Street Legal: A Suspicious Case From FINRA
In July 2008, James I. Black & Company, a Financial Industry Regulatory Authority (FINRA) member firm, and its registered principal, Jess Gove Tucker III, settled a FINRA disciplinary action — without admitting or denying the findings — through the submission of a Letter of Acceptance, Waiver and Consent (AWC). FINRA found that, acting through Tucker, the firm failed to conduct sufficient independent testing on an annual basis of its anti-money laundering (AML) program and an annual AML training course for its personnel. Additionally, FINRA found a failure to “adequately implement an AML compliance program, in that it [the firm] failed to adequately detect, investigate and report potentially suspicious activity.”
Under NASD Conduct Rule 3011: Anti-Money Laundering Compliance Program members must develop and implement a written AML program in accordance with the Bank Secrecy Act, which requires the reporting of “any suspicious transaction.” Following the firm's submission of the AWC, it and Tucker were jointly censured and fined $125,000. The firm was also required to register its personnel for 16 hours of AML training. Tucker was also suspended for three months in principal/supervisory capacities only.
Don't Say What You Mean; Mean What You Say
If you were an attorney defending the clients charged with the specific violation noted in italics above, what would you argue — or would you just toss in the towel and opt for damage control?
Most of you likely think that the respondents were charged with failing to adequately detect, investigate and report suspicious activity. If that's what FINRA wrote, then the regulator would be within its rights to charge the respondents. Problem is, that's not what FINRA wrote. Yeah, I know, you just reread the verbatim charge and think I'm losing it. Well, I'm not mistaken. You missed the critical discrepancy.
If you review the actual charge, FINRA said that there was a failure to adequately detect, investigate and report potentially suspicious activity. Still not seeing it? Perhaps you never noticed that one additional word: “potentially.” As in “potentially” suspicious activity.
Why is that one word such a big deal? Consider this example:
In the State of Absurdity (the 51st State of the Union), doctors are required under law to detect, investigate and report all pregnancies. The medical self-regulatory organization in the State of Absurdity sanctioned Doctor Who for failing to detect, investigate, and report a patient. But she wasn't pregnant when I examined her, the respondent physician complained. The self-regulator agreed, but noted that the patient had the potential to become pregnant, and charged the doctor for not reporting a potentially pregnant patient.
Either you are pregnant or you are not. Something is either suspicious or it's not.
What Did FINRA Say?
What the hell is a potentially suspicious activity, and how does FINRA propose that members detect, investigate and report that phenomenon? Will FINRA promulgate a new “potentially” suspicious activity report to replace the current crop of suspicious activity reports (SARs)? Should we expect the issuance of a new Notice to Members detailing the “red flags” that distinguish between potentially suspicious and suspicious activities? FINRA either published a sloppy decision here or it has interpreted its AML rule to an absurd degree — either alternative is unacceptable.
All these years later, I still hear the admonition of my high school English teacher: Mr. Singer, what were you trying to say here?
My response often started with: “Well, what I meant to say was …”
My teacher's reply, which he had likely used year after year upon such dolts as myself was: Mr. Singer, don't say what you mean, mean what you say. Be more precise with what you write.
That all I have to say on the topic. This column is finished. Or maybe it's potentially finished?
Writer's BIO:
Bill Singer
is the publisher of RRBDLAW.com and BrokeAndBroker.com
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