Zombiedude and Moonshine69 a/k/a Mitchell Allen Romano liked to visit online financial chat rooms. At work and at home, Romano gave his views on stocks, even though at the time — six years ago — he was just an inexperienced 23-year-old UBS Paine Webber back-office employee who was losing money investing his modest $5,000 portfolio.
“[T]ake advantage of the situation,” he said n one posting. “JDSU is a great company…BUY NOW.”
What did he get out of the experience? Well, for one thing, he was fired, and then last September the NYSE censured and suspended him for a month — putting him in jeopardy of losing his current job at another brokerage house.
Just as there are rules and regulations limiting phone use by securities industry employees, there are similar restrictions and prohibitions about using the Internet. New wrinkles are being added all the time. Romano's long and sorry story is instructive in showing just how serious the industry's watchdogs are about any e-behavior.
In August 2000, Romano, a nonregistered wire operator at the Miami office of UBS PaineWebber, started using his computers at home and at work to post his comments on the Internet — more than 1,000 under various screen names, without his firm's knowledge. Sometimes, he represented himself as just an employee, but on at least one occasion he claimed to be a trader. He chatted about Sun Microsystems, Biofiltration Systems and Peregrine Systems, as well as the above mentioned JDSU (JDS Uniphase Corp.).
Like all employees, Romano had to complete his firm's Annual Employee Certification of Compliance. That meant he swore he was complying with UBS's Code of Conduct and Guide to Electronic Communications, which prohibited him from participating in chatrooms in connection with UBS business without permission from the firm. It took a while for his chats to catch up with him, but two years later he was fired.
He recovered by landing a job two months later, fingerprinting new employees for Morgan Stanley. But his problems weren't over. Unlike at your average business, Romano's firing was not just between him and his employer. UBS had to file a form RE-3 with the NYSE and that set the regulator after Romano, too.
The NYSE found that Romano had made misrepresentations on his Compliance Certifications and had posted electronic communications concerning securities on Internet chat rooms without his firm's knowledge and approval. Accordingly, he was charged with engaging in conduct inconsistent with just equitable principles of trade and with violating NYSE Rule 472(a): Communications With The Public.
Romano agreed to settle without admitting or denying his guilt. The three-member NYSE Hearing Panel that heard his case conceded in the penalty phase of the proceedings that “Zombiedude” couldn't move market mountains. They also appreciated that he had essentially made their case for them by voluntarily providing the panel with his postings. Nevertheless, the panel socked Romano with a month's suspension — three years after UBS fired him and even longer since his last chat.
The penalty was particularly onerous because, instead of being retroactively applied as time-served when he was unemployed after losing his UBS job, he would lose a month's pay from Morgan Stanley. It was enough to earn Romano a dissenting vote from one of the panelists, who expressed concern that the suspension and censure put Romano at risk of losing his job.
This case is an example of what's wrong with the regulation of Wall Street. The low-level Romano got embroiled in a frightening NYSE investigation. Was it really necessary to charge and suspend him?
Remember all the charges by the SEC against the NASD and the NYSE in recent years? Illegal price-fixing. Biased regulation. Egregious failures to enforce their rules. And we're not talking about unregistered 23-year-old kids here. We're talking about folks who should have known better. Funny, though, not a single regulator was censured or suspended.
If only an industry cop had posted their opinion about a stock on the Internet; maybe then the SEC could have suspended someone for a whole month.
Writer's BIO: Bill Singer is a practicing regulatory lawyer and the publisher of RRBDLAW.com