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Regulation and Compliance > Federal Regulation > FINRA

FINRA sanctioned far less in 2008, law firm reports

By Staff Writer

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It was a “slow year” for FINRA in 2008, according to one law firm’s assessment.

Sutherland Asbill & Brennan LLP released analysis Wednesday revealing FINRA – operating in its first calendar year – obtained lower fines and brought fewer actions. FINRA fined firms and individuals approximately $35 million in 2008, about 55 percent less than the combined fines obtained by FINRA, NASD and the New York Stock Exchange in 2007, according to firm partners Deborah Heilizer and Brian Rubin and associate Shanyn Gillespie, who are part of Sutherland’s Securities Regulatory, Enforcement and White Collar Practice Group.

In addition, FINRA resolved 1,007 formal disciplinary actions in 2008, a 9 percent drop from 2007. Compared to 2005 and 2006, the declines are much greater.

The top five issues:

  • Mutual funds generated the largest fines in 2008 (approximately $10.3 million), but those fines represent a fraction of the fines obtained in similar cases in 2005 and 2006.
  • Suitability cases produced the second-highest total fines (approximately $4.5 million), but those fines were small compared to 2005 and 2006.
  • Licensing cases (including registration, testing and continuing education) resulted in twice as many disciplinary actions (66 actions) as any of the other top five categories, but ranked third in total fines (approximately $4.35 million).
  • Excessive commissions/markups/markdowns appears to be an area of increasing focus for FINRA, which brought 21 cases in 2008, more than FINRA, NASD and the NYSE brought in 2005, 2006, and 2007 combined. The total fines were approximately $3.5 million.
  • Electronic communications cases generated approximately $3 million in fines. FINRA’s priorities in this arena appear to be shifting from traditional e-mail retention to more novel issues (e.g., substantive e-mail review and retention of instant messages).

Trends:

  • Cases involving “blockbuster” issues (defined to be industry practice which, according to FINRA, resulted in significant customer harm) are on the wane. Examples of past “blockbuster” issues include market timing.
  • “Supersized” fines (greater than $1 million) fell significantly. In 2008, there were only three “supersized” fines, compared with 19 in both 2006 and 2007.
  • Issues that FINRA has been trying to turn into “blockbusters,” such as variable product and hedge fund sales or sales to seniors, have not generally resulted in “supersized” fines.
  • FINRA seems to be focusing more on traditional violations (e.g., suitability and licensing violations) rather than novel rulemaking-by-enforcement violations, such as market timing.

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