According to a senior FINRA enforcement official, the Financial Industry Regulatory Authority appears on schedule this year to bring about 1,500 enforcement actions-that’s about the same amount a last year, when this was then considered a record number. He said that the actions tend to be “isolated cases,” with dishonesty playing a factor.
The FINRA enforcer, who spoke at an enforcement panel during the SRO’s yearly conference in DC on May 23 (panelists were not identified by name), also noted that the self-regulatory organization is concentrating on complex products. He talked about how important it was for firms to fully comprehend the products that they are selling.
Meantime, another FINRA enforcer encouraged brokerage firms to pay attention to recent actions involving four firms that consented to pay $9.1 million to settle allegations that without supervision they sold leveraged and inverse exchange-traded funds valued at billions of dollars. (The SRO had accused the Wall Street broker-dealers of not having “reasonable” grounds for recommending these instruments to retail clients.) The FINRA official said that similar FINRA cases are expected-a clear indicator that it is integral for financial firms to supervise the products that they sell. She also talked about how when examining real estate investment trusts and private placements under regulation D, FINRA is looking at the areas of supervision, advertising, due diligence, suitability, misstatements, training, risk disclosure, and product understanding.
The FINRA officials said that although the SRO plans to give firms that cooperate during investigations “substantial benefits, including expedited proceedings, reduced sanctions, and lesser allegation, seeing as FINRA Rule 4530 now mandates that financial firms self-report any problem, they would need to do way more than just give the facts to obtain such rewards. They also said that firms shouldn’t be afraid to ask FINRA for more leeway in resolving any problems and that the SRO wants to see “reasonable effort.”
The officials also said that FINRA was attempting to bring cases within a year of beginning a probe and that over 90% of FINRA actions are being initiated within this timeframe. When asked why enforcers have been asking about investment advisory activities and affiliates at firms, one official answered that they were breaking down jurisdiction walls in the wake of the Bernard Madoff and R. Allen Stanford Ponzi scams.
Investors should note that a FINRA enforcement action against a financial firm or an individual for alleged misconduct is separate from the securities arbitration one might file to recover compensation. You should contact a FINRA securities lawyer to explore your legal options.
Our FINRA arbitration law firm has successfully represented thousands of investors, who have recouped their losses via arbitration and in the court. Your initial case evaluation with us is free.
FINRA 2012 Annual Conference, FINRA
FINRA Actions in 2012 on Track To Match 2011’s Record, Official Says, Bloomberg/BNA, May 25, 2012
More Blog Posts:
Apple REIT Arbitration: FINRA Rules Against David Lerner Associates in First of Hundreds of Cases, Stockbroker Fraud Blog, May 26, 2012
Charles Schwab Corp.’s Lawsuit Against FINRA to Stop Enforcement Case is Dismissed by Federal Judge, Stockbroker Fraud Blog, May 16, 2012
Merrill Lynch to Pay Brokers Over $10M for Alleged Fraud Over Deferred Compensation Plans, Institutional Investor Securities Blog, April 5, 2012