Defending a FINRA Investigation and Enforcement Action

A broker and registered representative often are contacted by FINRA for information that potentially could lead to an enforcement action. The nature of the information sought by FINRA may suggest that the inquiry is more than a simple informational request. For instance, questions about trading, suitability, reporting, supervision, and outside business activity all can potentially lead to an enforcement action. As a member of FINRA or a registered representative you are obligated to respond to the FINRA inquiry. Therefore, careful attention is necessary to formulate your response.

In year 2017, FINRA filed 1,369 disciplinary actions, imposed fines that total over $64 million, and restitution orders for $66.8 million. In addition, 20 firms were expelled from FINRA, 29 firms were suspended, 492 individuals were barred from the securities industry, and 733 individuals were suspended. Depending on the nature of the inquiry, a firm or individual needs to be concerned about a FINRA referral to federal and state law enforcement agencies. In 2018, over 70 referrals from FINRA has resulted in enforcement by the U.S. Securities Exchange Commission and other agencies, some of which concluded in criminal actions. For instance, a former Vice President at Ocwen Financial Corporation agreed to settle charges by the SEC that he engaged in insider trading surrounding three separate events based on material nonpublic information obtained through his employment. (Securities and Exchange Commission v. Bryan R. Ziegenfuse, No. 2:18-cv-04192-CMR (E.D. Pa. filed Sept. 28, 2018) Sometimes, a FINRA investigation leads to information that others have also been involved in unlawful conduct that FINRA refers to other agencies. A researcher for a pharmaceutical firm was criminally charged with insider trading. (U.S. v. Kosinski, USDCt, District of Connecticut, Criminal Case No. 3:16-CR-00148).

The stakes are extremely high when you are the subject of a FINRA enforcement action. Competent counsel who understands FINRA and possible strategies is necessary. If you are faced with an FINRA enforcement action, your counsel should be versed in its discovery procedures, hearing conduct and potential fines and sanctions. For instance, although FINRA rules provide for discovery, in practice discovery is not always foregoing from the enforcement staff.


William Despo was a former enforcement attorney with the American Stock Exchange, and has over 40 years of experience defending brokers, investment advisers, and registered representative in regulatory matters, litigation and arbitration. He is the chair of the New Jersey State Bar Association Securities Law Committee and has moderated continuing legal education programs that included senior officials from FINRA, SEC and the N. J. Bureau of Securities, as well as officials from the U.S. Attorney’s Office for New Jersey.


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