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Lawyer takes on Finra — and wins

Charges may have cost him a securities regulator job, but Kevin Carreno has battled years to clear his name.

It’s been a long time coming, but Kevin Carreno finally has been vindicated.

Mr. Carreno, a securities attorney in Florida, has been battling with the Financial Industry Regulatory Authority Inc. for nearly three years — a bust-up that included the filing of devastating disciplinary charges against the former compliance executive.

But earlier this year, a hearing panel for the industry self-regulator dismissed all charges against Mr. Carreno. And on March 6, the 45-day appeal period ended, meaning Finra did not contest the panel’s decision.
“I’m grateful the process works,” said Mr. Carreno, now president of Experts Counsel Inc., a law and compliance consulting firm. “The panel took time to consider all the evidence and rule in my favor.”
Despite the victory, Finra’s actions may have cost Mr. Carreno dearly. Specifically, he’s claimed the enforcement action filed by Finra scuttled his appointment as Florida’s top financial regulator.

Finra spokeswoman Nancy Condon declined to comment on the case. And Mr. Carreno, whose work requires continued interaction with Finra staff, declined to comment further. But in prior interviews, he was outspoken about what he thought was a case of retaliation by Finra.

Mr. Carreno claimed Finra officials opposed his appointment as commissioner of the Florida Office of Financial Regulation because he had had a series of earlier run-ins with the SRO’s staff.

One of those instances involved a legal action Mr. Carreno filed against several Finra officials when he was chief operating officer at Empire Financial Group Inc., a now defunct broker-dealer.

Mr. Carreno claimed that in March 2009, less than a day after word got out that he was about to be named as the new head of the Office of Financial Regulation, Finra officials slapped him with a Wells notice.

Moreover, he said that Finra told another attorney at Empire that the Florida governor’s office should be notified of the regulator’s intent to file charges against him.

In an interview around that time, Mr. Carreno claimed that local officials had indicated that the pending charges meant he had no chance to head up the state’s regulatory effort. The position formerly had been held by Don Saxon, who resigned in 2008 after local news reports blamed him for turning a blind eye to abusive mortgage lending. Ultimately, J. Thomas Cardwell, former general counsel of the Florida Bankers Association, was named to fill the spot.

In May 2009, Finra enforcement officials in New York followed through on the Wells notice. They charged Mr. Carreno with not having a financial operations principal license at Empire. Finra also alleged that he had violated a restriction agreement by sending negative-consent letters to Empire clients.

But the hearing panel shot down the charges, saying the account-transfer letter was simply a “preparatory step” in transferring accounts prior to Empire’s shutdown.

Furthermore, Mr. Carreno’s activities at Empire “did not demonstrate the responsibility and control over the firm’s financial reporting functions that is contemplated” in the rule requiring registration as a financial operations principal.

“It’s a pretty strong opinion, although they didn’t attack Finra like we wanted them to,” said James Sallah, a partner at Sallah & Cox LLC, who represented Mr. Carreno.

Mr. Carreno and other sources said the bad blood with Finra stemmed from a fight over the regulator’s moves to shut down Empire in 2008.

After taking issue with what he viewed as improper behavior by Finra in that case, Mr. Carreno filed a legal action against the regulator in an attempt to get internal Finra documents relating to Empire.
The action named, among others, Bob Errico, Finra’s former executive vice president of member regulation, and Mitch Atkins, regional director of Finra’s Boca Raton, Fla., office.

A federal judge later dismissed the action, but the legal wrangling did force Finra to defend its actions in court.

The hearing panel did not want to hear about the animus Finra officials may have had toward Mr. Carreno, said Mr. Sallah, who worked with Mr. Carreno while both were in-house attorneys at Raymond James Financial Services Inc.

“But toward the end of the hearing, after they figured out what was going on, they let more stuff come in about the state of Florida [job offer] and the timing” of Finra’s charges, Mr. Sallah said.