The tale of Gina Guzzone is one that would do Franz Kafka proud. All the elements are there — the mazelike system of bureaucratic roadblocks, the surreality and the preoccupation with financial security.
Most of all, though, Guzzone's is a tale of isolation, and her experience speaks to any broker who assumes that his firm is willing or able to look out for his best interests.
In June 2001, Guzzone's story of woe began on an appropriate note, when she was laid off from her brokerage job. (Guzzone did not respond to Rep.'s attempts to interview her for this story; this piece is based on public information in regulatory filings). She remained out of work for 14 months, but was eventually hired by Parker Financial, a brokerage firm based in Nanuet, N.Y.
At this point, she went through the usual start-up process, submitting fingerprints, filling out her Form U4. She also made a fateful assumption — that the firm was reactivating her Series 7 and Series 55 registrations. These registrations can stay idle for up to two years without expiring, so Guzzone figured she had no worries in this area. It would be another year before she found out how wrong she was on this account.
Double Whammy
On Nov. 7, 2002, Guzzone was laid off again when Parker closed her branch office. After nine months working outside the brokerage industry, she caught on with Gagnon Securities on Aug. 1, 2003.
It was here that her story took a sharp turn into Kafka territory. As part of its hiring process, Gagnon checked into Guzzone's registrations only to find that she had none. They had expired in June 2003 because no one had filed paperwork to reactivate them when she was at Parker.
For reasons that we can only guess at (Parker also declined to comment on the record for this story), Parker rehired Guzzone on Aug. 25, 2003, and the next day asked the NASD to grant her a waiver of the requirement to retake the Series 7 and 55 exams.
Parker Financial informed the NASD that it was guilty of an “oversight” and had failed in 2002 to complete the transfer of Guzzone's licenses before her termination. Also, the firm filed Guzzone's fingerprint card late (more than 30 days after the filing of her Form U4), although she had submitted the fingerprint card in a timely fashion.
In short, Guzzone had done nothing wrong, and the firm was prepared to take responsibility for its failing.
However, on Sept. 15, 2003, the NASD Department of Testing and Continuing Education denied Guzzone's request for a waiver. Worse, on appeal to the NASD's National Adjudicatory Council, that body affirmed the denial on Nov. 14. Further, the NASD moved to dismiss Guzzone's SEC appeal on the matter. The SEC, though, determined that “Guzzone is acting pro se and her application for review articulated her position in sufficient detail to enable the NASD to respond. Accordingly, we deny NASD's motion.”
Bad Faith
In considering Guzzone's appeal, the SEC noted that where a member firm, acting in good faith, has failed to file the appropriate application forms, the NASD would normally grant a waiver.
In order to qualify for this relief, a member firm must document the nature of the filing error and confirm that the individual in question has in good faith conducted investment banking or securities business during the period that his or her registration was not reflected in CRD. In plain English, Guzzone would have to demonstrate that she was engaged in the securities business during the time her registrations were inactive — for example, she was writing tickets or speaking with public customers.
The problem with that good-faith test is that it also requires the member firm to admit that it failed to verify an individual who was engaged in registered activity wasn't actually registered. You wouldn't exactly expect member firms to be lining up for that opportunity. (For an example of this type of quandary, read In The Matter of Jon G. Symon [S.E.C., 34-41285, April 14, 1999], abstracted at: rrbdlaw.com/1999/q299/examwv.html)
Although Guzzone contended she had been acting in a registered capacity, the SEC noted that the waiver request from Parker Financial's director of compliance represented that Guzzone had not conducted any securities-related business during the relevant period. Moreover, Guzzone stated that, while working at Parker Financial, she had to expend her retirement money to survive because, “No commission dollars were ever made.”
Perhaps if more regulators worked on Wall Street they would know a rep can be “working” without generating commissions — have they ever heard of a dry spell or of prospecting? Nonetheless, the SEC ruled against Guzzone, and, some would say, against common sense.
It's ruling, in part, stated, “It is reasonable to conclude that, in that time, there have been changes to the securities laws and regulations with which Guzzone should become familiar.”
From a practical perspective, this ruling misses a big point: Its the rare trader who is keeping current with changes in securities laws and regulations amid his workaday business; punishing Guzzone on this account is thus off-base.
Further, there is no public policy justification for the “use it or lose it” approach to securities-industry registrations. Professional licensing should not be dependent upon employment with a particular firm. Registrations should only be invalidated in the absence of meeting one's continuing education obligation or in response to a disciplinary sanction. Doctors and lawyers sit for their licensing exams and once they pass them they must merely satisfy continuing education requirements. Why are the rules governing the brokerage industry different?
For better or worse, though, the standards in the brokerage industry are different. And if there's one thing to be learned from Guzzone's experience, it's this: Registered reps cannot count on their firms or the regulators to look out for them. Indeed, there's an argument to be made that these institutions cannot be relied upon to use common sense.
This is not to say that everyone's out to get the poor registered rep, but acting as if this is the case might be the rep's safest bet.