What Is a FINRA Investigation?

The Financial Industry Regulatory Authority possesses extensive power to examine broker-dealers and individual brokers. When violations are discovered, FINRA can levy penalties or prohibit brokerage professionals from serving retail investors.

Each year, hundreds of brokerage professionals face bars from the industry. Most investigations result in either no enforcement action or minor penalties. However, when serious violations like fraud or collusion emerge, FINRA pursues aggressive action.

What is FINRA?

FINRA operates as a non-governmental, non-profit organization providing self-regulatory oversight of the securities industry in the United States. Under the Securities Exchange Act of 1934, FINRA regulates broker-dealers and individual brokers, establishing and enforcing conduct rules.

The Enforcement Department handles FINRA investigations, investigating potential securities violations and bringing formal disciplinary actions against firms and their associated persons.

Violations include:

• Antitrust and anti-competition violations
• Collusion and price-fixing
• Customer abuse, including conflicts of interest and excessive trading
• Failure to supervise
• Fraud and misrepresentation
• Insider trading
• Unauthorized trading

What to Expect During a FINRA Investigation

FINRA Rule 8000 Series governs investigations, establishing three distinct phases:

Pre-Complaint Phase

FINRA may initiate proceedings for alleged rule violations by filing a Complaint against respondents. The Enforcement Department determines whether sufficient evidence exists to warrant formal charges.

Complaint Phase

The Complaint specifies the alleged conduct and applicable rules. Respondents may file an Answer, and either party can request a hearing before a FINRA Hearing Officer.

Disciplinary Phase

If the complaint phase results in enforcement determinations, FINRA imposes disciplinary action. Outcomes include fines, barment, and other penalties. Dissatisfied parties may appeal to the SEC or petition the U.S. Court of Appeals.

What is FINRA Rule 8210?

FINRA Rule 8210 grants the right to compel a member firm or associated person to provide information with respect to any matter involved in the investigation. Rule 8210 requests can demand various information types: hard copy documents, electronic files, cloud-stored data, and testimony.

How to Respond to a FINRA Investigation

Do Not Delay — Responding quickly is critical. Delays may cause missed deadlines.

Do Not Destroy Evidence — Evidence destruction can trigger serious consequences.

Do Not Lie — False statements constitute serious offenses.

Be Prepared to Cooperate — While avoiding answering questions without attorney consultation, cooperation demonstrates good faith.

Enforcement Actions Stemming from FINRA Investigations

• Cease and Desist Orders — Requiring immediate cessation of prohibited conduct
• Fines — Penalties ranging from thousands to several million dollars
• Suspensions — Registration suspension or revocation
• Barment — FINRA’s most serious penalty, prohibiting firms or brokers from serving retail investors
• Disgorgement — Return of profits obtained through violations