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