I have been in the financial services business for 23 years, most of that as a portfolio manager. However, over the last few years my attention has turned to helping other professionals deal with regulators. I came under attack in 2002 by an employee of the Texas State Securities Board. At the time, I could not afford complete representation so I was forced to become my own lawyer. It is now 7 years later and I am still dealing with some of the damaged caused by an overzealous, brand new staff attorney - Joe Rotunda (or Joseph Rotunda). I discovered to my horror, that these agencies can say and publish anything they want regardless of its accuracy and you are powerless to get it removed! This is of course in conflict with your due process rights. On a bigger scale, any administrative agency from a local building inspector to the SEC can shut down your business easier than a policeman can pull you over.
A police officer is required to have "reasonable suspicion" to pull you over. Administrative agencies have no such hurdle. They can yank your license and force you into a long and expensive process to get it back. Since they are the investigator, prosecutor and judge it should come as no surprise that their hearing process is little more than a charade.
When the State of Texas couldn't get what they wanted they asked the SEC for help. The found open ears in a staff attorney named Shoshana Thoma-Isgur. Shoshana took it upon herself to call as many of my clients as she could under the guise of an "informal inquiry". However she did everything in her power to cause alarm in the hearts of the unsuspecting people. One is a law professor that was taken aback.
I have since found out, through public records and direct contact with the parties, that Shoshana Thoma-Isgur makes a practice out of ruining reputations. In fact I know of at least one public company that she destroyed. Here is how it works:
The SEC has investigative powers over any suspected violation of securities laws. You would hope these people are supervised but it does not appear so. During an investigation they can call clients, shareholders, suppliers, partners, vendors. In one case Shoshana called a potential employee and scarred him enough to not take the job.
Suppose that during an investigation, the terroristic practices fail to destroy you, they can they take administrative, civil or criminal action. Any and all are cost prohibitive, not to mention the man hour drain. In the end what do they gain? Meanwhile people like Bernie Madoff are out there looting millions and the staff is distracted on bunny trails.
David Disraeli
Austin Texas
Open Government Project
Saturday, June 27, 2009
Dealing with Securities Regulators
If you are in the securities business, you may eventually find yourself dealing with a regulator either randomly or because of a complaint. How you handle this situation could affect your career. Before you respond it is important that you understand the nature of the person you are dealing with. Having dealt with a dozen or so employees of different regulatory bodies (like the SEC, NASD and the Texas Securities Board) I have found a number of consistent themes.
1. Securities regulators are NOT required to have any industry experience and 99% of them don't. Unlike a state board of nursing, medical or other profession which had industry practitioners on their board, securities regulators may know nothing about the actual industry they regulate.
2. State and Federal securities regulators, and specifically staff attorneys took those jobs for a reason. These agencies don't recruit from Harvard Law School, they are forced to pick the leftovers. This is mainly due to budget constraints, however some regulatory employees are seeking power and they know this is the fastest way to get it.
3. Securities regulators ALMOST always have an agenda. This may be a desire to bring actions against industry participants to look good, or they may be jealous, or angry. Unfortunately sometimes they are just plain incompetent.
I have found staff attorneys that are very bright, hard working and talented and others that handing on for dear life because they know that no law firm will ever hire them. The problem is you don't get to pick. Your first contact will probably not be from a staff attorney but an examiner or investigator. Once you understand the animal you are dealing with, you are better prepared to face the challenge. Like most government employees, these folks don't want to do a lot of work, so initially they may be looking to find a reason to leave you alone. However, it is best to be polite, respectful and try to provide them with what they want. You should be prepared for an audit at all times.
One final note: If your instincts tell you that you need an attorney - get one. You are always entitled to that. Of course books and records can be requested without notice and you MUST comply. This issue alone is grounds to take your license.
This blog is not intended to provide legal advice, only a competent attorney may advise you on legal matters.
David Disraeli CFP
1. Securities regulators are NOT required to have any industry experience and 99% of them don't. Unlike a state board of nursing, medical or other profession which had industry practitioners on their board, securities regulators may know nothing about the actual industry they regulate.
2. State and Federal securities regulators, and specifically staff attorneys took those jobs for a reason. These agencies don't recruit from Harvard Law School, they are forced to pick the leftovers. This is mainly due to budget constraints, however some regulatory employees are seeking power and they know this is the fastest way to get it.
3. Securities regulators ALMOST always have an agenda. This may be a desire to bring actions against industry participants to look good, or they may be jealous, or angry. Unfortunately sometimes they are just plain incompetent.
I have found staff attorneys that are very bright, hard working and talented and others that handing on for dear life because they know that no law firm will ever hire them. The problem is you don't get to pick. Your first contact will probably not be from a staff attorney but an examiner or investigator. Once you understand the animal you are dealing with, you are better prepared to face the challenge. Like most government employees, these folks don't want to do a lot of work, so initially they may be looking to find a reason to leave you alone. However, it is best to be polite, respectful and try to provide them with what they want. You should be prepared for an audit at all times.
One final note: If your instincts tell you that you need an attorney - get one. You are always entitled to that. Of course books and records can be requested without notice and you MUST comply. This issue alone is grounds to take your license.
This blog is not intended to provide legal advice, only a competent attorney may advise you on legal matters.
David Disraeli CFP
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