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FINRA Says Record Restitution Ordered For Investors in 2012

David P. Meyer, Esq.

Record Amount of Restitution Ordered for Harmed Investors in 2012, Says FINRA

The Financial Industry Regulatory Authority (FINRA) has announced that it ordered $34 million in restitution to harmed investors in 2012 – a record amount, according to a Jan. 8 press release, and a 79% increase over the $19 million ordered in 2011. The regulator also brought a record number of disciplinary action cases (1541, 53 more than in 2011), assessed $68 million in fines, and provided information on potential fraudulent conduct to the SEC and other governmental organizations that resulted in a large number of civil and criminal actions.

In 2012, FINRA's Office of Fraud Detection and Market Intelligence said,

OFDMI referred 692 matters involving potential fraudulent conduct to the SEC and other federal or state law enforcement agencies, including 347 insider trading referrals and 260 fraud referrals,” stated the release. “These referrals and cooperative regulatory efforts resulted in many SEC actions, including PIPEs transactions, microcap fraud, insider trading and market manipulation.

As expected, many of FINRA’s own actions in 2012 involved complex products, includingexchange-traded funds - ETFs, structured products, and non-traded REITs. For example, FINRA brought a number of cases against big-name firms for the improper sales of ETFs. These included sanctions totaling more than $9.1 million for selling leveraged and inverse ETFs without reasonable supervision and for not having a reasonable basis for recommending the securities. Sanctions were filed against:

  • Citigroup Global Markets, Inc
  • Morgan Stanley & Co., LLC
  • UBS Financial Services
  • Wells Fargo Advisors, LLC

“The firms were fined more than $7.3 million and are required to pay a total of $1.8 million in restitution to certain customers who made unsuitable leveraged and inverse ETF purchases,” stated the release. “In addition, FINRA also brought similar cases against Merrill Lynch and Scott & Stringfellow.”

Merrill Lynch also was fined $450,000 for failing to adequately supervise its representatives in the sale of structured products. In total, FINRA expelled 30 firms from the securities industry, barred 294 individuals, and suspended 549 brokers from association with FINRA-regulated firms in 2012. In 2011, the regulator suspended 432 brokers from association with FINRA-regulated firms, barred 317 individuals, and expelled 17 firms from the securities industry. For additional information on FINRA’s 2012 actions, click here.