On Dealbreaker last week, Bess Levin hilariously reported former baseball player Lenny Dykstra’s release from a California prison after his guilty plea and sentencing for three felony counts – bankruptcy fraud, concealment of assets, and money laundering. As Levin noted, with his new free time, Dykstra might be available to weigh in on your investment ideas. “Don’t forget that before he went to jail, Dykstra was described by Jim Cramer as ‘one of the greats’ in the industry. He could be just the guy you’re looking for!” She also dropped a footnote that said:
We say this assuming he has not been banned from the securities industry. A preliminary Google search says he has not, but how can that possibly be right?
Oh, it can be right. It’s worth noting that a grand jury indicted Dykstra in the U.S. District Court for the Central District of California on charges that really aren’t related to securities. It was a bankruptcy case, and Dykstra was accused and convicted of looting his California house, lying about who stripped the house, and selling baseball memorabilia and laundering the proceeds from those sales.
But to be barred from the securities industry, you usually have to have committed some bad conduct – not necessarily criminal conduct – related to securities. Section 15(b)(4) of the Exchange Act gives you a lot of options. You can lie in a filing with the SEC, violate one of the federal securities laws, aid and abet such a violation. . . the list really does go on. You can also be convicted of, say, mail fraud, wire fraud, larceny, fraudulent concealment, or a number of other theft-based felonies that are not connected to securities. It may happen that a federal court bars a defendant from the securities industry solely on that basis, but I don’t think I’ve seen it before. Typically, the SEC gets involved, and uses its administrative process to effectuate the bar. Here’s an example from today, and here’s one from last week. FINRA can also suspend broker-dealers from membership with FINRA, which essentially means suspension from the securities industry.
From what I can tell, neither the SEC nor FINRA has gotten around to barring Dykstra. And it looks like he was never a FINRA member anyway, so kicking him out of there may not have been on the table from their perspective. So sign Lenny up; he’s ready to play.