As reported in USA Today, FINRA has announced that it is increasing its fines and sanctions on brokers and brokerage firms. Fines will be attached to the Consumer Price Index increases. As a results some sanctions will immediately increase almost 50%. Other changes include:
• Upping suspensions for brokers who misrepresent themselves to customers to between 31 days and two years, up from a previous range of up to 30 days.
• Increasing suspensions for brokers who violate FINRA's suitability rules to up to two years from a previous range of up to one year's suspension. Brokers are required to base their investment advice on a client's risk tolerance and investment experience, also known as the client's suitability to any given investment.
• FINRA will start to advise its adjudicators, or judges in its enforcement cases, "to strongly consider" barring brokers for egregious misconduct, such as when a broker commits "intentional or reckless fraud" or commits serial violations. Currently, FINRA asks only that adjudicators "consider" barring brokers who have committed fraud or who are repeat offenders.
• FINRA will also start to advise its judges to "strongly consider" expelling firms that have engaged in egregious misconduct.
It appears FINRA is attempting to crack down on brokers with numerous complaints to avoid another Mark Hotton situation who was with Oppenheimer and eventually went to jail for 34 months only after he had 12 FINRA complaints.
Stuart D. Meissner Esq.
This week's WSJ Risk and Compliance Journal demonstrates why compliance employees need their own retained counsel when it comes to FINRA investigations. When Brown Brother's Harriman was investigated by FINRA enforcement, Brown Brother's money laundering procedures were under scrutiny, specifically with regard to penny stocks and using such stocks for money laundering activity. While both the firm and the compliance officer Hal Crawford were fined and sanctioned for not creating a proper anti-money laundering program in relation to such trading, it is not known if Mr. Crawford was provided with the resources to implement such program or if the firm was willing to accept and implement Mr. Crawford's suggestions. These issues would be obvious issues that Mr. Crawford's attorney would want to raise if they were issues, so as to protect Mr. Crawford's reputation and future in the industry. However, if he was represented by counsel hired by Brown Brothers it would be unlikely that such attorney would focus on such issues as that counsel would clearly be conflicted.
This highlights once again the need for individual employees to retain their own counsel in any FINRA enforcement investigation and to defer accepting any counsel that the firm provides to such employee. As the old saying goes, there is no such thing as a free lunch and in the case of FINRA investigations it could be a very very expensive lunch in the long run. While we have no idea if Mr. Crawford's situation involved such issues, based on the facts it would appear that these issues potentially could play a role and is instructive for others similarly situated.
Stuart D. Meissner Esq.
Stuart D. Meissner Esq. is an experienced FINRA attorney who has practiced law for over 27 years, including as a FINRA Attorney, Securities Regulator and Prosecutor.
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