I have long been a proponent of fighting the good fight, and believe that far too many regulators regulate by bullying. But don't succumb to the siren song of some industry defense lawyers who will urge you to always go to the mat against the regulators. Sometimes that just adds a costly insult to a painful injury. On top of the fine and suspension imposed on you by the hearing panel (which could be the same or greater than the regulator's last offer), you will likely get socked with a far larger legal bill than you initially anticipated.
Sure, after a hearing, your lawyer may “win” a $5,000 fine when the regulator's last, best settlement offer was $20,000; however, if it cost you $35,000 in legal fees and another $5,000 in forum fees, was it really worth it? Sometimes saving your reputation may be worth the investment — but that's for you to calculate. Just be sure to factor your legal and forum costs into the equation. And remember, you don't have to take the first settlement offer they make — you can negotiate.
The Bullet Points
Although federal, state and self regulators are guided by somewhat different standards in their settlement negotiations, the underlying factors that they take into consideration are fairly uniform. Before you approach a dyspeptic regulator with your offer of settlement or first counteroffer, make sure that you are in a position to strongly argue the fairness of your terms, as indicated by the following considerations:
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Egregiousness of your actions;
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Isolated or recurrent nature of the infraction;
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Degree of scienter involved (did you know that you were doing wrong beforehand);
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Sincerity of your assurances against future violations;
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Your recognition of the wrongful nature of his conduct; and
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Likelihood that your occupation will present opportunities for future violations.
Guidelines and Prior Cases
When figuring out what constitutes a fair number of days or dollars in a settlement, read any available sanction guidelines; e.g., read FINRA's sanction guidelines at http://www.finra.org/Industry/Enforcement/SanctionGuidelines/index.htm. When discussing your offer with the regulators, make reference to the exact phrasing in the guidelines. Cite the specific violations, note the applicable sanction principles, and explain why the facts in your case do not constitute any exacerbating circumstances raised in the guidelines.
Also, go online and research recent decisions by the regulator charging you, and make sure you understand how appeals are handled by that regulator as well as how appeals proceed to a superior state or federal regulator, and ultimately to state or federal appellate courts. You do not want to cite a decision made in your favor if it was overturned on appeal. If your situation seems to have little direct precedent with the regulator overseeing your case, then look to other regulators' cases to make your offer more persuasive. (That said, regulators are not required to make their sanctions uniform.) If you can't find any other similar cases, then argue that the lack of such prior case law permits the regulator more leeway in crafting the terms of your settlement.
Settlement Premium
When researching prior fines and suspensions, make sure to differentiate between sanctions imposed by way of a settlement and those ordered after a hearing/trial by a panel or court. Regulators typically offer a “settlement premium” that is meant to represent a discount on sanctions they would seek at a hearing or trial. That's all the more reason for you to familiarize yourself with what panels or administrative law judges (ALJs) are awarding after contested hearings — don't rely on the regulators to do your homework, or even be fair.
Bottom Line
If you are not guilty of the charges, do everything you can to obtain exoneration. Unfortunately, too many innocent folks simply throw in the towel and settle. Sometimes they just can't afford the months (or years) of hearings and appeals — financially or emotionally. Of course, if you settle, your professional reputation may be forever damaged and you will be more vulnerable to future client lawsuits and regulatory actions. On the other hand, a well-crafted settlement gives you more control over your future than throwing the dice before a jaundiced panel or ALJ.
Writer's BIO:
Bill Singer is the publisher of RRBDLAW.com and BrokeAndBroker.com
