BD Law Blog - by Georgia Securities Lawyer Joel Beck

FINRA Issues Regulatory Notice Regarding Social Media Supervision

Yesterday, FINRA issued guidance to firms regarding supervisory obligation relating to social media sites.  The notice, Regulatory Notice 10-06, provides information clarifying a broker-dealer's obligation to supervise the use of social media sites by the firm, as well as the business use of such sites by individual representatives.  Social media sites and activities addressed by FINRA in this guidance includes things such as blogs as well as sites like LinkedIn, Facebook, Twitter and others.  The notice can be found here: Regulatory Notice 10-06.

Firms should use the issuance of this guidance as an opportunity to make sure that they have developed adequate supervisory procedures for its own social media communications, as well as for the business uses of social media of its brokers/registered representatives.  Firms must consider that supervisory procedures must address not only how these technologies can be used, but also the recordkeeping and retention requirement that might be involved depending on the type of "communication" made through social media.  Firms and brokers who blog should also carefully study FINRA's opinion in Question 4 of the Notice regarding its treatment of blogs as advertisements.

While the use of social media is not new,the consideration of the impact of such technology and the regulation of it is relatively new to the regulators.  (As an aside, to get a better glimpse of how media has changed over the years, check out this video prepared by XPlane in partnership with The Economist).  I expect that for the next several years, regulatory examinations will include reviewing a broker-dealer's procedures and systems for ensuring that they are properly supervising the use of this medium. 

Dealing with a FINRA Investigation, Part V- Disciplinary Actions - formal vs. informal

Continuing the series on dealing with a FINRA disciplinary action, this post provides an overview of the types of disciplinary action (formal vs. informal) taken by the regulator.

After the examiners have completed their exam, a supervisor of examiners reviews the exam report and makes a recommendation to do one of three things: to file the exam without action, to pursue informal action, or to pursue formal disciplinary action. 

Most Popular Posts for 2009? All things U4.

It seems that, more than any other topic, folks searching the internet through the major search engines in 2009 came to BDLawBlog.com seeking information on the Form U4.  Unfortunately, there is a certain mystique to the form.  I think this may be in part to misunderstandings by many about the requirements of the Form U4, as well as a lack of understanding of the significance of this regulatory filing.  Ultimately, the U4 is a straightforward document, but it must be read in conjunction with its instructions, and the definitions in those instructions.  And, importantly, registered folks must familiarize themselves with the information required to be disclosed on the U4, and make sure to timely amend the disclosures when appropriate.

If you have questions about the U4, here are a few resources for you.  To begin with, check out the other U4 related posts here at BDLawBlog.com.  Be sure the read the several part primer on the U4, as well as the post about the little known lifetime bar.  Yeah, its not stuff you'll talk about over dinner or drinks, but if you are a registered representative, this one document can have a significant impact on your ability to continue to work in your chosen field.

FINRA's site contains the current version of the Form U4, and the instructions for the U4 (a separate document) here.  

FINRA's site also details the statutory disqualification process and answers questions about statutory disqualifications (some disqualifications arise as a result of improperly completed U4s).  Find that information here.  

Dealing with a FINRA Investigation, Part IV - The Exam Process

This year I'm going to expand on an older series of posts about the basics of a FINRA examination in new posts that will cover the types of activities that occur in the course of an examination, and then move into the disciplinary process, addressing both informal and disciplinary action taken by the regulator against individuals and firms.  Today's post covers some of the basic elements of a FINRA exam.

In routine exams, firms will typically receive a document request either prior to, or at the time of, the examiners arrival at the firm.  The firm is then obligated, under Rule 8210, to provide the requested documents or information to the examiners.  

Arbitration Cases in the News

Two recent FINRA arbitration cases have hit the news this week. 

In one case, a FINRA arbitration panel awarded $1.1 million in legal fees to Stifel Nicoloaus & Co. and four brokers after they were sued by Wachovia Securities, LLC.  The case, a raiding case, related to Stifel's employment of four former South Carolina  A.G. Edwards brokers who left AGE after it was acquired by Wachovia.  The legal fees awarded to the defendants in this case were based on South Carolina's Frivolous Civil Proceedings Act.  In an interesting move, the panel also apparently ordered that Wachovia inform a U.S. federal  court, from which it reportedly obtained a retraining order against the brokers, that representations made in court were not supported by evidence Wachovia reportedly claimed supported their request for the court's intervention.  You can read InvestmentNews' report on this arbitration case here.  

In another case, a FINRA arbitration panel ordered StockCross Financial Services, Inc. and two brokers to pay approximately $319,000 in compensatory damages, about $959,000 in damages for elder abuse, as well as about $234,000 in attorney's fees plus additional sums for costs, in a case where an elderly investor alleged that the brokers recommended unsuitable and overly risky investments for him, including recommending that he leverage the equity in his home to invest.   The panel also imposed sanctions on the respondents for failing to comply with its discovery orders.  More on that case can be found here.  This case is certainly unusual given the treble damages awarded under elder abuse statutes.