Dickens once wrote that the “law is an ass.” Today, in America, many people, feeling the burden of intrusive, excessive, yet often ineffective regulatory authority exercised by men and women not elected, express a similar sentiment. They believe the regulator is an “ass.”
One such maverick is a securities industry gadfly who is very critical of the recent enforcement action of a Financial Industry Regulatory Authority (FINRA) rule against a broker who made sports handicapping picks.
Longtime securities attorney Bill Singer complains that regulators missed Bernie Madoff’s gross thievery for years. Indeed, regulators were repeatedly warned about Madoff over many years yet they ignored the warnings. In fact, one person put in writing the suspected violations of Madoff and sent it to the regulators. Still, they didn’t act. He even persuaded an inspector to check Madoff’s books—Madoff raised some suspicions when he was regularly returning 20 percent a year at a time the stock market was crashing—-but the inspector found nothing wrong. It is an amazing story.
But now, Singer, who is also a former regulator, contends that the regulators hammer “a small fry” broker who made pennies from an office betting pool and nothing from a blog.
“This is hypocritical,” says Singer, who once worked for the NASD and has since become a critic of the industry’s self-regulatory system as a longtime private securities attorney. He condemns the recent ruling by FINRA in penalizing broker Nicholas Kayal’s sports betting and outside sports podcasts.
FINRA officials, who I contacted while doing a recent story for the New York Post Sunday business section, defended the decision, which included a fine.
Still, Singer writes in his newsletter commentary the decision is “asinine, inane, moronic, stupid, pandering, insincere, sanctimonious, self-righteous; specious, spurious and glib.” He added that “I don’t know of a securities firm that doesn’t have a football pool or an NCAA brackets contest.”
Still, Kayal’s activities, FINRA officials ruled, violated an outside business activities (OBAs) ban on brokers, officially known as registered reps, under FINRA rule 3270.
A FINRA spokeswoman, Angelita Williams, explained that 3270 “is a long-established rule that makes clear the requirements relating to any employment or business done away from a securities firm.” She didn’t respond to Singer’s charges that the enforcement was excessive and that regulatory actions tend to be biased against the smaller firms and help the large, more politically connected, firms.
The ruling imposed a suspension of 20 business days and a $5,000 fine.
Williams notes that 3270 is a rule that stipulates that no broker working for a firm can earn compensation or have “the reasonable expectation of compensation” from outside the firm.
Still, Singer is unconvinced by FINRA’s actions.
He complains that the penalties levied against Nicholas Kayal, who left ADP Broker-Dealer Inc., were unjust. The decision was technically correct, but ridiculous, Singer contends.
“This is what FINRA wastes its time on?” Singer writes in a recent issue of his securities industry commentary, “Broke and Broker.”
Singer also complains that regulators played golf with Bernie Madoff for years but didn’t take action. It wasn’t a regulatory investigation that brought down Madoff.
In fact, Madoff ultimately surrendered himself and confessed his colossal chicanery after his sons discovered his crimes and insisted that he turn himself over to authorities. The regulators missed Madoff, Singer complains, but came down hard on a “small fry” broker.
However, FINRA officials say Rule 3270 also requires that a “member, in the conduct of its business, must observe high standards of commercial honor and just and equitable principles of trade.” They also note that Kayal agreed to the penalties.
Singer doesn’t contest that Kayal was in violation of a FINRA broker prohibition against engaging in outside business activities. Still, Singer argues the rule is vague; the violations in this case were inconsequential or non-existent.
Kayal never previously had a discipline problem, according to Singer. FINRA charged he earned $350 from his sports picks from August to October 2016. This was an insignificant amount, Singer noted.
Simultaneously, Kayal participated in a startup sports website, doing a podcast.
“Although Kayal,” FINRA wrote in its judgement, “anticipated receiving compensation for this activity, the startup-venture did not ultimately compensate him.”
Here, Singer contends, FINRA’s reasoning becomes bizarre.
“Does uncompensated blogging constitute a business activity? If that’s the case, would Kayal’s writing an Instant Message or sending an email also constitute an OBA (Outside Business Activity)?”
He said the enforcement action was useless.
“Kayal,” Singer argues, “stands accused of the heinous misconduct of being paid about $3 a day to handicap sports. He is also being punished for uncompensated blogging and podcasting about sports. And what has that to do with the regulation of the securities industry?”
