A recent FINRA action against a prominent and tenured Wall Street figure was startling not for any lurid details in the complaint or even allegations of especially egregious misconduct, but for what a fundamental -- and easily catchable -- mistake the regulator appears to have uncovered.
Call it the banality of compliance.
Earlier this month, FINRA charged that Allen Holeman, the chief compliance officer at David Lerner Associates and a 50-year veteran of the industry, had failed to disclose a series of IRS liens while in his previous position, heading compliance at Oppenheimer.
FINRA alleges that Holeman "willfully failed to amend" the U4 forms that he filed with the regulator to disclose the tax liens as required, and also falsely completed the annual compliance questionnaire that David Lerner collects from its employees.In an emailed statement, David Lerner sought to distance itself from the alleged misconduct.
FINRA is seeking sanctions against Holeman, including monetary penalties, along with an affirmation that the omission of the lien information on the U4 form was "willful."
David Lerner says that Holeman plans to fight the charges.
"FINRA's allegations against Mr. Holeman relate to issues which arose years before his employment at David Lerner Associates, Inc., and stem from technical, U-4 disclosure/amendment requirements personal to Mr. Holeman," the firm says. "DLA is not alleged to have engaged in any improper conduct."
Holeman did not immediately return a phone message seeking comment, but David Lerner says that he "expects to vigorously defend the allegations."
David Lerner also noted that Holeman, at the firm's request, had updated his U4 form in April 2015 to disclose the tax liens, which dated from 2009 to 2011.
But to some compliance experts, the alleged failure to note the IRS issues in the first place is baffling, particularly for a practiced hand such as Holeman, who began his career in the securities industry in 1966.
"This is like compliance 101. There are very few things that every compliance officer needs to know, and this is certainly one of them," says Bill Singer, a securities attorney who runs BrokeAndBroker Blog.
"Those are all financial disclosure items, and it's probably among the most common things for which individual men and women -- stockbrokers -- are fined and suspended," Singer says. "Frankly it was shocking to see that an individual of his status and stature -- according to the allegations -- had not disclosed the items in FINRA's documents."
Singer points out that he has worked with numerous clients who have run afoul of disclosure issues with FINRA, and in many cases there are mitigating circumstances that can help explain the oversight -- an assurance from a broker's accountant that the issue had been taken care of, say, or mail not getting forwarded after a messy divorce.
But how much could an argument based on mitigating factors benefit an individual such as Holeman?
"If anything they will hold him to a higher standard because he is a veteran compliance officer," Singer says.
Brian Rubin, a partner at the law firm Sutherland, Asbill & Brennan, amplified the point that compliance officers, in general, remain subject to continued scrutiny from federal and industry regulators during a recent online presentation.
"Enforcement actions against compliance officers are alive and well," Rubin says. "Just be aware that despite the niceties that we've heard from both the SEC and FINRA in terms of they aren't targeting compliance officers -- that's probably true, but nonetheless there are every year more than 20 or 30 cases against compliance officers."
Singer also questions David Lerner's role in the case. Singer suggests that the firm, which has had its own brush with regulators and declined to elaborate on its statement, appears either to have overlooked Holeman's tax issues or not thoroughly vetted him when he was brought on board in 2013.
"How does a firm hire a chief compliance officer without being aware that he has a history of multiple tax liens and civil judgments?" Singer questions. "There's something fundamentally wrong here. It just doesn't make any sense."
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