In the Matter of the Association of X as a General Securities Representative with The Sponsoring Firm Redacted Decision Notice Pursuant to Section 19(d) Securities Exchange Act of 1934 Decision No. SD07002
Bill Singer's Comment: After years of contentious litigation and appeals, and clear evidence of the SEC's desire as to this application, I frankly find Member Regulation's February 2007 submission to deny the Application as outrageous an abuse of regulatory power as anything I have seen during a quarter of a century on Wall Street's regulatory scene. Everyday, industry RRs and member firms are asked to accept many rules and regulations with which they disagree. To fail to follow such obligations generally results in disciplinary sanctions. At a minimum, FINRA should be bound by the dictates of its overseer (the SEC)--particulary, as here, when the SEC spoke disapprovingly (and with uncharacteristically pointed criticism) of that regulator's prior conduct. The two-month "reevaluation" between February and April 2007 imposed a likely financial and professional hardship upon the applicant and only undermines the credibility of FINRA.
In May 2006, the Securities and Exchange Commission remanded a September 29, 2005 National Adjudicatory Council (“NAC”) decision denying a statutory disqualification application (“MC-400” or “the Application”) that sought to permit X to associate as an investment company products/variable contracts representative with the Sponsoring Firm (“the Firm”). The Commission rejected the NAC’s conclusion not to follow the Commission’s previous decisions in Paul Edward Van Dusen, 47 S.E.C. 668 (1981) and Arthur H. Ross, 50 S.E.C. 1082 (1992).
In November 2006, the Commission denied the Financial Industry Regulatory Authority’s motion for reconsideration of the Commission’s May 2006 remand and instructed the NAC to employ the analysis set forth in Van Dusen and Ross to X’s application on remand.
In light of the Commission’s instructions, a remand subcommittee (“Remand Hearing Panel”) of FINRA’s Statutory Disqualification Committee requested that the parties submit further documentation in support of, or against, the Application for X to re-enter the securities industry. In January 2007, the Firm submitted a letter stating that it continues to support X’s association and proposing newly drafted heightened supervisory procedures. Member Regulation’s first submission on remand, dated February 2007, continued to recommend a denial of the Application. In response to an April 2007 request from the Remand Hearing Panel, however, Member Regulation reevaluated the Application in accordance with the Commission’s instructions regarding Van Dusen and submitted a letter dated April 2007, recommending approval of the Application.
- In April 2007, the Remand Hearing Panel held a hearing on the matter.
- Pursuant to NASD Rule 9524(a)(10), the Remand Hearing Panel submitted its written recommendation to the Statutory Disqualification Committee. In turn, the Statutory Disqualification Committee considered the Remand Hearing Panel’s recommendation and presented a written recommendation to the NAC, in accordance with NASD Rule 9524(b)(1).
- X appeared at the hearing, accompanied by his counsel and by his proposed supervisor. LL and JBK appeared on behalf of FINRA’s Department of Member Regulation (“Member Regulation”).
- The Remand Hearing Panel requested that the parties submit a joint post-hearing letter addressing questions regarding appropriate registrations for X and the Proposed Supervisor and outlining an agreed upon plan of heightened supervision. In May 2007, the parties submitted the requested letter, stating that X must be registered as a general securities representative (Series 7) to be involved in sales of direct participation programs, and that the Proposed Supervisor is qualified to supervise X in that capacity because the Proposed Supervisor is registered as both an investment company products/variable contracts limited principal (Series 26) and a direct participation programs limited principal (Series 39: Accordingly, the Firm revised its Application to request that X be permitted to associate in such capacity). The parties also jointly submitted a newly proposed plan of heightened supervision.