FINRA Election Mirrors Presidential Race?

Bob Much FINRA Board Member

Ex-Bear Stearns Partner Pledges To Make FINRA Great Again

FINRA, aka Financial Industry Regulatory Authority, the SRO that serves as overseer of the securities brokerage industry and broker-dealers at large has completed the election campaign and voting process for electing individuals to its Board and the election winners include a former Bear Stearns partner as well as a current senior exec of hedge fund complex Bridgewater Associates.

Per WSJ-The chief executive officer of a San Francisco investment bank prevailed in a hard-fought election to join the board of Finra, the front-line regulator of stockbrokers, knocking off an incumbent and a well-known challenger who campaigned on the message that rigid oversight is choking small firms.

Bob Muh, the CEO of Sutter Securities Inc. and a former Bear Stearns partner, narrowly defeated three other candidates to win a seat on the board of the Financial Industry Regulatory Authority. He beat the second-place candidate, Stephen Kohn of Lakewood, Colo., by just three votes, according to people familiar with the matter. Robert Keenan, a sitting board member who also upset an incumbent when he won his last election in 2013, placed third. Mark Howells, a broker based in Scottsdale, Ariz., also competed in the race.

Finra, one of the country’s most powerful financial regulators, allows the industry it oversees to elect some of its officers. While Finra isn’t a government agency and ultimately answers to the Securities and Exchange Commission, Congress has sanctioned its role as a standard-setter and rule-enforcer for the brokerage industry.

Finra’s bylaws require that a majority of its 24-member governing board have no industry ties. But Finra reserves three board seats to represent its 3,550 small-firm members. That board structure has fostered the unusual dynamic of candidates campaigning for office at the overseer by vowing to lighten its oversight.

Turnout in the election was about 43%, meaning about 1,500 of Finra’s small-firm members voted, people familiar with the matter said. (For the full WSJ article, click here)

A more colorful take on the above is courtesy of DealBreaker’s Jon Shazar:

t may surprise you (but probably shouldn’t) to learn that there are some people who think FINRA’s doing too good and too thorough a job regulating broker-dealers. That it’s really nobody’s business if a broker levies an unspoken lap dance fee. That its website is actually too up-to-date and too easy for clients to use to find out about the levying of unspoken lap dance fees. That the problem isn’t FINRA’s habit of whitewashing what broker records are available, but that there are just too many disciplinary actions being taken that require whitewashing. These people are called FINRA members, specifically its 3,550 small-firm members. And because self-regulation is a hilarious carnival of ineptitude and bad optics, these small firms get to elect a representative to FINRA’s board, to represent their interest in going unregulated to the greatest extent possible.

These triennial contests have all the hallmarks of a real political campaign: websites, mudslinging, throw-the-bums-out mentalities. Unsurprisingly, they also look an awful lot like a local Tea Party meeting, with candidate trying to one-up the other in making deregulatory promises they’ll never be able to keep in the face of the 23 other FINRA board members who don’t think it’s a great idea to provocatively antagonize customers, the press and the Securities and Exchange Commission at every turn.

This year, the bum getting thrown out was Robert Keenan, elected three years ago on the platform that the previous bum wasn’t doing enough to get these regulatory pencil pushers off their goddamned backs, and who was felled by the same sword. But the winner—who will get to serve alongside fellow new FINRA director and Bridgewater exec Eileen Murray—wasn’t the most fire-breathing of the candidate. Instead, by a margin of all of three votes out of 1,500 cast, the small folks of FINRA picked a 78-year-old former Bear Stearns, Bob Muh, partner to carry the doomed torch.

Mr. Muh, 78 years old, was seen as a moderate and experienced voice in a campaign in which Mr. Kohn accused Mr. Keenan of playing fast and loose with campaign rules and not pushing back hard enough against regulations that brokers oppose….

“I certainly can’t call it a landslide or a mandate, but I’m delighted I’ll have the chance to convince the independent directors on the board of some the changes that are need for the small firms,” Mr. Muh said in an interview Monday after Finra announced the results.


Finra’s New King Is..


( Finra, the SRO overseeing the broker-dealer universe has turned to a former top Securities and Exchange Commission official, Robert W. Cook, to replace the outgoing Richard Ketchum as chief executive.

The Financial Industry Regulatory Authority Inc. on Monday morning said it had tapped Mr. Cook, 50, the former director of the division of trading and markets for the SEC from 2010 to 2013, to succeed Mr. Ketchum effective in July. Finra’s board of governors is still searching for a chairman to replace Mr. Ketchum and intends to name a new one in the coming months. provides issuers of securities with private placement memorandum services and guidance for ISIN code application steps.

Most recently, Mr. Cook was a partner in the Washington office of Cleary Gottlieb Steen & Hamilton. At Cleary Gottlieb, Mr. Cook focused on the regulation of securities markets and market intermediaries, including broker-dealers, exchanges, alternative trading systems and clearing agencies, according to a statement by Finra.

Mr. Cook also directed the SEC’s staff’s review of equity market structures and its analysis of the so-called “flash crash” of May 2010.

A career securities regulator, Mr. Ketchum has been Finra’s chairman and CEO since 2009. He said last fall he intended to retire.

For the full story, please click here


FINRA Files Fraud Charge Against AZ Muni Broker

muni-fraud-charge-by finra-brokerdealer

Lawson Financial Corporation, CEO Charged With Fraudulent Municipal Bond Sales, Misuse of Customer’s Charitable Trust Funds

Bonds Related to Charter School in Arizona and Two Assisted Living Facilities in Alabama

WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has filed a complaint against Phoenix-based firm, Lawson Financial Corporation, Inc. (LFC), and Robert Lawson, the firm’s President and Chief Executive Officer, charging them with securities fraud in connection with the sale of millions of dollars of municipal revenue bonds to customers. The complaint further charges Robert Lawson and Pamela Lawson, LFC’s Chief Operating Officer, with self-dealing by abusing their positions as co-trustees of a charitable remainder trust and improperly using the trust funds to indirectly prop up the struggling offerings. Based on the transfers of millions of dollars from the charitable remainder trust account, the complaint also charges Robert Lawson with misuse of customer funds.

The municipal revenue bonds at issue in the complaint include: (1) a $10.5 million bond offering in October 2014 for bonds relating to an Arizona charter school as underwritten by LFC and sold to LFC customers, as well as subsequent sales of these bonds to LFC customers in the secondary market; (2) secondary market bond sales to LFC customers in 2015 of earlier-issued municipal revenue bonds relating to the corporate predecessor of the same Arizona charter school; and (3) secondary market sales to LFC customers between January 2013 and July 2015 of earlier-issued municipal revenue bonds concerning two different assisted living facilities in Alabama.

The complaint alleges that Robert Lawson and LFC were aware of financial difficulties faced by the municipal revenue bond conduit borrowers (the charter school in Arizona and the two assisted living facilities in Alabama) and fraudulently hid from LFC customers who purchased the bonds the material facts that the charter school and the two assisted living facilities were under financial stress. The complaint alleges that Robert Lawson and LFC carried out their fraudulent scheme by transferring millions of dollars from a deceased customer’s charitable trust account to parties associated with the conduit borrowers to hide the financial condition of the bond borrowers and the risks posed to the municipal revenue bonds. In particular, the complaint alleges that LFC and Robert Lawson hid from LFC customers who purchased the bonds the material fact that Robert Lawson – in his role as co-trustee of the charitable trust account, and with the knowledge of his wife Pamela Lawson – was improperly transferring millions of dollars of funds from the charitable remainder trust account to various parties associated with the bond borrowers when the borrowers were not able to pay their operating expenses and, for certain of the bonds, were not able to make the required interest payments on the bonds.

The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint. Under FINRA rules, a firm or individual named in a complaint can file a response and request a hearing before a FINRA disciplinary panel. Possible remedies include a fine, censure, suspension or bar from the securities industry, disgorgement of gains associated with the violations and payment of restitution.

Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA’s BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2015, members of the public used this service to conduct 71 million reviews of broker or firm records.

Investors can access BrokerCheck at . Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA’s Disciplinary Actions Online database. Investors can also call FINRA’s Securities Helpline for Seniors at (844) 57-HELPS to speak with a recorded message that will perhaps provide  assistance or to raise concerns about issues they have with their brokerage accounts and investments.

FINRA also administers the largest dispute resolution forum for investors and firms. Most of the time, decisions are handed down in favor of broker-dealers as opposed to customers.For more information, please visit

Who Wants To Be a Compliance Officer?!

compliance-offficer-brokerdealer blog update courtesy of extract from WSJ’s “The Most Thankless Job on Wall Street” by reporter Emily Glazer, with sub title courtesy of our inhouse curator: “Who really wants to be a compliance officer?!”

Those officers on Wall Street in charge of ensuring that traders and other employees stay on the right side of laws and regulations are increasingly in the cross hairs themselves. And, not in the context of traders aiming spitballs at the compliance cops whose job, according to traders and sales/traders is to (i) be annoying by blocking every move, including the one to the restroom (ii) pretend they are cops, because they couldn’t pass the local police dept application exam (iii) have an opinion about the nuance within every email or chat message.

Several recent enforcement actions found compliance officers personally liable for mistakes within their firms. Meanwhile, New York’s principal financial regulator, backed by New York Gov. Andrew Cuomo, wants the power to seek criminal charges against compliance officers in some cases.

Compliance officers are “shaking in their boots,” said Carrie Mandel, a member of recruiter Spencer Stuart’s legal, compliance and regulatory practice. She is among a number of recruiters, lawyers and executives who say the heightened accountability is driving experienced people to be more cautious about the profession and making it difficult for banks to find replacements.

Around three dozen senior bank-compliance executives left their jobs in 2015, three times the number of a year earlier, said Daniel Solo, a managing director at recruiter Sheffield Haworth. Most of those were in positions overseeing anti-money laundering or financial crime, he said.


Compliance officers say they feel unfairly singled out. ​

“It’s easier for firms to give up their compliance officer, because what are they going to do, give up the CEO?” asked a compliance officer who has worked for large U.S. and foreign banks.

​Since the financial crisis, banks have hired compliance officers by the thousands to address internal issues that led to massive fines. They are also often responsible for getting banks to adapt to the flood of new regulations in recent years.

While industry-wide figures aren’t available, many banks have touted their investment in this area: J.P. Morgan Chase & Co., the country’s biggest bank by assets, said in its annual CEO shareholder letter in April that the firm added 8,000 compliance employees.

When Goldman Sachs Group Inc. recently said it had increased its head count by 8% to 36,800 in 2015, the firm cited compliance as the main area of growth.

To keep reading Emily Glazer’s column, click here

The demand for qualified people is driving up salaries, with chief compliance officers at some large banks earning more than $2 million a year, according to recruiters and compliance executives. Specialists in anti-money laundering executives can earn more than $600,000.

Regulators are also focusing on who the compliance executives report to. The Office of the Comptroller of the Currency recently told some big banks that it doesn’t want the compliance officers to report to executives who run businesses directly, people familiar with the matter said.

The idea is to give compliance officers more independence from those executives who help set policies and manage people in the field.

At J.P. Morgan, the chief compliance officer may begin reporting this year to the chief risk officer or another executive, instead of the chief operating officer, people familiar with the matter said.

Regulators increasingly want to make sure compliance officers aren’t merely rubber-stamping bank decisions and that there are penalties in place when the executives willfully overlook bad behavior or fail to see it through monitoring systems they have signed off on.

In a November speech before the National Society of Compliance Professionals, Andrew Ceresney, director of the SEC’s Enforcement Division, said the agency sees itself as being on the same side as compliance officials in terms of being watchdogs for potential wrongdoing.

He said he was aware of the concern within the industry over the recent enforcement actions but stressed that the agency brought cases “only when the conduct crossed a clear line.”

In April 2015, the SEC fined  Bartholomew A. Battista, chief compliance officer at BlackRock Advisors LLC, $60,000 for failing to report a conflict of interest involving one of the firm’s executives, according to the SEC. The executive invested $50 million of his money in a family-owned energy company, which became a joint venture with another company that was a major holding in a fund he managed, an arrangement the SEC said was a breach of fiduciary duty. Mr. Battista was aware of the conflict and didn’t report it. provides the global financial industry’s most comprehensive database of broker-dealers and regulated bankers operating in more than 30 countries throughout the free world

The penalty was the agency’s first under a 2003 rule allowing it to hold compliance officers liable for such mistakes. Mr. Battista and BlackRock neither admitted nor denied wrongdoing.

That case, along with a similar action in June involving another firm that the SEC disclosed, prompted then-SEC commissioner Daniel Gallagher to write the only dissent of an enforcement action in his four-year tenure.

Mr. Gallagher, a Republican, wrote that the agency “should strive to avoid the perverse incentives that will naturally flow” from targeting the officers who are on the front lines in preventing wrongdoing. He said the SEC “seems to be cutting off the noses of [chief compliance officers] to spite its face.” Mr. Gallagher left the agency in October. ​

Other regulators, including the Financial Industry Regulatory Authority and the Treasury Department’s Financial Crimes Enforcement Network, have taken actions against compliance officers in the last two years.

In response, some executives are increasingly seeking their own lawyers, asking for more protection in employee contracts and requesting banks pay for liability insurance coverage, said Richard Marshall, a partner at Katten Muchin Rosenman LLP who has represented compliance officers.

The issue could come to a head soon.

The proposed rules by New York’s Department of Financial Services, which regulates some of the world’s largest banks, would require compliance officers to certify bank systems for monitoring suspicious transactions that violate U.S. economic sanctions and other rules.

Broker-Dealer Cantor Fitz Hit With Massive Fine by FINRA

finra cantor fitzgerald fine

The Financial Industry Regulatory Authority (FINRA) has fined Cantor Fitzgerald $6 million and ordered it to pay $1.3 million for commissions, plus interest, it received from selling billions of unregistered microcap shares in violation of federal law in 2011 and 2012.


Jarred Kessler, Former Head of Equities for Cantor Fitzgerald

In addition, FINRA suspended Jarred Kessler, executive managing director of equity capital markets, for three months in his principal role at the firm and fined him $35,000 for supervisory failures, while equity trader Joseph Ludovico was suspended for two months and fined $25,000. The suspension is a moot point, as Kessler resigned from his role as head of equities for global broker Cantor last week. The regulator also sanctioned Cantor for not having adequate supervisory or anti-money laundering programs to detect “red flags” or suspicious activity tied to its microcap activity.

“If a broker-dealer is looking to increase its revenues by expanding a high-risk business line, the firm and its supervisors must tailor their supervision to the risks associated with those businesses. This is especially true when the new business involves the mass liquidation of microcap securities, which presents overwhelming risks of fraud and investor harm,” said Brad Bennett, FINRA’s executive vice president and chief of enforcement, in a statement.

“FINRA has no tolerance for firms and business executives who choose to engage in this business without robust systems designed to ensure that they do not become participants in illegal, unregistered distributions,” Bennett said.

In settling this matter, Cantor Fitzgerald neither admitted nor denied the charges, though it did consent to FINRA’s findings.

According to FINRA, the broker-dealer did not sufficiently guide or train employees in the sale of billions of thinly traded microcap shares. Furthermore, it did not put into place an anti-money laundering program to detect patterns of potentially suspicious money laundering activity related to these sales.

Kessler, it says, knew that the expanding microcap business “posed unique challenges and was generating an increasing number of regulatory inquiries, but nonetheless delegated his supervisory responsibilities to a central review group without taking sufficient steps to investigate the adequacy of their efforts.”

Kessler resigned from the firm last week, ending a 5-year stint as head of equities. Cantor Fitzgerald declined to comment on the matter.

Following his departure, Kessler’s responsibilities will be handled by members of Cantor Fitzgerald’s executive management for equities Adam Mattessich, Darren Taube, and Peter Cecchini, according to a person with knowledge of the move, who asked not to be identified discussing a private matter. An external spokesman for the investment bank at Powerscourt in London didn’t return phone calls requesting comment about the replacements.

Cantor Fitzgerald’s Howard Lutnick hired Kessler in January 2011 as part of a push to transform the company from a bond broker into a full-service investment bank. Kessler, who joined from Credit Suisse Group AG, previously held roles with Morgan Stanley and Goldman Sachs Group Inc.

Cantor has offices in more than 30 locations globally and employs about 1,600 people.

For the Bloomberg LP rendition of the story, please click here