 This week's WSJ stated that FINRA is on tear mandating that firms make sure that their reps are up to date on their disclosure filings with FINRA. Specifically representatives and firms must make sure all bankruptcies and financial disclosures such as judgements have been reported, as well as reportable criminal convictions, even if from college days.
As a result of this FINRA proctology exam many reps are being reminded of long forgotten events they sooner would like to forget. However, apparently FINRA is very sloppy in its research mistaking reps for others who have similar or the same names and other errors. Depending on the type of disclosure representatives must remember that disclosure can have a drastic impact on a representatives ability to gain future employment, let alone clients, so it is prudent to make sure that only accurate disclosures are placed on their records. In 2010 FINRA issued a release which among other things allowed for : Brokers will be able to submit a written notice of the dispute to FINRA – FINRA will post the appropriate form on its website – with all available supporting documentation. If FINRA determines that the dispute is eligible for investigation, it will add a general notation to the broker's BrokerCheck report stating that the broker is disputing certain information in the report – and that notation will only be removed when FINRA has resolved the dispute. If its investigation shows the information is in fact inaccurate, FINRA will update, modify or remove that information as appropriate. As a result, ever since 2010 representatives have had two alternatives to correcting disclosures that appeared on BrokerCheck. As has always been the case, brokers could bring an arbitration claim in FINRA against the firm which made the filing and pursue an arbitration for "reformation" of their CRD ordering the firm to make a correction. However this process, the pursuit of which is controlled by the broker, can take many months and as a result can be expensive like all arbitrations. FINRA's alternative method provided for in 2010, allows for FINRA to investigate and make changes on their own, reducing the potential expense and allowing counsel for the broker, such as my firm, to represent reps for such submissions and follow-up based on an affordable flat fee basis. However, since the representative does not control the process, one is at the whim of FINRA Enforcement to investigate and make any changes. One can certainly try both routes; see if FINRA will make the changes first, limiting the expense, and if not, pursue arbitration, but either way the representative will need to weigh the likelihood of success (how accurate is the current information and can it be proven to be inaccurate) along with the expense, vs. leaving an incorrect black mark on one's record for their entire career. Stuart D. Meissner Esq. 212-764-3100
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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. 866-764-3100 Attorney Advertising 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. 212-764-3100 Attorney Advertising Nothing could be worse for an employee of brokerage firm, than accepting an attorney chosen by one's employer, with regard to regulatory issues that may involve management or with regard to customer claims that may require the representative to focus on the firm, as with most product cases.
One does not want to learn the hard way that as a result of conflicts of interest the FINRA attorney representing you, is not primarily focused on your benefit vs. the firm which is paying its bills. Representatives should not be penny wise and pound foolish in accepting legal representation from an attorney retained by one's firm as often such attorneys have conflicting loyalties and are not always looking out for the representative's best interest. We have had many clients who had first been represented by a firm's chosen counsel only to learn that they were not pursuing defenses or arguments that may implicate the firm, but would avoid negative impact on the representative. Choose wisely. Stuart D. Meissner Esq. 212-764-3100 |
AuthorStuart 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. Archives
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