FINRA Rules

FINRA VOWS TO LIMIT EXPUNGEMENTS – Rules and Realities

October 10, 2017 | Herskovits, PLLC

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“Arbitrators have a unique, distinct role in ensuring that customer dispute information is expunged from the CRD system only when it has no meaningful investor protection or regulatory value.” FINRA (September, 2017)

In a new push for closer scrutiny over expungements, FINRA has just updated its Notice to Arbitrators and Parties on Expanded Expungement Guidance. In the revised document, FINRA zeroes in on expungement-only cases, specifically addressing the issue of customers who may be unaware of the existence of expungement claims.

The regulator’s document states that,

FINRA CEO Cook Grilled by Congress on FINRA’s Financial Conduct

September 18, 2017 | Herskovits, PLLC

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During a recent Financial Services Subcommittee oversight hearing, both Democrat and Republican lawmakers raised concerns before FINRA CEO Robert Cook. Some of the issues discussed were the Regulatory Authority’s standing as a private entity and its handling of fine proceeds, which hit a record $173 million in 2016.

One of the main criticisms voiced by House Representatives referred to FINRA’s practice of keeping fine proceeds instead of giving them back to harmed investors. In this regard, California’s Democratic Representative Brad Sherman pleaded for increased transparency in the regulator’s activities.

Cook heard many hard questions during the hearing, from both sides of the aisle, and he attempted to reply in a satisfactory way. Whenever FINRA’s present reality seemed inadequate, he assured current problems would be addressed by upcoming changes in many aspects of the entity’s activities.

FINRA Vows to Protect Investors from High-Risk Brokers

August 29, 2017 | Herskovits, PLLC

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In a speech delivered at Georgetown University, FINRA CEO Robert Cook expressed the Regulatory Authority’s intent on helping brokerages identify and supervise brokers with a history of disciplinary action.

From now on, FINRA is going to look very closely at how firms hire and supervise high-risk brokers, Cook explained.

Firms should have heightened supervision in place to prevent potential violations by brokers with a history of misconduct. According to Cook, it is firms themselves who have asked FINRA for more guidance on the issue.

Raiding Cases in the Securities Industry – Navigating Claims, Damages & the Rest

August 22, 2017 | Herskovits, PLLC

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Raiding, hiring groups of brokers from a competitor, happens frequently in the securities industry giving rise to complex disputes and damage claims. Whether your firm is the victim or the accused raiding entity, you will need to understand these basics:

What is raiding in the securities industry?
Which legal claims are asserted?

FINRA Disciplinary Proceedings – Inside FINRA’s Complaint and Hearing Process

August 5, 2017 | Herskovits, PLLC

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FINRA’s enforcement program is big business.

In 2008, FINRA levied fines totaling $28 million. By 2016, that number jumped to $176 million. In 2008, FINRA ordered restitution payments to investors totaling $6 million. By 2015, that number jumped to $96 million.

Each year, FINRA initiates approximately 1,500 disciplinary actions against member firms and employees. FINRA’s Office of Hearing Officers resolves approximately 400 proceedings per year.

Keeping the Record Straight – FINRA Cracks Down on Firms for Failing to Protect Records

August 3, 2017 | Herskovits, PLLC

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Regulatory compliance is often less costly than FINRA’s steep fines. Yet companies continue to face millions of dollars in penalties for not complying with FINRA’s regulations. In this particular time, there is a clear intent from FINRA to hold such companies accountable. Unfortunately, many of them have learned this the hard way.

FINRA has just fined State Street Global Markets and Acorns Securities $2 million for an easily avoidable violation: improper retention of customer records. FINRA has very specific requirements for record-keeping, which should be done in a manner that prevents them from being altered or destroyed.

For State Street, this is the second blow in a row, after Richard Boomgaardt, a former executive with the company pleaded guilty to securities fraud and wire fraud involving secret commissions on billions of dollars of trades. Edward Pennings, another former State Street exec also pleaded guilty in the same case.

FINRA Chief Counsel on Emerging Regulatory Issues and Enforcement Priorities

July 31, 2017 | Herskovits, PLLC

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At a recent event hosted by the American Bar Association’s Securities Litigation Committee, three Chief Counsel from the Financial Industry Regulatory Authority’s Enforcement division discussed the agency’s current priorities.

Chief Counsel Sue Light, Gina Petrocelli, and Lara Thyagarajan shed light on the areas that FINRA will be scrutinizing more closely through the second half of 2017.

As per FINRA’s 2017 Priorities Letter, the Regulatory Authority is shifting its focus from a “culture of compliance” to a “blocking and tackling” model, emphasizing on watching brokers with a track record of disciplinary actions.

FINRA Investigation Defenses, Process & Rule 8210 Realities

July 10, 2017 | Herskovits, PLLC

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With the increase in FINRA enforcement activity in the last year, we hear daily from concerned RAs and other financial industry professionals – this post is intended to decode the basics of the process and offer some cautions to avoid pitfalls awaiting the unwary.

1. How can you become a target of a FINRA investigation?

The Financial Industry Regulatory Authority (FINRA) is a self-regulating organization. Although it is not a government agency, its primary mission is to protect investors by regulating its members. All broker-dealers, down to the last firm employee, must abide by FINRA’s rules.

Albany Investment Firm Agrees to Pay Tribe $3.4 Million Over Fraudulent Sale of Non-Traded REITs and BDCs

May 22, 2017 | Herskovits, PLLC

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Purshe Kaplan Sterling Investments (PKS) of Albany, New York, recently agreed to pay $3.4 million to a Native American tribe to resolve allegations that one of its brokers, Gopi Krishna Vungarala, took millions of dollars in undisclosed commissions on the tribe’s investments.

Vungarala was not only a financial advisor to the tribe; he was also employed as its Treasury Investment Manager, which allowed him to participate in investment decisions. Vungarala allegedly used his position for his own personal gain, although he was purportedly aware that employees of the tribe were banned from engaging in any business activities that might imply a conflict of interest.

According to a statement by FINRA,“Vungarala was able to misrepresent to the tribe that neither PKS nor he would receive commissions on its purchases, and he was therefore able to induce the tribe to invest more than $190 million in non-traded REITs and BDCs. In fact, Vungarala personally received at least $9 million in commissions from the tribe’s investments.”

FINRA Settles Complaint Over Undisclosed Tax Liens Over $1 MIllion

May 20, 2017 | Herskovits, PLLC

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Kevin Richard Graetz, a former broker from New York, recently settled a FINRA complaint relating to his alleged failure to report $1 Million in tax liens over the course of seven years.

FINRA requires registered personnel to disclose tax liens and any other unsatisfied judgments in their Form U4.

As per FINRA’s settlement documents, in his Form U4 filings between February, 2013 and February, 2014, Graetz failed to mention the unsatisfied tax liens he was subject to.