FINRA’s Top 5 Enforcement Issues of 2011

Fines issued by the Financial Industry Regulatory Authority increased significantly in 2011, jumping 51% to $68 million from fines levied by the regulator in 2010, which amounted to $48 million, according to Sutherland Asbill & Brennan’s annual FINRA Sanctions Survey, released Monday.

FINRA also filed 1,488 disciplinary actions in 2011, a considerable increase from the 1,310 cases it initiated in 2010.

“While the $68 million reported in 2011 is still a far cry from the $184 million and $111 million that FINRA fined firms and representatives in 2005 and 2006, respectively, it may signal continued enforcement efforts for the near future,” said Brian Rubin, Deborah Heilizer, and Andrew McCormick, the Sutherland attorneys who conducted the survey.

More reps were also barred by FINRA last year than in 2010: 329 last year versus 288 in 2010, an increase of more than 14%.

Sutherland’s survey also includes a list of “trends” that the law firm believes FINRA will be focusing on in 2012, which AdvisorOne will review later this week.

In the Sutherland survey, here are the top five enforcement issues for FINRA in 2011 ranked by total amount of fines:

5)  Improper Form U4, U5, and Rule 307 ($6.6 million)

These incorrect filings resulted in 91 FINRA disciplinary actions and more than $6.6 million in reported fines in 2011 (compared to 67 cases and fines of $1.45 million in 2010). Although allegations concerning isolated problems with these regulatory filings often led to fines of $5,000 to $10,000, there were four 2011 cases where each firm was fined more than $600,000 for failing to report material information on Forms U4 and U5, including Securities and Exchange Commission investigations and customer settlements.

4)  Suitability ($7.7 million)

Suitibility cases resulted in $7.7 million in reported fines in 2011. The 106 cases that involved suitability allegations in 2011 doubled the 53 cases reported in both 2009 and 2010. Similarly, the fines reported in suitability cases jumped from $3.75 million in 2010 to $7.7 million in 2011, a 105% increase.