As noted recently, FINRA’s monthly publication of its Disciplinary and Other FINRA Actions offers various insight and teaching moments. April’s lesson for the broker-dealer industry: Ignore FINRA at your peril.
FINRA Bars for Reps for Failing to Respond Accurately . . . or At All
FINRA barred 6 individuals for violations of FINRA rules. In four cases, the registered representative:
- “provided an inaccurate and incomplete response to FINRA’s request for documents and information in connection with its investigation into allegations that he had undisclosed brokerage accounts while associated with his member firm”;
- “refused to produce documents and information requested by FINRA in connection with its investigation into whether he participated in unapproved private securities transactions”;
- “refused to appear for on-the-record testimony requested by FINRA in connection with an investigation into the circumstances giving rise to his termination from his member firm”; or
- “failed to timely respond to FINRA’s requests for information and documents . . . [and] failed to provide on-the-record testimony requested by FINRA.”
In addition, the only complaint that FINRA filed against an individual during this period was because the representative “failed to appear for on-the-record testimony requested by FINRA during the course of an investigation into allegations made in a Form U5 submitted by her member firm.”
This isn’t new. FINRA has had little patience with firms and representatives who ignore – or worse, provide false information in response to – its requests for information. FINRA Rule 8210 gives the regulator the authority to seek a wide range of information. Ignoring FINRA’s request is itself a violation of the rule as, under Rule 8210(c), “[n]o member or person shall fail to provide information or testimony or to permit an inspection and copying of books, records, or accounts pursuant to this Rule.” It is also a sure-fire way to earn an industry bar.
But an Industry Bar Can Have Long-Lasting Effects
I have little doubt that one or more of these (now-former) registered representatives decided that there was no need to respond to FINRA. Why answer the industry’s self-regulatory organization when you are leaving the industry altogether? One should consider the potential collateral effects. As noted in my article on expungement, disclosures about current and former registered representatives are available through FINRA’s BrokerCheck program. Anyone with internet access can review these reports. Potential employers or lenders may find the regulator’s ban a reason to move on. An industry bar may have effects outside of the industry.
Thank you for reading this article. Please know that I wrote it for informational purposes only (some may consider it ADVERTISING MATERIAL) and did not intend for it to be legal advice or to form an attorney-client relationship with you – especially in jurisdictions where I am not licensed to practice law. I encourage you to seek your own counsel to help you with your specific situation. To that end, I invite you to contact me if you would like to discuss my services.
Ryan Smith is a partner at Practus, LLP and provides direct and detailed legal and compliance advice for broker-dealers, registered investment advisers and their representatives.
