May 9, 2013 / 3:56 PM / 5 years ago

COMPLY-Three cautionary tales on avoiding FINRA's wrath

May 9 (Reuters) - 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 unusual.

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:


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.


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 audit report.

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.


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)

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