Recently, a number of would-be clients have asked me to undo regulatory settlements that they entered into years earlier. For some callers, it was simply a case of buyer's remorse:

Sure, Mr. Singer, I understood the allegations, and, okay, okay, I just wanted to get done with the mess and maybe should have thought things over; but, you see, things are tight in the job market now and when potential employers Google my background, they see the settlement and start asking questions, and, well, you know, the job offer disappears.

For other callers, the issue is a bit more troubling:

I didn't think I had done anything wrong but I couldn't afford a high-priced lawyer like you. The regulator's lawyer seemed like a nice guy and he told me that it would be best to just settle. He told me that once I paid the bucks and took the vacation that it would all be behind me. When I still protested my innocence, he warned me that if I went to a hearing, the panel could slam me with a huge fine and maybe a bar. So, I agreed to the language he drafted in the settlement agreement. Now I find that the “willful” violation I agreed to makes me statutorily disqualified. Mr. Singer, the staff lawyer lied to me. I would never have agreed to settle if I knew that I was going to be permanently barred.

If You Make Your Bed …

In the Matter of the Application of Matthew Brian Proman (Securities Exchange Act Rel. 57740, April 20, 2008), the Securities and Exchange Commission (SEC) recently considered a settlement involving a July 1997 NASD Complaint against Matthew Proman alleging that he had arranged to have an imposter take his March 1995 Series 7 Qualification Exam, and that Proman failed to respond to NASD requests for information related to the investigation of that allegation. In December 1997, Proman submitted, through counsel, an Offer of Settlement to NASD to resolve the charges against him. The Offer of Settlement stated that it was submitted voluntarily and waived Proman's right to appeal any written decision by NASD. In accordance with the terms of the settlement, on February 26, 1998, NASD entered a Decision and Order that imposed upon Proman a censure, a $50,000 fine, and a bar.

Who Knew?

On May 25, 2007, Proman requested that NASD vacate the 1998 bar because the record of that sanction is accessible to anyone who researches his background, which impedes his current business activities, though unrelated to the securities industry. Proman does not contest the validity of the settlement and has no intention to re-enter the securities industry. On July 20, 2007, NASD denied Proman's request, prompting his appeal to the SEC.

Essentially, Proman's complaint was that his NASD settlement was now inconvenient and harming his non-securities business. He was not accusing NASD of misconduct or unfairness. Proman just wanted a do-over. But NASD/FINRA argued that Proman had not presented a legal basis upon which the SEC could assert jurisdiction. The SEC agreed, and dismissed Proman's application for review.

Tips For Amateur Hour

  • If you can't afford to hire a lawyer to represent you during a regulatory investigation or settlement discussions, consider hiring one to review your proposed settlement and to counsel you as to the ramifications. Seemingly innocuous words such as “willful” or “knowingly” may transform apparently mundane fines and/or suspensions into career-killers.

  • Research the impact of a proposed settlement upon other employment or careers. For industries requiring licensing or insurance bonding (from security guards to barbers to lawyers) Wall Street fines, suspensions or bars could prove significant impediments.

  • When negotiating with regulators, always remember that they are not your friends. They are your adversaries.

  • If a regulatory lawyer is negotiating the terms of a proposed settlement with you, keep in mind that the American Bar Association's Model Rule of Professional Conduct states in Rule 4.3 that a lawyer representing the interests of a client cannot pretend to be disinterested or offer legal advice to another person who is not represented by counsel.

Writer's BIO: Bill Singer
is the publisher of RRBDLAW.com and BrokeAndBroker.com