Financial Industry Regulatory Authority (Finra) is a non-profit organization which, through Congressional authorization, oversees the actions of broker-dealers and 634,000 member brokers who are involved in the securities markets.  When one of its members violates its rules or securities laws, they sanction the firm or individual by imposing fines, disciplinary actions and, if egregious enough, refer cases to the Securities and Exchange Commission or law enforcement (state and federal).  The organization also recently came under scrutiny by Congress for its lack of transparency on how its fines are used and how its executives are compensated.

In a 2013 action against stock brokers and Finra members Talman Harris and William Scholander, Finra made a a claim that the men had received a $350,000 payment (bribe) from Deer Consumer Products (previously listed on NASDAQ) to manipulate the stock price.  In August of the following year, a Finra arbitration panel found that the men had violated the organizations rules and barred them from membership.  The Finra arbitration, whose fairness in has been called into question, was as far as that case went.  Deer Consumer was never charged in any action by the Securities and Exchange Commission nor was government law enforcement engaged in the case.  While the case involving Deer Consumer never went beyond Finra, Harris and Scholander were named in a separate case involving stock manipulation in the Northern District of Ohio.  There, Scholander pleaded guilty (sentenced to 2 years in prison) and Harris was found guilty at trial (sentenced to over 5 years in prison). Harris is appealing his conviction.

Attorney David Siegal (left) with Benjamin Wey in Lower Manhattan

When Finra went after Harris and Scholander in the Deer Consumer case, they also named two non-Finra members in its various complaints.  The two, Robert Newman (an attorney with prior experience at Sullivan Cromwell) and Benjamin Wey (a Wall Street financier who ran New York Global Group (NYGG)), were named as “stock promoters” along with Harris and Scholander.  Wey had been an advisor through NYGG assisting Deer Consumer in its original trading on NASDAQ.   The Finra decision, which was authored by Finra’s National Adjudicatory Council (NAC) member Chris Brummer,  implied that both Newman and Wey were involved in Harris/Scholander’s alleged misconduct.

Neither Wey nor Newman was given an opportunity for a hearing to obtain their side of the story.  In fact, they were never even contacted by Finra.  Wey’s name was mentioned over thirty times in Finra’s decision and Newman’s thirteen.  FINRA lawyers Robert Colby and Alan Lawhead took a position that Finra had not accused Newman or Wey of securities fraud but repeatedly published their unflattering findings on the case.  Wey would end up being indicted on securities fraud charges in September 2015 in a separate set of circumstances.  Since then, all charges against Wey were dropped by the Southern District of New York this past summer. Robert Newman was sued by the SEC in a civil complaint in 2015 on charges listing him as Wey’s “co-conspirator,” a charge also built on Brummer’s Finra decision.  The SEC case was also dropped against both Wey and Newman.

Newman’s attorney, Joanna Hendon, asked Finra to drop her client’s name from its documents citing that “… Newman has no dog in this fight,” referring to Finra’s claims against Tilman/Scholander.  Finra fired back that it would not be amending its complaints to redact the name of Newman.  As Hendon cited in one letter to Finra that, “Mr. Newman does not court publicity,” and the only references to Newman in publications had to do with his association with Gilman/Scholander.  In Wey’s case, he was under the gun to defend himself on other fronts and believed that Finra’s naming him further tainted his ability to do business on Wall Street.

In light of Wey’s recent vindication in the SDNY, he has vowed to seek justice.   In a press release, Wey said “Government agencies were misled by the vindictive NASDAQ, Finra – of which we are not even their damn members within their jurisdiction.” On October 2, 2017, Wey counter-sued Christopher Brummer alleging defamation, misleading law enforcement authorities and damages to Wey’s businesses.”  Through his attorneys,  Wey said he believes Finra’s naming him in its proceedings against Tilman/Scholander led to his federal indictment.  The matter between Wey and Brummer is pending in New York state court.

There is no shortage of critics of Finra within its own membership.  However, does FINRA have the ability or authority to name non-members in complaints it has against its own members?  This case is ugly, but it may prove to define, limit, Finra’s ability to affect the lives of its non-members, of which there are over 330 million in the U.S.

For now, Finra seems to be digging its heels, but so are Wey and Newman.  This should be an interesting case for everyone to follow, whether you are a Finra member or not.