I've opined many times here on the blog that sometimes it pays to litigate, rather than settle. What I mean by that is that in some cases before FINRA or the SEC, while a settlement might be quick, the end result is that the settlement imposes harsher sanctions than could reasonably be obtained after a formal hearing. In other words, some cases have a "litigation discount" it seems, as opposed to a discount for settling that you might expect.
Brian Rubin, a former colleague of mine at NASD, and Jae Yoon, both lawyers at Sutherland, recently published their most recent study on the question of settling or litigating. Their article, Sutherland Study on Litigating Against the SEC and FINRA Shows It Sometimes Pays for Broker-Dealers and Registered Representatives to Take On The Regulators, reveals the results of a pretty intensive analysis. If you are a rep. or a broker-dealer facing enforcement action by the regulators, I commend this article to you. Some of the highlights of the study, in my view, are:
* FINRA respondents with a lawyer are significantly more successful than pro se respondents. The study details that respondents with counsel succeeded in getting 18.8% of charges dismissed, while respondents without counsel had 0% success during the review period.
* With respect to monetary sanctions, SEC and FINRA respondents were able to obtain lower sanctions against them, when compared to what the staff had sought, in nearly a third of the cases.
* With respect to suspensions from the industry, FINRA respondents were effective in reducing sanctions at hearing in approximately 50% of cases studied. Importantly, the study notes, when FINRA staff sought a complete bar as a sanction, 75% of respondents convinced a Hearing Panel to impose a lesser sanction.
So what does all of this mean? To me, it boils down to two things that folks facing a regulatory action need to understand. First, having a lawyer experienced in securities regulatory cases is critical. Second, sometimes you have to be willing to stand up and fight.
Obviously, with respect to the decision of settling or litigating, other factors come into play including resources, publicity, etc. The decision of whether to settle or litigate is a very important decision that must be made based on the particular facts of the case. Many times, settling a case is the right thing to do. But not always. And sometimes it pays to fight.