NCAA Scandal Could Force Regulators to Clamp Down
Marty Blazer is a barred-for-life broker whose story could compel Finra to double down on a pledge to apply laser-like focus on advisors whose histories indicate they pose a heightened risk to the public — even though he wasn’t in the danger zone until recently.
Pittsburgh-based Blazer made headlines last month for his part in a scandal involving the National Collegiate Athletic Association. On Sept. 26 three assistant coaches, other officials on NCAA teams and a shoe-company executive were charged with pushing high-school star athletes to accept money for picking particular colleges, agents, financial advisors or shoe makers. Blazer, facing criminal charges to which he has since pled guilty, is said to have worn a wire and agreed to serve as a government witness in cases against those charged.
In its 2017 Regulatory and Examination Priorities Letter, published in January, Finra said it was “strengthening its already comprehensive approach to high-risk and recidivist brokers.” To this end, it has “established a dedicated examination unit to identify and examine brokers who may pose a high risk to investors.” It also pledged to “examine firms’ due diligence on these individuals” including “determining whether, as part of the verification process, a firm or third-party service provider conducts a national search of reasonably available public records.” Finra further said it would “assess whether firms develop and implement a supervisory plan reasonably tailored to detect and prevent future misconduct by a particular broker based on prior misconduct and regulatory disclosures.”
In the present case, Blazer struck an agreement with the SEC. He’ll cop to a federal charge arising from a 2016 complaint and pay the agency $1.9 million in disgorged profits and penalties.
“It is easy to see why he got barred,” Chicago-based attorney Alan Wolper says after reading the May 2016 complaint against Blazer.
“The complaint is rife with the very worst sort of language one can include in a claim against a financial advisor,” says Wolper, who defends brokers in hot water with Finra and the SEC. The allegations include unauthorized transfers, forgery, fraud, and false statements to regulators to conceal a scheme.
In September Blazer pled guilty to five criminal counts, including securities and wire fraud, aggravated identity theft and wire fraud. The evidence the prosecutor developed with Blazer has led to indictments of the assistant coaches, an Adidas executive and others. Federal prosecutors had argued Blazer made payments and loans to student athletes so that when the athletes went pro they would tap him as their financial advisor.
But Blazer had received Finra complaints long before the NCAA flare-up.
In 1999 a client filed a dispute against Blazer with Finra, alleging he purchased unsuitable stock triggering a $20,000 loss. Finra denied the complaint. In the next two years the industry-funded watchdog denied two other claims against Blazer.
Then in 2011 a client sought $4 million, claiming Blazer misappropriated funds and mismanaged accounts. The claim resulted in an $850,000 settlement. In his BrokerCheck comments, Blazer wrote that the client – a pro football player – withdrew money recklessly, and despite numerous documented warnings about spending, depleted cash and forced premature liquidation.
Should Finra have begun monitoring Blazer earlier? And, under Finra’s 2017 pledge, would Blazer rate as one of the high-risk recidivists it has promised to monitor more closely?
Probably not, think some industry pundits.
According to Finra, its new anti-recidivist unit “will review high-risk brokers and their interactions with customers, compliance with rules regarding suitability, outside business activities, private securities transactions, and more.” Finra says it will also “assess whether firms develop and implement a supervisory plan that’s reasonably built to detect and prevent misconduct by a broker if that broker has a history of misconduct.”
And, reasonably enough, Finra says “firms that have a concentration of brokers with misconduct histories (or several sales practice complaints and arbitrations) will also be looked at closely.”
But Blazer’s pre-2016 record didn’t rise to the high-risk recidivist level, at least not according to Wolper.
“This guy has a very modest number of disciplinary disclosures” prior to recent events, says Wolper. “When people complain about ‘problem brokers’ — guys who are working in the industry despite lengthy disclosures — this is not the kind they’re generally referring to.” Such brokers, he adds, generally have lots of customer complaints, including arbitrations and more than one regulatory action.
As a result, says Wolper, “It isn’t necessarily fair to complain that the regulators should have done something sooner, given that there’s just not a lot of historical problems that supposedly should have been addressed already.”
Martin Dietz, a Pittsburgh lawyer who is defending Blazer in his criminal case, agrees Blazer was flying well below Finra’s regulatory’ radar before 2016. “He didn’t fit the profile of somebody regulators should have shut down.”
Only the charges in the SEC complaint suggest Blazer had gained complete authority over his athlete clients’ assets over the previous decade or so, says Dietz.
Meanwhile, “he will do what the government asks,” adds Dietz. And he says a judge will decide how much his client’s cooperation should go toward reducing his sentence.
Why was Blazer able to capture so much evidence when he wore the wire and why were the others, now indicted, so unsuspecting?
“Everybody had their hands out for money and no one thought one person would risk their future by talking to authorities,” reckons Dietz.
In the past few years, Finra’s enforcement statistics show it has grown more aggressive toward individual brokers brought before the regulator. In 2012, Finra received 2,785 complaints and barred 294 individuals. In 2016, Finra received 3,070 complaints, barring 517 individuals.
But Paul Brahim thinks regulators should do more to keep bad brokers from getting worse.
The chairman and CEO of Pittsburgh-based BPU Investments regularly appears as an expert witness for members of the public in Finra arbitrations and court cases.
“I think there are a lot of folks who fly under the radar who have less than stellar records,” says Brahim, whose firm manages $1.5 billion.
At Finra disciplinary hearings, Brahim says, “I’m always amazed and I think, ‘Why is this person still in business?’”