What to Expect During a FINRA Investigation

FINRA investigations are governed by the FINRA Rule 8000 Series. More specifically, FINRA’s rules establish three distinct phases of the investigative process:

• Pre-Complaint Phase – “FINRA may initiate a proceeding with respect to any alleged violation of, or failure to observe, any Rule of FINRA, or any amendment to such Rule, by a member or person associated with a member, by the service of a Complaint. If FINRA initiates a proceeding, FINRA shall serve the Complaint on each Respondent, and shall concurrently serve the Notice of Complaint on each Respondent.” During this phase, the Enforcement Department is responsible for determining whether there is sufficient evidence of a violation to warrant formal charges.
• Complaint Phase – “Each Complaint shall specify in reasonable detail the conduct by each Respondent that constituted the alleged violation, and shall each Rule or statutory provision that the Respondent is alleged to have violated.” If the Enforcement Department files a Complaint, the respondent is entitled to file an Answer, and either party can request a hearing before a FINRA Hearing Officer and/or the National Adjudicatory Council (NAC).
• Disciplinary Phase – If the complaint phase leads to an enforcement determination, FINRA will impose disciplinary action. FINRA disciplinary proceedings can result in fines, barment, and other penalties. FINRA’s Disciplinary Action pages are available online for public review. Brokerage firms and individuals that are dissatisfied with the decision can also choose to appeal to the SEC or file a petition for review in the U.S. Court of Appeals.

Throughout the investigative process, FINRA rules provide numerous protections for brokerage firms and individuals involved in an investigation. For example, under FINRA Rule 8210, firms and individuals have the right to receive notice of the allegations and evidence against them. They also have the right to be represented by counsel and to present evidence and testimony in their defense.

If you are targeted in a FINRA investigation, it is important to consult with an attorney as soon as possible. An experienced FINRA defense lawyer can help you navigate the complex FINRA investigative process, and can protect your rights and interests at each step along the way.

What is FINRA Rule 8210?

As FINRA explains, FINRA Rule 8210 “states FINRA has the right to compel a member firm or associated person to provide information with respect to any matter involved in the investigation.” FINRA takes full advantage of this authority, and brokerage firms and individuals that receive Rule 8210 requests from FINRA must respond promptly and appropriately.

FINRA Rule 8210 requests can take various forms, and they can require brokerage firms and individuals to provide a wide range of different types of information, resources, and materials. In addition to hard copy and electronic documents, Rule 8210 requests can require the production of data, information stored in the cloud, and testimony (which can be presented either at a hearing or in the form of a written statement).

In all cases, FINRA Rule 8210 requests will include a deadline by which compliance is required. Upon receipt of an 8210 request, it is imperative to promptly begin gathering the necessary response. If you are not sure what is required, you should consult with an attorney who is experienced in navigating FINRA investigations. Failure to respond to an 8210 request can lead to enforcement action including disciplinary action, including a fine, suspension, or barment from the securities industry.

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How to Respond to a FINRA Investigation

If you or your firm is being investigated by FINRA, the most important thing you can do is to retain experienced legal counsel as soon as possible. An experienced FINRA defense lawyer will be familiar with the specific rules that apply to your case, and will be able to help you navigate the complex investigative process.

In addition to retaining legal counsel, there are a number of other steps you should take (and mistakes you should avoid) when facing a FINRA investigation. These include:

• Do Not Delay – Responding to a FINRA investigation requires a prompt response. If you delay, you may miss important deadlines or lose your opportunity to present evidence in your defense.
• Do Not Destroy Evidence – Destroying evidence (or even appearing to destroy evidence) can have serious consequences in a FINRA investigation. If you destroy evidence, FINRA may presume that the evidence was unfavorable to your case.
• Do Not Lie – Lying in a FINRA investigation is a serious offense. If you or your firm is caught lying, FINRA may take enforcement based on the false statements in addition to any other rule violations that may have been committed.
• Be Prepared to Cooperate – While you should not answer any questions without first consulting with your attorney, you should be prepared to cooperate with FINRA’s investigation. If you refuse to cooperate, FINRA may escalate the investigation or move forward with formal disciplinary proceedings.
• Be Aware of Other Risks – FINRA investigations are not just about potential rule violations. They can also lead to other consequences, including civil lawsuits and criminal charges. As a result, it is important to consult with an attorney who can effectively protect your interests in all aspects of the investigative process.

Enforcement Actions Stemming from FINRA Investigations

FINRA investigations can lead to a variety of enforcement actions, depending on the nature and severity of the alleged violation. Possible enforcement actions include:

• Cease and Desist Orders – FINRA has the authority to issue cease and desist orders when necessary to protect investors or the integrity of the securities market. If a cease and desist order is issued, the subject of the order must immediately stop engaging in the prohibited conduct.
• Fines – FINRA can impose fines on broker-dealers and individual brokers who violate its rules. Fines can range from a few thousand dollars to several million dollars, depending on the severity of the violation.
• Suspensions – FINRA can suspend or revoke the registration of broker-dealers and individual brokers who violate its rules. A suspension can last for a few months or several years, depending on the severity of the violation.
• Barment – FINRA can bar brokerage firms and brokers violating its rules from working with retail investors. Barment is the most serious penalty that FINRA can impose, and it is used in cases of serious violations or egregious conduct.
• Disgorgement – FINRA can require broker-dealers and individual brokers to disgorge any profits they have obtained through their violations. Disgorgement is designed to prevent brokerage firms and brokers from profiting from their misconduct.

What to Do If FINRA is Investigating You or Your Firm

If FINRA is investigating you or your firm, it is important to take the situation seriously and to seek experienced legal counsel as soon as possible. By working with a qualified attorney, you can protect your rights and interests and give yourself the best chance of avoiding disciplinary action.

At Spodek Law Group, we have substantial experience representing brokerage firms and brokers in FINRA investigations. If you are being investigated by FINRA, we encourage you to contact us promptly so that we can protect your interests. To speak with one of our senior FINRA defense lawyers in confidence, call 212-300-5196 or contact us online now.

Contact Spodek Law Group Today
If you or your firm is facing a FINRA investigation, our legal team is ready to help. Call 212-300-5196 or contact us online for a confidential consultation.