SEC Overturns FINRA Bar Against Former Rep, Issues Immediate Suspension Instead
From the desk of Jim Eccleston at 蘑菇传媒
In a rare move, the Securities and Exchange Commission (SEC) has scaled back an industry bar by the Financial Industry Regulatory Authority (FINRA) against former rep Thomas Lykos Jr., converting the sanction into a suspension that ended immediately upon the SEC's decision.
The matter originated from FINRA’s December 16, 2021, decision to bar Lykos from the industry for violations of NASD Rule 1080 and FINRA Rule 2010. According to ThinkAdvisor, the regulator found that Lykos received assistance during a Series 24 General Securities Principal Qualification Exam and violated exam conduct rules.
On appeal, the SEC sustained only part of FINRA’s findings. The Commission rejected FINRA’s determination that Lykos received outside assistance, concluding instead that while his behavior violated exam conduct rules, it did not constitute cheating. “FINRA barred Lykos because it found that he cheated,” wrote SEC Chair Paul Atkins and Commissioners Hester Peirce and Mark Uyeda. “But we have now set aside FINRA’s finding that Lykos received outside assistance... a bar is excessive and should be reduced.”
According to ThinkAdvisor, the SEC opinion detailed the underlying events. Lykos, then general counsel and chief compliance officer at Sanders Morris Harris LLC, failed the Series 24 exam in April 2018 and retook it three months later. Video footage captured him writing on a dry erase board, on his driver’s license, and even between his fingers during the exam. He also took a 24-minute unscheduled break.
Although the SEC acknowledged this behavior as deceptive, it distinguished it from cheating. The opinion cited Lykos’s attempts to conceal his writing and efforts to remove it before proctors could take a photo. These facts, the SEC said, demonstrated serious breaches of conduct but did not justify a permanent industry bar. Since the bar had already been in place since late 2021, the SEC deemed a suspension ending immediately as “remedial and not punitive.”
The decision also comes as FINRA faces increased scrutiny. On July 25, FINRA CEO Robert Cook announced a review of the organization’s enforcement program, led by enforcement chief Bill St. Louis.
Separately, FINRA filed a rule proposal with the SEC in June that would allow broker-dealers to seek a stay of sanctions while appeals are pending. The SEC has not yet acted on that filing.
ThinkAdvisor further reports that cases like the recent Alpine Securities expulsion have brought attention to FINRA’s enforcement tactics. As a result, FINRA, the SEC, and courts may now be taking a more critical look at the fairness of these proceedings.
蘑菇传媒 LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
Tags: eccleston, eccleston law, finra, sec
