May 9 As three men who once made a living in the
U.S. securities industry discovered last month, it's not easy to
successfully reverse disciplinary sanctions meted out by Wall
Street's self-watchdog. Penalties are likely to stick, and the
consequences may drag out for years.
The trio - a former broker and two other licensed Wall
Street employees - lost appeals of sanctions that were severe.
Two of them had been thrown out of the industry, while a third
suspended for two years.
In the view of the Financial Industry Regulatory Authority,
the decisions to revoke or suspend were appropriate, in part,
because the alleged wrongdoing - from allegedly lying on
regulatory forms to improperly trading an account - played out
repeatedly over months or years.
While the three facing the sanctions may feel FINRA was too
harsh, the outcome is a reminder to those who make their living
in the securities business that it is best to avoid being at the
mercy of the watchdog in the first place.
"Some mistakes live with us longer than others," said
Bernard Jacques, a Hartford, Connecticut-based employment
lawyer. That is especially true of having a professional license
revoked or suspended, he said.
Indeed, the record shows that reversing or reducing
sanctions on appeal, especially the most severe penalties, is
FINRA's appellate body, the National Adjudicatory Council
(NAC), reviewed sanctions imposed against 37 individuals and
firms from October 2010 through March 2012, according to an
annual study by law firm Sutherland Asbill & Brennan in
Washington. The NAC, which hears appeals filed by parties or
selects decisions to review, upheld or increased sanctions for
about 70 percent, or 26 of them.
Worse still, details of such cases are permanently available
on BrokerCheck, FINRA's free public disclosure database. "It's a
significant hurdle in getting another job," Jacques said.
Here are three lessons to be learned from the stories behind
April's appellate decisions:
*COME CLEAN ABOUT OUTSIDE ACCOUNTS:
Jeff Ng, who worked in a compliance role for
AllianceBernstein Investments Inc, allegedly failed to tell the
firm about four brokerage accounts he had at other firms,
according to an April 24 NAC opinion. Ng, whose job involved
monitoring whether clients' portfolios were in synch with their
investing plans, also did not tell the other firms that he
worked in the securities business. Ng, on one account
application, wrote that he was a "landscaper."
FINRA requires licensed securities professionals to tell
their firms about outside accounts. They must also tell the
outside brokerage where they open the account that they work in
the securities industry. That is because brokerages must monitor
employees' securities transactions - even those employees make
through other firms - to prevent wrongdoing, such as engaging in
risky private securities transactions with customers. Some firms
prohibit employees from having accounts elsewhere.
Ng, of Stamford, Connecticut, was permitted to resign from
AllianceBernstein in 2009, according to the opinion. The NAC
selected his case for review after FINRA hearing officers last
year, imposed a two-year suspension and a $25,000 fine. Ng
argued, unsuccessfully, that FINRA had no jurisdiction over him
because he was not a broker during the alleged offenses. The NAC
disagreed, describing his conduct as "egregious."
Ng and AllianceBernstein did not return calls for a comment.
*DON'T HIDE THE PAST, 36 TIMES
Regulatory problems during the 1980s came back to haunt
Joseph Amundsen in 2011, when FINRA permanently barred him from
the industry for those alleged offenses. He appealed the FINRA
sanction twice, including most recently, to the U.S. Securities
and Exchange Commission.
Amundsen, who entered the business in 2004 as a financial
operations professional, failed to tell FINRA that California
had revoked his accounting license in 1986, according to an
April 18 SEC opinion. Earlier, a court prohibited Amundsen from
practicing before the SEC for allegedly issuing a false company
Amundsen, of Easton, Pennsylvania, later became relicensed
as an accountant and obtained several types of securities
industry licenses. But he did not mention his earlier troubles
in response to questions on a form submitted to FINRA 36
different times through various employers.
Amundsen argued, among other things, that he completed one
form but that FINRA's system automatically filled in others with
the same details.
The NAC, which upheld the bar last year, wrote that
"Amundsen lacks the integrity and fitness" to work in the
securities industry. The SEC upheld the bar and said his failure
to disclose was "egregious."
A person identifying himself as Amundsen in a voicemail
message said he could not comment because he was appealing the
SEC's decision to federal court.
*EXCESSIVE TRADING STANDS OUT:
Taking too many liberties with a new client's account led to
a permanent bar for Alan Davidofsky, a former Oppenheimer broker
in Delray Beach, Florida. The 57-year-old client had
conservative investment goals for a $127,000 account when
Davidofsky became her adviser in 2007. Davidofsky allegedly
recommended a riskier strategy, according to a NAC opinion on
April 26. He then made changes to the client's investment
objectives, which she testified she did not approve, according
to the opinion.
Her account sank 90 percent after a 2008 market dive. What's
more, she paid more than $31,000 in commissions during the
previous 10 months. Davidofsky made 104 trades during that time,
including 90 without the client's permission, according to the
NAC, which selected the case for review. Oppenheimer terminated
Davidofsky for the conduct in 2008 and reimbursed the client
$100,000, according to the opinion. An Oppenheimer spokesman did
not respond to a request for a comment. "Serious sanctions are
needed to protect the investing public," the NAC wrote.
Davidofsky did not return a call requesting a comment.
(Editing by Frank McGurty and Maureen Bavdek)