Chapter 4 - Pretty Noose

In June 2015, the head compliance officer at Zacks called to tell me FINRA would like to interview me in their offices in Washington, DC. This was one of the very few times I interacted with compliance during my 12+ years at the firm. Zacks has had some well-documented issues with the SEC in the past. The SEC fined LBMZ Securities, Inc. (formerly Zacks & Co.) $240,000 in September 2017 for "willfully violating Section 15(g) of the Exchange Act." That's the section that talks about having policies and procedures in place to prevent... shenanigans. Since 2015, the year I left Zacks, the company has paid $425,000 in fines to the SEC for various violations.

I suspected FINRA was interested in talking to me about a healthcare "meet and greet" I organized in September 2014. The event was held at a bar in NYC. I organized the event parallel to the Rodman & Renshaw Healthcare conference, figuring I could piggy-backing off that event and throw a few extra dollars in the bank for Zacks. It was primarily a networking event, but also a way to introduce Zacks' new investment banking team to clients.

I invited 20+ CEOs from small-cap biopharma companies and around 75 retail investors. It was a good turnout, but I was pretty sure we screwed up some sort of regulation. There are rules on how you can market your services to companies. My goal was to go to FINRA, answer the questions, claim ignorance, and ask for forgiveness. The truth is, I was ignorant. I had no idea what the rules and regulations were. I winged the whole thing.

When I got to FINRA, things went south quickly. The conversation briefly touched on the networking event, but then turned to my personal trading. For the previous decade, I'd been trading stocks in my personal account. I traded mostly biopharma stocks but steered clear of anything I covered for Zack, especially when I was FINRA licensed between 2008 and 2010.

In 2010, my FINRA licenses (series 7, 86/87) expired when Zacks declined to renew them. "Not necessary," said compliance. Also not necessary was sending in my monthly brokerage statements anymore. "There are no trading implications to our universe," said our Director of Research in an email to me in June 2013. With no one watching, or seemingly caring, I started trading stocks I covered for Zacks. These were the names I knew best; I figured, why not trade them?

I never felt as though I was doing anything so wrong. I never stole money from anyone. I never lied in my reports or purposefully mislead investors. Even the U.S. Attorney admitted in court that, "There's no indication the reports were inaccurate." They weren't. I always wrote what I believed. From the day I walked into Federal Prison until this day, I stand by everything I ever wrote. If you've followed my work in the past, the names I made money in were all the names I publicly recommended: CYNA, NBIX, TSRX, DEPO, ACAD, ASPX, TNXP, ASTM. I also lost money on NVIV, ICOS, IMNP, and DRIO.

I never really viewed this as criminal activity. The government said I was stealing information and trading on it. I thought the information was mine, but they argued as an employee the information was Zacks'. This seemed silly to me, but it's the angle they took. A lot of people take pens or Post-It Notes from their office. I rationalized by thinking, "It's like stealing Post-It Notes."

If you stole $144,000 worth.

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