THE INVESTIGATIVE ROLE OF FINRA IN THE FINANCIAL INDUSTRY

On behalf of Girard Bengali, APC posted in securities arbitration and litigation on Friday, May 24, 2019.

Previous posts on this California blog have talked about the role the United States Securities and Exchange Commission, or SEC, plays in the regulation of those who trade in stocks, bonds and the like. However, there is another agency, legally independent from the government, which also regulates those who deal in stocks and other securities. This organization is called the Financial Industry Regulatory Authority, or FINRA, and it was created by Congress as a private corporation with the ability to oversee and self-regulate financial brokers and dealers.

Many of those in the financial industry are subject to FINRA’s rules and regulations. If they violate these rules, FINRA has the power to impose fines and order restitution or it may in a serious case refer the matter to government officials, including the SEC. FINRA has an established process for investigating complaints against brokers and investors, and those who are targeted for investigation should take such inquiries very seriously.

After all, even if there are ultimately no fines or penalties, an investigation from FINRA can proceed to the point of what is called a Wells letter or Wells notice. While not mandatory, this is a customary call or letter FINRA will send after an investigation has been wrapped up and FINRA has determined it will pursue penalties against a broker or a dealer. The problem with a Wells notice is that a broker or dealer at that point has an obligation to self-report the investigation.

In a sense, this means that they are punished already with a black mark on their reputations. In any event, should a Los Angeles financial broker or dealer receive a securities arbitration and litigation notice, then they should consider submitting a response explaining or defending themselves.