Landing a plane is nothing more than a controlled crash

Despite flying literally thousands of times across the world, I still have this nagging fear of flying that requires me to lubricate my veins with Coors light a good hour or two before takeoff. After nearly 20 years of this awful routine I had the opportunity to talk bluntly with my good friend and Delta Airline Captain, Dan. I was looking for reassurance that flying was the safest form of travel and that they are prepared for any emergency that might happen. I was actually starting to feel better when “Captain Dan” let me know that the jets we are flying in don’t actually land but rather _“has a controlled crash_”! After I went to bathroom to check for any possible damage, I dissected his seedy little Big ten educated mind for a few more minutes and made the decision right then and there to switch to strait Vodka pre flight instead of Coors Light.

When I stopped and thought about what he was saying it actually made a lot more sense. Lately, I have been applying the same logic to many of the firms we work with. Some firms will wind up in the preverbal downward spiral while others will find a nice comfy area of grass to gently land their firm when a crisis hits. I have seen firms take a small little blip on the map and turn it into a giant engine fire as they plunge into the sea. Still, I have seen some firms that have a crisis that would make Liam Neeson cry like a baby and gently navigate it to a controlled crash like Captain Dan. So what is the secret? Here are a few ideas about what the guys in the controlled crash do better than the others:

1) **Radio for help!** Over the years I have seen many owners of a Broker Dealer try to “fix the spiral internally”. While this is a great concept if it can be managed correctly, for many small firm owners, they are too busy running a business and managing day to day operations to give their crisis the proper time it needs. I have seen a simple record keeping violation or a books and record issue spiral out of control and turned into a full fledged regulatory action. One of the key contributors to this is when a firm decides to recreate a paper trail of supervision or record keeping that they failed to do. If you did not do your AML, your SARs filings, or your review of order tickets you are clearly in violation of FINRA and Federal laws, however recreating these records (ie. Falsifying documents) is a good way to get the death sentence from your regulator and in some cases can be grounds for criminal action. Would you rather apologize for not keeping required records or would you rather ask a judge for leniency for fraud? We are not Attorneys and are not offering legal advice, so with that in mind we would like to remind everyone to USE YOUR ATTORNEY!. Ask these questions of them before you do certain things. A quick 15 minute call with your lawyer for advice might get you a bill of $100.00 in the mail, but a full blown fraud case will cost you several hundred thousand dollars. Our [Resources]( page has a list of well known Securities attorneys and consultants who can assist you.

2) **Know the plane you are flying in**: Owners of firms do not know the scope and gravity of their problems and that lack of information can be dangerous. I have consulted with many firms over the years and have been shocked at how many owners thought some minor crisis was being handled by compliance or other managers only to sit in shock as he is issued a Rule 8210 request for on the record testimony (OTR). While you should be able to trust your Compliance and Managing personnel, you should never just assume everything is running along smoothly. I have seen many owners listed as Principals of the firm in lines of business in which they are not even licensed. In one case, an owner with a staff of about 25 was shocked to find out he was the Firm’s Anti Money Laundering Compliance Officer. The fact that he rarely if ever came into the office and didn’t even know what ‘SARS” stood for didn’t matter. We would suggest that as an owner,or principal of any FINRA firm you should check the Form BD every month as a matter of routine. You should also check your firms Written Supervisory Procedures (WSPs) every month to see if you are listed somewhere you were not aware of. It might shock you to see how much responsibility you actually have. When all is said and done the Form BD and the WSP’s are the bible. Make sure you only have those responsibilities that you are aware of and capable of monitoring.

3) **Know when to parachute and how to pull the draw string**: This might be the toughest obstacle for any owner to do but you must have this plan in place, at least mentally. There does come a time in some Firm’s life when it might be time to parachute to safety in another firm. The problem we see over and over again is that most don’t know when to let go. We have been approached time and again by distressed owners, brokers or branches looking for the perfect set up. For the most part, it doesn’t exist and waiting and hoping for it can often lead to catastrophe. One scenario involved a branch with 80 brokers who knew his firm was closing. We were able to locate a shell Broker dealer that could accommodate up to 50 reps under the safe harbor provision of FINRA membership rules. He refused to do the deal because he was determined to take all 80 instead of perhaps his 50 best reps. His firm eventually was shut down and the 80 reps he had scattered within 36 hours to various firms and last I heard he has a core of about 10-12 reps. In addition, he was forced to manually ACAT all accounts to a new clearing firm because the existing clearing firm which he thought he was tight with ended up taking on an office of his brokers and felt a conflict. We have advised this in the past and will reiterate once again:**The clearing firm controls your accounts.** They decide who has access, how they will transfer in or out and when they can be serviced. Once a plane crashes (ie the Broker Dealer) the Clearing firm for all intents and purposes owns the accounts. They can simply put a hold on the accounts, restrict all electronic access and tell the clients they must call in liquidating orders. When a client calls up to request a purchase, they will simply re-assign the account. Its that simple and completely legal.

As we prepare to enter the last stages of 2014 we hope you never need to make a controlled crash, but if the time ever comes, please keep these tips and mind and do not hesitate to contact us for help. We wish you all a happy and safe labor day weekend !