Here’s an update to those of you who have been following the Camardas v. CFP Board lawsuit being heard by Judge Richard Leon of the U.S. District Court in D.C. (See Camardas 1: CFP Board 0. Where Does the Board Go From Here?).

Back in August, the Board struck back at Jeff and Kim Camarda’s request for the Board to furnish records of past disciplinary cases by filing a request for a pile of documents from the Camardas. Since then, the Camardas refused to comply twice, and now the Board has filed its third motion to compel them to comply.;

Clearly, Judge Leon isn’t in any hurry to order the Camardas to comply—and with good reason. In its three motions, the Board has asked for documents that are very different than the “past cases” requested by the Camardas, and have far broader implications: for the Camardas, for all CFPs and for the CFP Board itself.

In its zeal to win the the Carmarda case, it’s beginning to appear that the Board may have lost sight of the bigger picture. It’s not a regulatory body: financial advisors become CFPs voluntarily. Particularly in light of what appeared to be excessive heavy-handedness in other recent “fee-only” cases, its hard-ball actions in the Camarda case have some CFPs that I’ve talked to wondering whether it’s really worth it. 

In its many filings, the Board has asked the Camardas for 28 separate categories of documents, with many of those categories potentially containing hundreds (if not thousands) of documents. But in my informal conversations, two of those categories of documents are most troubling to CFPs and to other outside observers. Here’s how the Board worded its most problematic requests in its motions: 

Document Request No. 21: All documents concerning media articles or public statements concerning the Camardas or any of the Camarda Entities.”

Document Request Number 6: “All documents concerning the fees, commissions, or other revenues received, directly or indirectly, by the Camardas and/or the Camarda Entities concerning the Camarda Services from January 1, 2007 to present, including the identity of each client…”

Do you see a problem or two here? In response to Request No. 21, the Camardas wrote: “Plaintiffs object to as overly broad, unduly burdensome, and not reasonably calculated to lead to the discovery of admissible evidence, insofar as it seeks ‘all documents,’ regardless of their subject matter and possible relevance to the instant lawsuit.”

And in response to Request 6, they wrote: Request contains an overbroad time frame, seeks documents from entities having nothing to do with the issues raised in this lawsuit, and seeks the identity of Plaintiffs’ customers.”

But I see bigger issues here.

In the first instance, the CFP Board doesn’t just want “public statements,” it wants all “documents” related to public statements or media articles. Would that include this article? It’s certainly not clear to me what “all documents concerning media articles or public statements” means. If Jeff sent an email to his wife Kim saying “Boy, was Bob’s last blog on us dumb,” would that be included? Would their emails to me, which resulted in stories I wrote, be included? Suppose they were marked “off the record” or something like that?

What about my emails to the Camardas? Or, more importantly, what about other CFPs’ emails to the Camardas? I recently got an email from a CFP (note to CFP Board: that email was accidentally deleted from my hard drive), who said he/she had been corresponding with the Camardas, and was drafting “a letter to Judge Leon asking that he respect my rights to privacy and that he either dismiss the motion or order that all names be redacted.” 

The bigger point here is that the CFP Board isn’t just another party to a lawsuit: it’s a professional accrediting organization with a history of being heavy handed with those it accredits. You might remember that the Camarda case started because the Board told Jeff and Kim it was going to run a notice in their local newspaper announcing that the pair of CFPs had been disciplined for misrepresenting themselves. 

I’ve also talked to a number of CFPs, such as the one in the paragraph above, who declined to criticize the Board publicly for fear of drawing its ire. So asking the Camardas to publicly reveal their and others’ correspondence about the Board is a serious matter to many CFPs.

Still, the more troubling issue is the request of the Camardas to turn over client records including their identities to the Board (see Melanie Waddell’s news article in ThinkAdvisor, CFP Board Request for Camardas’ Client List Raises Eyebrows)

As I can only believe, the Board is well aware that the security of client information is one of the SEC’s key areas of RIA enforcement. In fact, I’m surprised that the SEC has filed an amicus curiae (friend of the court) brief on behalf of the Camardas, asking the judge to deny the Board’s request.

The Camardas have no way of knowing if the Board’s information systems are secure or that the Board wouldn’t give that information to another party.

Melanie quotes advisory attorney Brian Hamburger on how this would affect an RIA’s fiduciary duty to his/her clients: “By seeking this information under court order, the CFP Board falls within the exemption to Regulation S-P which permists financial advisors to share the information pursuant to a legal requirement.”

So it looks as if the Camardas (and any other CFPs on which the Board uses this tactic in the future) are off the legal hook on their fiduciary duty to their clients. But what do the Camardas and other CFPs know about the Board’s security? I wonder how their clients would feel about having their info shared with the Board. Or suppose the Board gets hacked and the client info gets out? I doubt clients would be mollified by the fact that their advisor isn’t legally liable. 

Finally, to my mind the biggest issue in the Camarda case is the Board’s win-at-all-costs strategy. Sure, it’s probably a good legal strategy. But as a marketing strategy for existing and future CFPs, not so much.

The CFP may win the Camarda case (maybe), but at what cost in the hearts and minds of CFPs everywhere?