The Financial Industry Regulatory Authority, known widely as FINRA, is a private regulatory body that polices and keeps records on those in the financial industry — stockbrokers, brokerage houses and their executives, and the like. If you ask for the records on Troy Joseph Flowers, the following words, in color and highlighted in a box, jump out at you: "! FINRA has permanently barred this individual from acting as a broker or otherwise associating with firms that sell securities to the public."
FINRA does not note that in 2003, Flowers pleaded guilty to fraud by a broker-dealer to induce sale of a security — a state law banning the use of manipulation, deception, and other fraudulent schemes to peddle stocks. After cooperating with the prosecution, he was sentenced to five years of probation. FINRA says it doesn't list that offense because Flowers had already been permanently banned from the industry, so any further information is unnecessary.
Flowers spent much of his brokerage career with La Jolla Capital (later named Pacific Cortez), a fast-buck peddler of penny stocks and grossly overvalued securities. In its heyday, it had offices in 15 cities — and had been disciplined by ten states. Eventually, Flowers became president of Pacific Cortez.
In 1998, the California Department of Corporations (since renamed) charged that Pacific Cortez had consistently engaged in unauthorized trading, unfair trade practices, sale of unsuitable securities, and failure to disclose its disciplinary history. A court-appointed receiver found that the firm was a mess, with books that had been cooked.
The brokerage was ultimately closed down. Investors got 2.5 cents on the dollar. The district attorney's office looked into criminal activities. It settled on the firm's dubious relationship with a shell company, Natural Born Carvers. Flowers was chairman of that shell company, as well as a broker with, and later president of, the brokerage house, which peddled stock of Natural Born Carvers.
Steven Davis of the D.A.'s office, who prosecuted the case, said investors were not told that the brokerage's honcho, Harold Bailey (B.J.) Gallison, had been bribed with $1.5 million in free stock by Natural Born Carvers, or that the claims were grossly exaggerated or fabricated, and that Flowers represented both the brokerage and the shell company. Prosecutors said Gallison stashed the proceeds offshore, including in the Cayman Islands.
Several people were found guilty. Gallison got sentenced to five years in prison. Flowers got off with probation in part because he spilled the beans on the operation. FINRA reports that Flowers was denied a broker's license in Ohio because he was "not of good business repute." Also, Flowers failed to request a hearing to challenge his FINRA suspension. Flowers argues that he was really not trying to get a license in Ohio, and he didn't ask for a FINRA hearing because he had taken the Fifth Amendment in the La Jolla Capital/Natural Born Carvers case.
In September, Flowers filed suit in Superior Court to have his record expunged. Last week, FINRA filed to have the case moved to federal court. FINRA says in its filing, "Mr. Flowers seeks to remove regulatory information — not customer complaints. There is no mechanism to expunge disciplinary actions.... The federal rules require that information be maintained."
Says Davis, "I'm glad to hear that [Flowers] is suing FINRA. The guy has lived an exemplary life since the conviction."
I respect Davis but strongly disagree. The brokerage house was recognized as one of the most corrupt in the United States. Natural Born Carvers was a shell. The stock was foisted on naive investors who collectively lost $2.5 million. The records of such activity should not be erased, in my opinion.
Flowers and his attorney, Mike McColloch, refused to comment.