Regulator hands out “parking ticket”

On January 26, 2011, a FINRA hearing panel found that Hedge Fund Capital Partners LLC and Howard G. Jahre, its president and majority owner, violated numerous FINRA rules and provisions of the Securities Exchange Act of 1934.

Overall, the hearing panel found Jahre and the company distributed exaggerated and misleading institutional sales materials, failed to retain copies, and also permitted five associated persons to market hedge funds without being properly registered.

Jahre failed to adequately supervise activities taking place at Hedge Fund Capital Partners, failed to retain online communication records, and made willfully misleading disclosures on three applications for Securities Industry Registration or Transfer.

In addition, Jahre and the company responded falsely to numerous requests for information, testified falsely, and improperly permitted a hedge fund adviser to use soft dollars to pay rent.

These charges resulted in the company being expelled and Jahre being barred in all capacities.

But the most eye-catching misdemeanors in this case was Jahre allowed an unemployed representative, Jamie Lombardy, to “park” her registration at the firm as a favour to her husband, who provided legal and compliance advice services to the company. He hoped the husband would lower his fees in gratitude.

Lombardy had ended her association with a different firm in 2004 and, according to NASD Rules 1031 and 2110, had until 2006 to regain a position in another NASD firm before her registration expired. In order to buy her time, her husband requested that Jahre allow her to supposedly work at Hedge Fund Capital Partners. But as FINRA discovered, she had no desk, phone, pay or duties.

The truth is, this is not a stand-alone occurrence. Wall Street blogger Bill Singer says this type of problem is a pandemic on Wall Street and “pops up at indie and regional firms, and at the big boys. This foolish policy harms the industry’s relationship with its customers [and sales staff].”

If sales reps stay at a firm out of fear of losing their status, they are more likely to lose focus and integrity. And if forced to leave their firm, as many were during the recession, will go to desperate lengths to stay registered.  

For years, Singer has argued against the rule and says it “gives too much leverage to the employer. The more onerous it is to leave a brokerage firm, the more pliable the broker becomes to the demands of the employer—and those demands may well pressure the captive employee to do things that are wrong, if not illegal.”