Six months into the job, Bradley Bennett, FINRA’s enforcement chief, said the regulator is at its “high-water mark” in enforcement actions, looking back five years, and now that its backlog of cases from the financial crisis is easing, it expects to focus on structured products, with a possible large inventory of cases arising after this summer.
Bennett (left), a former defense attorney, said that many structured products are represented as providing a significant uplift in returns while limiting risk. ”They purport to provide the alchemy of lowering risk while increasing yield,” Bennett said, “but the risk needs to be explained” both to the broker-dealer’s “sales force and customers, and be suitable given the customer’s financial circumstances.”
Moreover, it is during periods of great market volatility, Bennett (left) said in an interview with AdvisorOne, that suitability and marketing problems become most evident. “Investors must understand risk; brokers must fully discuss the risk” with those investors, he said.
In addition to structured products, Bennett says his staff will also stay on top of old-fashioned “pump and dump” schemes of unregistered securities, Bennett said.
“I love the spirit and the aggressiveness of the staff,” Bennett said. “Every day we are getting better at being quicker—and more aggressive when we need to be.”
That aggressiveness shows up in the numbers. For the first half of the year, the high number of cases and fines levied will continue, he said, from earlier tallies announced in April. The enforcement numbers through May are: 463 disciplinary actions filed and $28.1 million in fines levied.
“We try and do the most complicated cases in under three years, with the economic crisis cases of 2006-2008 finishing up in 2011,” Bennett said. “We will be largely through the 2008 inventory by the end of the year.”
(The interview with Bennett took place prior to FINRA’s announcement of a $210 million settlement and fine regarding Morgan Keegan’s misleading sale