The Beck Law Firm, LLC Blog

FINRA Examinations and Parallel Criminal Matters

 

 

Brokers and their counsel should analyze the potential for criminal prosecution during the context of a FINRA examination or an examination by another regulatory organization or body.  This short video provides some basic information on these examinations and parallel criminal proceedings.

Brokers should be aware that FINRA is not a government agency and that it does not prosecute criminal actions.  Nevertheless, they do make referrals of criminal misconduct to prosecutors where warranted, and they may also be asked to cooperate (voluntarily or through subpoenas) with criminal investigations.  As such, if you are the subject of a regulatory examination, be sure that when you determine how to deal with the matter that you are attentive to any risks of criminal action against you.  To assist you in that regard, I always recommend that you engage experienced legal counsel to help guide you through the process.

 

SEC Issues Risk Alert on Unauthorized Trading

 

 

On February 27, 2012, the SEC OCIE Office issued a National Examination Risk Alert on preventing and detecting unauthorized trading.  In this alert, the SEC staff recommends that when firms review business practices and internal controls, they seek to identify any circumstances that might permit people to engage in or conceal unauthorized transactions or activity.  In this context, the SEC is not limiting unauthorized trading to trades made in retail client accounts, but also unauthorized trading in the firm’s accounts including activities by traders and others on the trading desk.  As you might expect, rogue activity in proprietary accounts can create significant risk to a broker-dealer or adviser whether it be from unauthorized trades, exceeding limits on risk and exposure, mismarking of positions, or falsified records of transactions. 

The Risk Alert provides some measures firms might take to help prevent and detect such activity,but the measures described in the Alert is not an exhaustive list, and it does not provide a safe-harbor to firms who adopt these practices.  Ultimately, adequate and appropriate supervisory systems and controls must be adopted and utilized by firms to help manage their risks in their business, including risks relating to unauthorized activity.  Those involved with trading supervision, as well as those in compliance or legal roles, should review this risk alert.  The SEC staff is obviously concerned about the adequacy of supervision in this area, so it is fair to assume that this might be a focus area in regulatory examinations.  

The alert can be found here.