FINRA vs. SEC Investigation
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The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) both investigate securities fraud and offenses that are similar to fraud, like misrepresentation. They also both have their own enforcement arms that can impose sanctions for wrongdoing that they discover during their investigative process.
However, they are not the same, and the differences between them can have important repercussions for targets of their investigations.
The FINRA is a private corporation that functions as a self-regulatory organization for the American securities industry. It is responsible for overseeing the conduct of around 4,250 brokerage firms, 154,000 branch offices, and over 613,000 registered brokers. It does this by enforcing rules that were promulgated by the brokerage industry to protect investors.
The SEC, on the other hand, is a federal agency that enforces federal securities laws. It enforces a variety of pieces of legislation. Chief among them are the:
- Securities Act of 1933
- Securities Exchange Act of 1934
- Sarbanes–Oxley Act of 2002
- Credit Rating Agency Reform Act of 2006
- Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010
Why have thousands of clients chosen Spodek Law Group?
- Only Sr. Attorneys – We don’t employ paralegals, Jr. Attorneys, or Secretaries. You will work directly with a Sr. Attorney who will keep you apprised on a regular basis regarding the details of your case.
- We Know The Government’s Playbook – Many of our attorneys previously worked for the government as federal prosecutors. Understanding the tricks, goals, and strategies of the opposing side gives us an advantage as we prepare our defense.
- We Have Secret Weapons – Our team of Former FBI, IRS, DEA, OIG, and Secret Service agents will use their experience in espionage, business investigations, and cyber forensics to find the nuanced details that can sometimes make or break a case.
- Unrivaled Results – While we have many tools at our disposal, our greatest asset is our notable experience fighting the government. This experience has given us the privilege of winning over 2,000 cases on behalf of our clients.
I encourage you to compare our experience, results, and team with any local or national firm.
Then contact us directly (no junior attorney or paralegal will screen your call) and we will help you schedule a free consultation with one of our Senior attorneys.
We are on your side and look forward to assisting you.
Call now to confidentially discuss the details of your case: 212-300-5196
- Former FBI Special Agents
- Former DOJ Trial Attorneys
- Over 2,000 Federal Cases Defended
- Consultants and Experts Available
The DOJ Is Aggressively Prosecutes FINRA and SEC Cases for Federal Fraud
The Department of Justice (DOJ) is aggressively pursuing fraud cases under the SEC and FINRA, and it’s crucial to have experienced legal representation to protect your interests.
Recent Cases:
- In the case of United States v. Kevin B. Merrill, et al., involving a Ponzi scheme that defrauded investors of over $364 million, the defendants received sentences ranging from 11 to 22 years in federal prison.
- In the case of United States v. Robert Shapiro, involving a $1.3 billion Ponzi scheme, the defendant received a 25-year prison sentence.
- In the case of United States v. William Neil Gallagher, involving a $23 million Ponzi scheme, the defendant was sentenced to 25 years in federal prison.
It’s important to remember that a conviction for criminal fraud or theft from the government can result in significant fines and restitution obligations, and in some cases, even up to 20 years in prison.
Common FINRA and SEC Enforcement Actions
Both FINRA and the SEC have the authority to enforce their respective rules and regulations. However, the FINRA’s enforcement actions are limited to the securities industry, while the SEC’s actions can reach anyone.
For example, the FINRA can impose sanctions on brokerage firms, branch offices, and registered brokers if it finds evidence that they are breaking the FINRA’s rules. The SEC, on the other hand, can impose a similar sanction for violations of federal securities law, but can also pursue enforcement actions against individuals or entities that are not affiliated with a brokerage firm.
Violations of FINRA or SEC regulations can carry steep penalties, such as fines, suspensions, or even being permanently barred from the securities industry. The SEC can also take an alleged offender to court to seek civil penalties for violating securities laws or regulations.
However, one important distinction between the two organizations’ enforcement actions is that the SEC can bring criminal charges against those it investigates. This is because the SEC is a federal law enforcement agency that has the authority to bring charges and enforce the law in federal court. The FINRA, as a non-governmental corporation, does not have this authority.
This does not mean that the FINRA does not take wrongdoing seriously, though. The FINRA has a reputation for being a tough regulator, and its enforcement actions can be very effective in preventing future wrongdoing.
SEC Investigations Are Civil, But Can Become Criminal
The SEC is a civil law enforcement agency. The only sanctions that it can impose for the wrongdoings that it finds during its investigation are civil penalties, like fines or court-ordered injunctions. However, the SEC can refer cases to the DOJ for criminal prosecution. SEC investigations can quickly become criminal in nature, exposing subjects of the investigation to the possibility of prison time.
FINRA Has an Enforcement Arm, But Cannot Pursue Criminal Charges
The FINRA is the enforcement arm of the securities industry’s self-regulation. Its authority is limited to the regulations set by the industry, and its sanctions are limited to civil penalties. This does not mean that FINRA investigations do not carry significant risks. FINRA sanctions can be crippling to a brokerage firm, branch office, or registered broker. It can include the suspension or revocation of a license, effectively ending a broker’s career.
FINRA and the SEC Investigate a Wide Range of Alleged Wrongdoing
Because they have overlapping jurisdiction to investigate potential violations of securities laws and regulations, it is not uncommon for the SEC and the FINRA to conduct joint investigations, especially when the alleged offense is a serious one.
When the allegations are particularly egregious, it is not uncommon for these civil investigations to get referred to the DOJ or the FBI for a criminal investigation, as well. In these cases, it is imperative to get legal help from a securities fraud defense lawyer who understands the nuances and the stakes of the situation.
Three Important FINRA and SEC Investigations
1. SEC v. Tesla, Inc. and Elon Musk
In 2018, the SEC charged Tesla, Inc. and its CEO, Elon Musk, with securities fraud for making false and misleading statements about taking the company private. The SEC alleged that Musk’s tweets about securing funding for a buyout were false and misleading, and that they caused harm to investors who traded on the information. In 2019, Tesla and Musk settled the charges without admitting or denying the allegations. The settlement required Tesla and Musk to pay $40 million in fines.
2. SEC v. Volkswagen AG
In 2019, the SEC charged Volkswagen AG with securities fraud for deceiving investors about the company’s emissions standards. The SEC alleged that Volkswagen made false and misleading statements about its vehicles’ emissions performance, and that these false statements caused harm to investors who traded on the information. In 2020, Volkswagen settled the charges without admitting or denying the allegations. The settlement required Volkswagen to pay $4.3 billion in fines.
3. FINRA v. Robinhood Financial LLC
In 2020, the FINRA fined Robinhood Financial LLC $70 million for failing to adequately monitor for and prevent fraudulent trading activity on its platform. The FINRA alleged that Robinhood failed to implement adequate systems and controls to prevent manipulative trading, and that it failed to report suspicious trading activity to the FINRA. The $70 million fine was the largest fine ever imposed by the FINRA.
What to Do if You’re Facing a FINRA or SEC Investigation?
If you or your company is facing a FINRA or SEC investigation, it is important to take the situation seriously. Here are some things you can do to protect yourself:
- Contact an experienced FINRA or SEC defense lawyer. A lawyer can help you understand the allegations against you, your rights, and the best course of action.
- Cooperate with the investigation. However, you should not make any statements to investigators without first consulting with your lawyer.
- Preserve all relevant evidence. This includes emails, documents, and other records.
- Be prepared to defend yourself. The FINRA and the SEC can impose significant sanctions for violations of their rules and regulations.
Even if the FINRA or the SEC close its investigation without imposing sanctions, the investigation itself can be expensive and time-consuming. It is important to take the situation seriously and to get the help of an experienced FINRA or SEC defense lawyer as soon as possible.
Put our highly experienced team on your side
Once hired, we will immediately initiate our defense of your case, demanding information from the SEC about their investigation so we can determine the best strategy. With years of experience in federal criminal defense, we excel at pre-trial case resolutions, avoiding indictments in 90% of our cases.
At Spodek Law Group, we are a national network of senior-level securities fraud defense lawyers and former federal law enforcement officials. We have represented numerous securities professionals, and have found that the sooner we get involved in these cases, the better the outcome for our clients. Call us at 212-300-5196 or contact us online to get started on your case today.
