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Fighting SEC, FINRA Can Pay Off for BDs, Study Shows

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A new study has found that it pays off when broker-dealers fight the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) in certain trials and appeals—particularly in cases involving fraud.

According to the results of Sutherland Asbill & Brennan’s 2011 SEC/FINRA Litigation Study—which is an annual review performed by Sutherland of the litigated cases brought by the SEC and FINRA against broker-dealers and associated persons–of the 237 charges that were litigated by the SEC and FINRA and resulted in SEC Administrative Law Judge (ALJ) or FINRA Hearing Panel decisions during FY 2009 and FY 2010, respondents succeeded in getting approximately 13% of the charges dismissed.

“While firms and individuals often think that settling with the SEC and FINRA makes the most sense, our studies continue to show that in some circumstances, respondents will be better off if they try their cases and tell their stories in front of judges or hearing panels, especially where fraud is charged,” said Brian Rubin, a partner in Sutherland's Washington office who represents firms and individuals being investigated and prosecuted by the SEC, FINRA and states, in a statement accompanying the study results. “Our study also shows that there may not be a ‘settlement discount,’ so that respondents, even if they are unsuccessful on the merits, may get reduced sanctions if they litigate rather than settle.”

Other highlights from the study showed:

FINRA respondents with counsel are significantly more successful than pro se respondents.

SEC staff failed to prove fraud charges approximately 57% of the time in FY 2009-2010.

When SEC and FINRA respondents were found to have been liable for one or more charges, 33% of the time the ALJ or the Hearing Panel imposed monetary sanctions that were lower than the staff sought at the trial.

When cases were appealed from SEC ALJs to the full Commission, 33% of SEC respondents were successful in getting reduced sanctions.