Here are seven lessons Martinovich thinks readers can take away from his story. He believes that any of these lessons, if he had done things other than his own, might have spared him from prison.
- never settle. “If I had fought more in the regulatory environment, the case would not have ended up as a criminal case,” Martinovich says. “Had I decided to fight FINRA more, had I refused to settle and had won” [in the administrative process]so I may have paid the fine, but FINRA may not have submitted my file to the Department of Justice, where the fact that I had settled was used as evidence against me.
- Don’t agree to be part of any regulator’s unofficial requests such as beta testing, early adoption, surveys or anything that draws attention. Strongly decline any informal offer for interview, data or documents. “It’s tempting to be helpful,” notes Martinovich. “Maybe you think it’ll earn you a few points down the road. It won’t.”
- In a compliance test, audit or investigation, consider that the overarching objective of the regulators differs from the stated reason.
- Understand that not all signoffs done by the consultants you pay, external auditors, and appraisal experts will protect you. “The broker/dealer is ultimately responsible,” Martinovich says.
- Do not rely on assurances that civil cases will not be referred to criminal authorities. “Referrals like this happen all the time,” Martinovich says. “The fact of the settlement will become an important piece of evidence against you, notwithstanding the fact that court rules prohibit this.”
- Manage your business such that every single text and email will eventually be overseen by regulators or a jury and 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 down,” he says.
