More On Legal & Compliancefrom The Advisor's Professional Library
- Registration Requirements for Investment Advisor Representatives (IARs) When individuals launch an advisory firm, they must avoid marketing themselves or the firm as investment advisors before they are properly approved and registered. Otherwise, they are subject to severe penalties.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
Fines and disciplinary actions issued by the Financial Industry Regulatory Authority (FINRA) for 2012 are on track to “significantly outpace” those for 2011, according to a mid-year review released Thursday by Sutherland Asbill & Brennan.
The results of the review, conducted by Sutherland Partners Deborah Heilizer and Brian Rubin, show that during the first half of 2012, FINRA ordered broker-dealers and associated persons to pay $39.4 million in fines.
“If fines continue to be assessed at this rate, 2012 will represent a 15% increase from the total fines reported by FINRA in 2011,” Rubin (left) said. “Essentially, we are looking at a jump from $68 million in 2011 to projected fines of $78.4 million in 2012.”
FINRA’s projected overall increase in fines and disciplinary actions would represent a “continuation of trends from recent years,” the Sutherland attorneys say. For instance, FINRA’s 2011 fines surpassed the total amount of 2010 fines by 51%. Similarly, the projected number of 2012 disciplinary actions would represent the fourth straight year of growth. In 2009, the number of disciplinary actions grew by 8% over 2008 and by 13% in both 2010 and 2011 over each prior year.
The Sutherland attorneys also found that FINRA reported 609 cases in the first half of 2012. “If cases are brought at this same rate for the rest of the year, the number of cases is projected to surpass 2011’s total disciplinary actions by nearly 9%,” the Sutherland lawyers said.
This year, Heilizer says, FINRA “appears to be leaning toward product-specific cases.”
Sutherland also points to the top five enforcement issues for FINRA during the first half of 2012, in terms of fines imposed:
- Research analyst communications: $11.9 million, 8 cases;
- Suitability: $6.6 million, 64 cases;
- Unit investment trusts: $3.9 million, 4 cases;
- Markups and/or markdowns: $3.7 million, 14 cases; and
- Municipal securities: $3.7 million, 24 cases.
Additional notable results of Sutherland’s 2012 midyear review include:
More Supersized Fines. FINRA has also been more aggressive in ordering “supersized” fines (fines of at least $1 million). During the first half of the year, it ordered seven such fines, totaling $24 million. If this trend continues, supersized fines will increase from the 10 supersized fines in 2011, which totalled $35 million.
Other Remediation. During the first half of 2012, FINRA has also ordered its members to pay $12.7 million of disgorgement and restitution payments.