Here are the seven lessons Martinovich thinks readers can take away from his story. He believes that any one of these lessons, had he acted other than he did, might have spared him from prison.
- Never settle. “If I had fought more in the regulatory environment, then the matter wouldn’t have ended up as a criminal matter,” Martinovich says. “Had I decided to fight FINRA harder, had I refused to settle and prevailed [in the administrative process], then I might have paid a fine, but FINRA would not have handed my file over to the Justice Department, where the fact that I settled was used as evidence against me.”
- Do not agree to any regulator’s informal requests to be part of experiments such as beta tests, early adoptions, surveys or anything that attracts attention. Firmly decline any informal overtures for interviews, data or documents. “It’s tempting to be helpful,” Martinovich notes. “Maybe you think it’ll earn you some points down the road. It won’t.”
- In a compliance exam, audit or investigation, assume that the overarching motive of the regulators is different from the stated reason.
- Understand that all the signoffs by the consultants, external auditors and valuation experts you pay won’t protect you. “The broker/dealer is ultimately responsible,” Martinovich says.
- Don’t believe assurances that civil matters will not be referred to criminal authorities. “Such referrals happen all the time,” Martinovich says. “The fact of the settlement will become a key piece of evidence against you, despite the fact that court rules are supposed to prohibit this.”
- Manage your business as if every single text and email will eventually be inspected by regulators or a jury and will be presented in the worst possible light.
- Keep as much capital in reserve as possible against black swan events. “If regulators see that a target brokerage has a large war chest and is willing to use it, they will often back off,” he says.
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