BD Law Blog - by Georgia Securities Lawyer Joel Beck

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. 

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.  

Dealing with a FINRA Investigation - Part III - FINRA's Rule 8210

In previous posts in this series, I've discussed the role of FINRA as a private, non-government self-regulatory organization, as well as the basic types of examinations that is conducts (routine and cause).  Today, as promised, I'll address the consequences of not cooperating with a FINRA examination.

As mentioned earlier, FINRA is not a part of the government.  That means that it cannot subpoena you or your records, it cannot criminally prosecute a broker or firm and cannot put you in jail or impose other criminal punishment.  Nevertheless, it possess significant powers and can impose significant civil penalties against brokers and firms through its disciplinary process.   

Dealing with a FINRA Investigation - Part II

In today's post, I'll discuss the two main examination types conducted by FINRA and begin to discuss basic examination techniques.  Most often, FINRA examinations, or investigations, are characterized as either routine or cause exams.  Routine exams are just that - they are routine examinations of broker-dealers conducted on a regular schedule.  In a routine examination, examiners visit the firm on-site, review books and records, talk to managers and compliance officials, and evaluate how the firm is complying with various industry rules and regulations.  All broker-dealers receive routine examinations based on FINRA's exam schedule.  Typically, though not always, the examination is announced a few weeks prior to its starting, and the firm is asked to prepare certain documents and books and records for the examiners in advance of the on site part of the examination.  Depending on the size of the firm and the scope of the exam, the on-site portion of the exam may be conducted by one to five or even more examiners, and may last the better part of one week to three weeks or more.  Following that, the examiners may continue their exam back at their offices for weeks or months more, which may include requesting additional information from the firm, conducting additional interviews, etc.

Cause examinations may be initiated based on a number of things.  A customer complaint to FINRA, that describes conduct that potentially violates industry rules, may commence an exam.  Similarly, a broker being terminated for cause and having certain disclosures on his or her Form U-5 may prompt the regulators to initiate an exam.  Additionally, Rule 3070 disclosures, referrals from arbitration cases, referrals from other regulators, as well as information found in the media may prompt the regulators to commence a cause examination. 

Generally speaking, whether its a routine exam or a cause exam, the basic exam techniques are the same.  Examiners will request the firm and/or broker-dealer to produce its books and records for inspection and copying, may conduct informal interviews with firm officials, supervisors and brokers, may contact and interview customers, and may request written statements from brokers.  If examiners believe that there may be evidence of a rule violation, further interviews, including "on-the-record interviews" (which are essentially depositions under oath taken down by a court reporter) may be conducted, as examiners seek to find evidence that will prove, or disprove, the existence of rule violations.  As I'll discuss in the next post in this series, brokers and firms face significant disciplinary action, including an expulsion or bar from the industry, for not cooperating with a FINRA exam. 

 

Dealing with a FINRA Investigation - Part I

I often represent individual brokers and firms that are involved in an investigation by FINRA, the Financial Industry Regulatory Authority.  Many times, I find that brokers don't understand the role that FINRA plays, what their own responsibilities and obligations are, and what can come about as a result of a FINRA examination.  With a series of posts on dealing with a FINRA investigation, I hope to be able to provide some basic information for brokers and firms so that they can better understand the process, and the possible outcomes.  In today's post, I'll focus on the role of FINRA, and, in later posts, will discuss responding to regulatory requests pursuant to Rule 8210, including what can happen when a broker does not respond.