FINRA Decrees: If You Kiss, You Must Tell

Bill Singer's blog tells a story out of Shakespeare -- two star-crossed lovers (one of whom is not named), some FUBAR analyst reports, and, as usual from our regulators, a penalty that raises some serious questions

The center of this tale is a biotech analyst at Cowen & Co. named Dhulsini Hermani De Zoysa, who recently was sanctioned by FINRA (she neither admitted nor denied the charges) for some naughty things. I mean, really naughty:

FINRA alleged that in two research reports 

• in 2006 and 2007, De Zoysa cited both a 2005 and a 2006 survey of 8,000 wound care centers; and
• in 2007 that referenced a non-existent Q1 2007 survey of 155 electrophysiology labs.

In early August, 2007, Cowen's General Counsel told De Zoysa that the firm was investigating the accuracy and content of her research, and told her to retain all relevant documents. De Zoysa reacted, Singer says, "by creating on her laptop a 2006 wound care survey questionnaire, and then deleted six documents." She was fired on August 27.

Then, putting the whole thing in Page Six territory, FINRA says that she "was involved in a romantic relationship with an executive of a company within her coverage area and failed to disclose the relationship," which, FINRA primly notes, "created an actual, material conflict of interest."

Now, here's what I think is rather interesting. Apparently, like most things that analysts should not be doing, having sex with an official of a company you are covering is perfectly OK -- as long as you disclose it in the fine print that nobody reads at the end of the analyst report.

I can just imagine the kind of boilerplate language that could be used:

"Our analysts may have long and short positions, as well as personal and/or romantic relationships with officers and directors of the companies mentioned in this report."

Singer finds it peculiar that FINRA feels that the analyst should have disclosed her relationship in fifteen analyst reports after they broke it off.  I agree, that's odd.

But here's something that's odder: the charges leveled by FINRA are extremely grave -- and I mean all the stuff other than the romantic nonsense. She manufactured surveys, for heaven sakes. Yet all that's happened to her are civil sanctions, severe by FINRA standards, but hardly satisfactory in my view.

Why is she not being charged criminally? Did FINRA not make a criminal referral, or did the U.S. Attorney's office pass? I don't know, perhaps I'm being a bit of a stickler here, but it seems to me that if an analyst is accused  of manufacturing stuff and putting it in an analyst report, something a bit more Draconian than civil penalties are warranted.