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  • Eric Hahn

It's Time for Your Finra Hearing. Do You Know Who Your Arbitrator Is?

Who gets to judge?

The question is critical whenever a tribunal is given wide latitude to make decisions affecting life, liberty or property. But in the case of Financial Industry Regulatory Authority arbitrations -- where the adjudicators have almost unassailable power -- quality control of the judging pool can go wanting. Let's look at an instructive case.

Last week, Wall Street's in-house cops fined St. Petersburg, Florida-based Raymond James Financial Services and Raymond James Associates a total of $17 million for botching the rules meant to deter suspicious transactions by drug lords, penny stock hucksters and other dregs of society.

The two subsidiaries of Raymond James Financial Inc. earned the distinction of paying the biggest Finra fine ever for violating anti-money laundering regulations, known as AML.

It wasn't the first time a Raymond James unit wound up writing a check to Finra for running afoul of AML rules. Only four years ago, the authority slapped Raymond James Financial Services with a $400,000 fine for its poor oversight of the account of a customer who was running a Ponzi scheme. Finra's message in the settlement of that case: Review your procedures and fix them.

At the helm of the anti-money laundering operations for Raymond James & Associates since 2002 was Linda L. Busby, who had been with the firm since 1995. Although neither she nor the subsidiary she worked for was named in the 2012 case, Finra said in its settlement this month that the two AML operations have had a "close affiliation." Raymond James Financial Services "heavily relied upon" Raymond James & Associates to provide AML systems and tools, Finra said.

In this month's settlement, Ms. Busby was suspended for three months and fined $25,000.

In Finra-world, it's unlikely she will ever pay, because the Wall Street self-regulator only expects her to make good on the fine if she wants to get back into the securities business. Busby's lawyer, Andrew W. Sidman, said his client "is enjoying her retirement" these days.

He added that she is "very proud of her many AML accomplishments dating back to 2002."

The two Raymond James units and Busby neither admitted nor denied the charges in their settlements last week with Finra. In a statement, a Raymond James spokesman said the firm has hired new staff, including a new chief AML officer, and taken other steps to better monitor and detect suspicious activity.

While Busby was managing the Raymond James & Associates AML operations, she also was signed up to evaluate investor disputes as a Finra arbitrator. Her regulatory records say she joined the pool of adjudicators on September 4, 2004.

In one case, she and her fellow panelists allowed a broker to expunge a black mark from his records after a settlement took place. It would be the fifth arbitration panel to let him delete a customer complaint.

In another, her panel awarded $183,000 to three investors and had the good sense to deny the broker's request to cleanse his record.

Finra spokeswoman Michelle Ong said that Busby is no longer a Finra arbitrator, but declined to say when she left, or why. Sidman said his client left the pool of arbitrators voluntarily and that she was not under investigation during the periods that she sat on the two panels.

Busby joins a collection of former Finra arbitrators who wound up on the wrong side of securities regulators or law enforcement.

In a column I wrote this time last year, I told the story of a former commissioner for the Washington State Court of Appeals who stepped down because of "acts of judicial misconduct." The former judge, who denied the misconduct charges, had also undergone two years of counseling for voyeurism in order to have a misdemeanor trespass charge dropped.

He did not disclose his history on Finra's required arbitrator disclosure form. Nor did Finra appear to have vetted him: The first item on a Google search of his name and title is a stipulation of his acts of judicial misconduct and an agreement that he wouldn't seek judicial office in any state.

Maybe he couldn't qualify as a judge. But he made the cut as a Finra arbitrator.

Finra in the past has sent the parties in disputes lists of available arbitrators that included people who were dead, according to a Bloomberg report. It also had an arbitrator who told Finra he was a lawyer but turned out not to be a lawyer at all. Reuters reported that he participated in 38 arbitrations.

You don't have to be a lawyer to be a Finra arbitrator, but you're not supposed to say you are one if you aren't.

Investors who have lost money at the hands of their brokers have no choice but to use Finra, because all of us sign away our rights to court when we open an account at a securities firm. And unless we ask for an all-public panel, we can wind up with people from the securities industry judging our cases.

That's bad enough. But shouldn't the people running the dispute forum that we're forced to use be making sure that the adjudicators are who they say they are, and that they aren't disbarred jurists or make-believe lawyers? Or the very same people involved with managing problematic compliance operations?

You be the judge.

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Money Management


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