New Yorkers who work in the financial industry are experts who share their knowledge of market trends for the benefit of investors and traders seeking profit or advice on financial management. Unfortunately, these individuals are always at risk of unjustified accusations of securities fraud.
This can happen for completely innocent reasons, such as when a broker or financial advisor offers a recommendation or investment tip that falls short of meeting a client’s investment goals, or if the client has misunderstood the terms and conditions of an investment in a mutual fund or another financial vehicle.
Unfortunately, such charges can harm the individual’s or institution’s reputation and result in crippling fines or more severe punitive measures. Understanding the implications of FINRA or SEC charges can help you learn how to defend yourself and your business.
The FINRA and SEC agencies
Although the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) are both regulatory bodies that serve to protect financial markets and investors, each has a unique role to play and enforcement powers. Where the SEC is a federal agency that has authority over the entire U.S. securities market, FINRA is a nonprofit entity that has congressional authorization to regulate broker-dealers.
FINRA works under the direction of the SEC to oversee:
- The licensing and regulation compliance of brokers and their agents.
- Broker compliance with standards of truthful advertisement.
- Broker compliance with standards for advising clients of investment suitability.
- Investigations related to securities violations.
Penalties for a FINRA civil claim can range from financial penalties to broker suspensions. Because FINRA records customer complaints and enforcement actions, repeat offenders can receive more severe penalties.
The SEC, on the other hand, has broad powers to handle all aspects of the U.S. securities market, including:
- Supplying accurate information on corporate finance to potential investors.
- Creating and maintaining standards for fair markets, including the regulation of broker deals under FINRA.
- Investigating and enforcing regulations through administrative hearings and federal litigation.
Why you should cooperate in an investigation
Under Rule 8210, FINRA can compel you to provide sensitive documents or testify as part of the evidence-gathering process in the investigation. Not responding to an 8210 letter can result in immediate punitive action.
An SEC investigation will attempt to gather enough evidence to file civil charges for referral to the appropriate law enforcement authority. It is important to remember that the SEC may refer criminal charges but cannot prosecute them. Refusing to comply with a subpoena could prompt the agency to file a complaint in federal court, where it becomes part of the public record.