Recently, I was approached by an anti-money laundering associate (“the associate” or “my associate client”) who — while her brokerage firm in New York City was conducting an internal investigation of her for falsely telling her direct supervisor that she (the associate) had passed and/or taken the Series 63 examination at a time when, in fact, she had not — voluntarily had quit her employment with the brokerage firm.
Shortly after the associate quit her employment with the brokerage firm, the brokerage firm had completed and filed, with securities regulators, a Form U-5 (Uniform Termination Notice for Securities Industry Registration) reporting the cessation of the associate’s employment. On the Form U-5, the brokerage firm stated (i) that the associate told her manager that she had completed the Series 63 examination when in fact she had not, and (ii) that, although the associate eventually passed the Series 63 examination, the associate quit her job while the brokerage firm was conducting an internal investigation of her for this misconduct.
The Series 63 examination (the Uniform Securities Agent State Law Examination) is a sixty-question examination administered by The Financial Industry Regulatory Authority, Inc. (“FINRA”). The Series 63 examination assesses the competency of a person employed by a broker or dealer to represent such broker or dealer in the sale or purchase of securities to or from the public within or from the State of New York. New York State requires that salesmen in the securities industry undertake and successfully complete either the Series 63 examination or the Series 66 examination (the Uniform Combined State Law Examination). That is, New York requires that salesmen in the securities industry obtain and maintain either a Series 63 license or a Series 66 license.
Because, in effect, the brokerage firm had alleged on the Form U-5 that the anti-money laundering associate quit her employment with the brokerage firm while the firm was investigating her for violating investment-related statutes, rules or regulations, FINRA recently had dispatched an inquiry letter to the associate asking for a signed, written statement replying to the firm’s allegations.
FINRA made these requests under FINRA Rule 8210, which requires brokers, advisors, and other registered representatives to provide information and records. The associate retained my law firm to represent her in FINRA’s Rule 8210 investigation of her.
I interviewed the associate at length. In addition, I obtained from the associate, and reviewed, all documents relating to the Termination Explanation included in the associate’s Form U-5. In interviewing the associate and reviewing the relevant documents, I discovered that the associate had committed a very serious violation of securities rules.
Specifically, on a single occasion, the associate had orally told her immediate supervisor that she (the associate) had “t[aken] care of” the Series 63 examination when, at that time, the associate had registered to take the Series 63 examination but had not yet taken or passed that examination.
More particularly, (i) in a telephone conversation, the associate’s immediate supervisor, who was then a Vice President in the brokerage firm’s anti-money laundering group in New York City, had asked the associate, “Have you taken the Series 63 exam[ination]?”; (ii) the associate had replied to her immediate supervisor, referring to the Series 63 examination, “I took care of it”; and (iii) — while, as of that date, the associate had registered to take the Series 63 examination — the associate, as of that date, had neither passed nor taken the Series 63 examination.
(Further, a month later, when the associate did, in fact, take the Series 63 examination which she had registered through FINRA to take, the associate narrowly failed the Series 63 examination. Two months after the associate falsely told her supervisor that she’d passed and/or taken the Series 63 examination, the associate (again) took, and passed, that examination.)
By falsely telling her direct supervisor that she (the associate) had passed and/or taken the Series 63 examination at a time when, in fact, she had not, the associate had violated FINRA Rule 2010. FINRA Rule 2010, entitled “Standards of Commercial Honor and Principles of Trade,” states: “A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.”
FINRA’s Sanction Guidelines provide that, for intentional or reckless misrepresentations or omissions of fact by a respondent broker, advisor or other registered representative, (i) the monetary sanction is a fine of $10,000 to $146,000, (ii) in cases “[w]here mitigating factors predominate [FINRA is to] consider suspending [the respondent] individual in any and all capacities for a period of six months to two years,” and (iii) in cases where mitigating factors do not predominate, FINRA is to “[s]trongly consider barring [the respondent] individual” from the securities industry. FINRA, Sanction Guidelines (Apr. 2017). Thus, my associate client was facing harsh penalties for her false representation to her brokerage firm that she’d passed and/or taken the Series 63 examination.
In the written statement to FINRA which I drafted responding to the brokerage firm’s allegations against the anti-money laundering associate, I explained, in meticulous detail, that (i) the associate showed remorse for her ill-advised action, had never been the subject of a customer complaint, had never been disciplined by FINRA, and was demonstrably of good moral character, (ii) the associate’s errant action was isolated, (iii) the associate’s ill-considered action did not result in the potential for monetary or other gain by her, and (iv) neither the brokerage firm’s customers nor the brokerage firm suffered any harm as a consequence of the associate’s action.
To the contrary, my written statement explained, because the anti-money laundering associate had not been employed by the brokerage firm for the purpose of representing the brokerage firm in the sale or purchase of securities to or from the public within or from the State of New York, the associate was not required by law to obtain a Series 63 license, but rather was required to do so only by a newly instituted policy of the brokerage firm.
To put it another way, my written statement on my associate client’s behalf demonstrated that, because the associate had not been a “salesman” within the meaning of the New York General Business Law, the associate was not bound by law to obtain a Series 63 license, but instead was required to do so only by a recently instituted practice of the brokerage firm.
Further, my written statement, verified by the associate, replying to FINRA’s inquiry letter set forth at length, among other extenuating circumstances, that (v) the associate did not attempt to conceal her errant action, and did not attempt to lull into inactivity, mislead, deceive or intimidate customers, regulatory authorities, or the brokerage firm, and (vi) the associate bore onerous professional responsibilities, was intimidated by her direct supervisor, suffered from depression and sleep deprivation, and believed (albeit errantly) that her representation to her direct supervisor (that she (the associate) had passed and/or taken the Series 63 examination) was immaterial, and that all of these circumstances heavily contributed to the associate exercising poor judgment.
After reviewing my written statement, sworn to by the associate, responding to FINRA’s inquiry letter, FINRA declined to fine the associate. So, too, FINRA declined to suspend or bar the associate from the securities industry. Rather, FINRA decided to impose no punishment on the associate.
Especially given the gravity of my associate client’s violation of securities rules, this resolution of FINRA’s Rule 8210 investigation of my associate client with no monetary fine and no suspension, bar or other sanction was a greatly favorable result. Indeed, this disposition of FINRA’s Rule 8210 investigation of my associate client with no punishment was the optimal result.
Providentially, and as a result of the exceptional ‘acquittal’ which I obtained for my associate client in FINRA’s investigation, the associate showed prospective employers that she had rehabilitated herself, secured new employment with another financial service firm, and resurrected her career (which had been jeopardized by FINRA’s investigation).
If you are a securities industry professional in the New York City area and FINRA has called you to testify under oath in an on-the-record interview, call Attorney David S. Rich at (212) 209-3972.