Source: http://www.brokeandbroker.com/2858/finra-santos-buch-/
Timestamp: 2019-04-19 20:30:21+00:00

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This article updates a February 2015 BrokeAndBroker.com Blog. This UPDATE references a Petition for Writ of Certiorari filed with the United States Supreme Court on behalf of the respondent in the FINRA AWC.
In 1997, a registered representative settled allegations of industry misconduct pertaining to 1994 acts. He took a sit-down for 30 days and paid a fine. Perhaps he didn't care all that much because in 1996, he left the biz, never to return. Fast forward a couple of decades and, lo and behold, that former respondent does care because he finds the allegations against him permanently archived online. He sues. How did it turn out? Read below.
Alan M. Santos-Buch (Registered Representative, South Norwalk, Connecticut) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined &dollar;10,000 and suspended from association with any NASD member in any capacity for 30 days. Without admitting or denying the allegations, Santos-Buch consented to the described sanctions and to the entry of findings that he signed and delivered to a public customer a memorandum that stated that the customer's account would be guaranteed against losses. The findings also stated that Santos-Buch stated to the same customer that they shared an investment relationship which allocated financial responsibility for certain changes in the value of the account to him under certain circumstances.
By way of recap, NASD conducted an investigation of Santos-Buch that focused on a now 21-year-old allegation that the registered person allegedly guaranteed a customer against losses. The investigation and AWC largely took place about 18 years ago. The sanctions imposed were a &dollar;10,000 fine and a 30-day suspension.
When Santos-Buch entered into his 1997 settlement with NASD, he argues that he had believed that he had consented to NASD publishing one, and only one, Notice to Members about his AWC. It was, to his understanding, a one-and-done event. Pointedly, Santos-Buch asserts that in 1997, NASD did not provide for a permanent, ongoing disclosure of his disciplinary history. Moreover, once an individual ceased being associated with an NASD member firm, Santos-Buch asserts that the public was not provided with further access to that respondent's disciplinary history. Notably, Santos-Buch was last registered with an NASD member firm in 1996 -- that's 19 years ago!
While it was NASD's policy to generally publish a one-time-only "squib" of its AWCs in 1997, the Internet was only in its infancy. As such, even if the monthly notices were generally printed on hard copy and disseminated in that form, the transition to what is now the Digital Age was coming into place. Although Santos-Buch's assertions are hard to refute, it is similarly difficult to discern any promise by NASD to not archive its content in digital form and/or online. For many of us, we just never quite saw the flood of online disclosure until, like a tsunami, it was too late and it was upon us.
In 2000, the SEC authorized the Central Registration Depositiory ("CRD") to extend the provision of disciplinary histories to a period of two years.
In 2007, FINRA comes into existence.
In 2009, FINRA Rule 8312 extended disclosures of regulatory actions to a status of permanent availability. Consequently, Santos-Buch's AWC is now available via FINRA's BrokerCheck website and other SRO databases. Ouch!
(1) Except as otherwise provided in paragraph (d) below, FINRA shall release the information specified in subparagraph (2) below for inquiries regarding a current or former BrokerCheck Firm, a person currently associated with a BrokerCheck Firm, or a person who was associated with a BrokerCheck Firm within the preceding ten years.
(G) Historic Complaints (i.e., the information last reported on Registration Forms relating to customer complaints that are more than two (2) years old and that have not been settled or adjudicated, and customer complaints, arbitrations or litigations that have been settled for an amount less than &dollar;10,000 prior to May 18, 2009 or an amount less than &dollar;15,000 on or after May 18, 2009 and are no longer reported on a Registration Form), provided that any such matter became a Historic Complaint on or after August 16, 1999; and(H) the name and succession history for current or former BrokerCheck Firms.
(D) information as to qualifications examinations passed by the person and date passed. FINRA will not release information regarding examination scores or failed examinations.
(iii) any associated person of a BrokerCheck Firm or person formerly associated with a BrokerCheck Firm for whom a BrokerCheck report is available.
(A) If FINRA determines that the written notice and supporting documentation submitted by the eligible party is sufficient to update, modify or remove the information that is the subject of the request, FINRA will make the appropriate change. If the written notice and supporting documentation do not include sufficient information upon which FINRA can make a determination, FINRA, under most circumstances, will contact the entity that reported the disputed information (the "reporting entity") to the CRD system and request that the reporting entity verify that the information, as disclosed through BrokerCheck, is accurate in content and presentation. If a reporting entity other than FINRA is involved, FINRA will defer to the reporting entity about whether the information received is accurate. If the reporting entity acknowledges that the information is not accurate, FINRA will update, modify or remove the information, as appropriate, based on the information provided by the reporting entity. If the reporting entity confirms that the information is accurate in content and presentation or the reporting entity no longer exists or is otherwise unable to verify the accuracy of the information, FINRA will not change the information.
(f) Upon written request, FINRA may provide a compilation of information about FINRA members, subject to terms and conditions established by FINRA and after execution of a licensing agreement prepared by FINRA. FINRA may charge commercial users of such information reasonable fees as determined by FINRA. Such compilations shall consist solely of information selected by FINRA from Forms BD and BDW and shall be limited to information that is otherwise publicly available from the SEC.
.01 Availability and Format of Information Regarding Persons Associated with a Member Prior to 1999. Certain types of information about some persons formerly associated with a member, but who have not been associated with a member since January 1, 1999, may not be available through BrokerCheck. Types of information that may be unavailable for these persons may include the following: administrative information (e.g., employment and registration history) and information as to qualifications examinations. In addition, FINRA may release a composite report that includes information from multiple Registration Forms for such persons.
(f) a dispute that involves information contained in the CRD system that is not disclosed through BrokerCheck.
All of which brings us back to a very unhappy Santos-Buch, who asserts that FINRA has no right to permanently display his AWC because the rules that now permit such publication were not in effect at the time of his 1997 settlement. To some extent, he argues an inappropriate ex post facto application by a regulator that didn't exist.
And damages for both the breach of contract and invasion of privacy.
monetary damages were barred by FINRA's immunity to suits for damages when acting in a regulatory capacity.
On December 18, 1998, the NASDR submitted a proposal to make a portion of the CRD's registration information available on the Internet. The SEC approved the proposal, and on August 16, 1999, the NASDR made certain BrokerCheck information available on the Internet. To obtain BrokerCheck information one must go to FINRA's website, submit an information request form, and agree to FINRA's terms of service. . . .
Originally, the CRD did not provide access to information of people who were no longer associated with an NASD member firm. On February 7, 2000, however, the SEC approved an amendment to IM 8310-2 that allowed the CRD to include disciplinary information for individuals who had been associated with a member firm within the prior two years. Because Santos-Buch had not been associated with a member firm in four years, his disciplinary information was not initially included in the CRD.
In 2009, FINRA proposed and the SEC approved an amendment to FINRA Rule 8312. The rule provided that "Final Regulatory Actions,"as defined by U4 registration forms, for people who were formerly associated with a member firm would become permanently available. Under the U4 registration form, Santos-Buch's AWC is a final regulatory action. Thus, information regarding Santos-Buch's AWC became available on the BrokerCheck website. In addition to BrokerCheck and FINRA's Final Disciplinary Action online database, FINRA has also created a WebFile that includes Santos-Buch's disciplinary action as a searchable PDF. .
Next, Santos-Buch alleges a constitutionally vested interest in his reputation under the "stigma-plus" test This argument also fails. First, SantosBuch has not satisfied the "stigma-plus" test because he is not a government employee. Second, relying on Valmonte v. Bane, Santos-Buch argues that public disclosure of his disciplinary action places an undue burden on his employment prospects and injures his reputation. In Valmonte, however, the court held that "Valmonte is not going to be refused employment because of her reputation; she will be refused employment simply because her inclusion on the list results in an added burden on employers who will therefore be reluctant to hire her." But public disclosure of Santos-Buch's disciplinary action places no undue burden on employers. Instead, it reveals to potential clients that Santos-Buch has previously violated a fair practice rule. As such, Santos-Buch has no vested due process interests and raises no "substantial constitutional questions" that would allow him to avoid exhausting the administrative remedies made available to aggrieved parties under the Exchange Act. . .
Santos-Buch appealed the SDNY's grant of FINRA's Motion to Dismiss to the United States Court of Appeals for the Second Circuit ("2Cir"), which affirmed SDNY. Concurring with the lower court, 2Cir held that challenges to FINRA's rules, such as those set forth by Santos-Buch, must proceed exclusively before the SEC and would not be properly before a court unless Santos-Buch could prove that the SEC lacked power to grant him effective relief.
statute, see 15 U.S.C. § 78s(g)(1) ("Every [SRO] shall comply with . . . its own rules."), we have held that there is no implied private right of action to enforce this statutory obligation, see Desiderio, 191 F.3d at 208.
In addressing Santos-Buch's claims for monetary relief, 2Cir found that as an SRO, FINRA and its officer were entitled to absolute immunity from the private damages sought in connection with what was deemed the discharge of regulator responsibilities.
A fascinating battle. It's hard not to feel some sympathy for Santos-Buch, particularly when you consider that his underlying misconduct consisted of guaranteeing against losses, not the worst of all Wall Street sins. Similarly, given that he has been out of the business since 1996 and virtually all of the online disclosure came after that date, you have to wonder whether there was an unfair dragging of the disclosure of his case into a very wide net.
That being said, there are also two points in FINRA's favor. One, the advent of newer technology does not necessarily come with a promise that it will not be adapted to update legacy systems. Just think about the transition from vinyl to tape to CD to DVD to digital download to streaming. A second point in FINRA's favor is that it expanded its online disclosure in response to a storm of public and political protest about the relatively hidden nature of its prior protocol.
In the end, it's a balancing act between Santos-Buch's expectations and FINRA's obligations. Personally, I don't like the outcome in this case but I do understand the merits. Perhaps this case will serve as a warning for other future respondents about the impact and ramification of settling with FINRA rather than fully contesting the case.
The BrokeAndBroker.com Blog has recently obtained a copy of the Petition for a Writ of Certiorari filed in Alan Santos-Buch, Petitioner, v. Financial Industry Regulatory Authority, Inc., Respondent (Supreme Court of the United States). Regardless of where you stand on the question presented, I urge all serious industry participants to read this articulate Petition, which clearly sets forth the salient points in the debate over the efficacy and limits of Wall Street self-regulation.
Whether FINRA's performance of its responsibilities in disciplining members and associated persons and disclosing disciplinary information about them to the public is subject to the restraints of the due process clause of the United States Constitution, Fifth Amendment.
If FINRA were considered a state actor, at minimum Santos-Buch's due process claims seeking declaratory and injunctive relief to terminate the wrongful website publication would proceed since neither sovereign immunity (Alden v. Maine, 527 U.S. 706, 757 (1999)) nor common law absolute immunity (Bolin v. Story, 225 F.3d 1234, 1242 (11th Cir. 2000); Tarter v. Hury, 646 F.2d 1010, 1012 (5th Cir.1981)) bars non-monetary claims.
The Second Circuit, however, affi rmed the dismissal of Santos-Buch's due process claims for declaratory and injunctive relief aimed at terminating FINRA's wrongful "proactive" publication of the 17-year old disciplinary action on its website.
The Second Circuit held that FINRA was not a state actor-i.e., was not sufficiently like the government-to be subjected under a due process theory to Santos-Buch's claims for declaratory and injunctive relief terminating the wrongful website publication.
With respect to Santos-Buch's claims for money damages, the Second Circuit did an about face and found that FINRA was sufficiently like the government that it should be afforded absolute immunity.
In my capacity as a regulatory lawyer, I am intrigued by this claim and the ensuing legal battle. If nothing else, Santos-Buch's legal team has done an exceptional and commendable job for the client. Although my expectation is that the Supreme Court will not grant Cert, I would welcome an airing of many of the issues inherent in this appeal. Stay tuned.

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