] See e.g., Letter from Tom Quaadman, Executive Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce to Vanessa A. Countryman, Secretary, SEC (June 16, 2022) at 3, 15, 38 ( (" . . . the Proposed Rules require untold estimates, assumptions and judgments against the backdrop of significant data limitations and speculative impacts;" " . . . because a great deal of the climate-related risk disclosures that the Proposed Rules mandate are so speculative and uncertain and, in some instances, the requisite information is not available and compliance with the obligations would be unworkable, the current Proposed Rules would fall short of the Commission's goal of increased consistency and comparability of disclosures across public companies;" " . . . much of what the SEC would obligate companies to disclose is more speculative and uncertain than any other disclosures that companies currently make."); Letter from The Business Roundtable to Vanessa Countryman, Secretary, SEC (June 17, 2022) at 1 ( ("The Proposal would also subject registrants to significant liability for disclosures that inherently involve a high degree of uncertainty.").

[15] See Mary Barth, Vice Chair, Board of Trustees, Financial Accounting Foundation, Remarks at the University of Texas Texas ScholarWorks "Special Track Session for the 2nd Annual UT PhD Symposium: Standard Setting, ESG, Climate," (Aug. 16, 2021) at 20:49-28:14,

[16] Financial Accounting Foundation, Accounting Standards, (last visited July 20, 2022).

[17] IFRS Foundation, Consultation Paper on Sustainability Reporting, at 17 n.39 (Sept. 2020),

[18] Press Release, Securities and Exchange Commission, SEC Proposes to Enhance Disclosures by Certain Investment Advisers and Investment Companies About ESG Investment Practices (May 25, 2022), on file at

[19] Financial Accounting Standards Board, FASB Staff Educational Paper: Intersection of Environmental, Social, and Governance Matters with Financial Accounting Standards, at 2 n.1 (March 19, 2021),

[20] See e.g., Arianna Pinello, PhD, CPA, CIA and Ernest Lee Puschaver, CPA, CECL Encounters a "Perfect Storm," CPA Journal (August 2020),; Nicola M. White and David Hood, Loan-Loss Accounting Rule Worked in 2020, But Banks Hate It, Bloomberg Tax (May 20, 2021),

[21] See e.g., Karen Berman and Joe Knight, Expensing Stock Options: The Controversy, Harvard Business Review (August 28, 2009),; Wayne Guay, Expensing Stock Options: Can FASB Prevail?, Knowledge at Wharton (June 2, 2004),

[22] Financial Accounting Standards Board, supra note 19, at 3.  See also Wesley Bricker, Chief Accountant, SEC, Remarks to the Institute of Chartered Accountants in England and Wales: "The intersection of financial reporting and innovation" (June 6, 2018), ("As noted by former SEC Chief Accountant Wes Bricker, "when formulating standards for general purpose financial reporting . . . the FASB [does] not seek to influence the outcome of investor capital allocation decisions or actions taken by management; instead, the boards' design standards that provide better information to inform those decisions and actions.").

[23] Kathleen L. Casey, Chair, Financial Accounting Foundation, and John W. Auchincloss, Executive Director, Financial Accounting Foundation, Message from the FAF Chair and FAF Executive Director (2021),

[24] Financial Accounting Foundation, supra note 8 at 7.

[25] Barth, supra note 15, at 20:49-28:14.

[26] Id.

[27] See Financial Accounting Foundation, supra note 1, at 9.

[28] See Casey and Auchincloss, supra note 23.

[29] See Financial Accounting Foundation, supra note 1, at 4.