FINRA Disciplinary Actions Up in 2010

If it seems like FINRA has been filing more enforcement actions over the past twelve months or so, it’s because it has. According to a study released Monday, the self-regulatory organization filed 152 more disciplinary actions in 2010 than in 2009 (“Finra's Disciplinary Cases Rose 13% in '10, Study Says,” Wall Street Journal, Feb. 28, 2010). The 13 percent increase has been, in many industry professionals’ eyes, the direct result of increased public pressure on regulators to crack down on securities fraud.

"Regulators felt the pressure after the [2008] financial collapse to beef up their enforcement efforts," said James Fanto, a professor at Brooklyn Law School in New York, in the article. "They've all been shamed into being more aggressive.”

In 2010, FINRA brought 1,310 disciplinary action cases compared to 1,158 in 2009. And, if recent events are any indication, that increase may continue through 2011. Already this year, a number of brokerage firms have announced the receipt of FINRA Wells notices, including E*Trade and National Securities. (A Wells notice is the notification that a regulator intends to bring an enforcement action against a company or individual.)

But, it’s not just the number of actions filed by FINRA that is important. Disciplinary actions also provide an indicator of where regulators are placing their focus. As David Lipton, a law professor at Catholic University of America in Washington, D.C., told the WSJ: “…disciplinary actions reflect what regulators are penalizing.”

As reported in the article, cases against brokers and firms for advertising issues, including misrepresentations and omissions, generated the most fines ($4.75 million) in 2010. Actions against firms and brokers for improper communications related to credit default sweeps, electronic communications violations, and suitability violations were also prevalent last year, and generated $4.5 million, $4 million, and $3.8 million in fines, respectively.


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