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Regulation and Compliance > Federal Regulation > SEC

It pays to fight back against SEC, FINRA

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Despite advisors’ and broker-dealers’ fears that litigating against the Securities and Exchange Commission and the Financial Industry Regulatory Authority is futile, new findings show that it does pay for advisors and BDs to fight charges brought against them.

In its annual survey of litigated enforcement actions levied against members of the securities industry, Sutherland Asbill & Brennan found that of the advisors, broker-dealers and their reps that chose to litigate rather than settle with an SEC administrative law judge (ALJ) or FINRA hearing panel, 46.7 percent were able to get some of the charges dismissed or receive a sanction lower than that requested by regulatory staff.

See also: FINRA keeping busy with enforcing annuity sales misdeeds

Similarly, study authors Brian Rubin and Charlie Kruly (a former Sutherland associate) found that among defendants in U.S. District Court who moved for summary judgment against the SEC or took their case to trial, 60 percent succeeded in proving that the SEC did not establish some of its charges.

Among respondents who appealed to FINRA’s National Adjudicatory Council (NAC), the SEC, or a U.S. Court of Appeals, 18.5 percent were able to achieve some success, the study notes.

Indeed, Rubin, former deputy chief counsel of enforcement for FINRA’s predecessor, the National Association of Securities Dealers, and former senior enforcement counsel at the SEC, says that many firms and their reps “fear litigating against the SEC or FINRA because the regulators have often spent months or even years investigating the conduct,” and because both regulators “are well-funded and often bring cases in ‘friendly’ forums where decisions are rendered by their own employees applying procedural rules designed by the regulators.”

But, as Sutherland’s studies have shown “it often pays for firms and representatives to litigate, rather than to settle,” he says.

Sutherland expanded this year’s survey, which studied data from April 2012 through September 2013, to include SEC enforcement actions brought against investment advisors and their reps. 

In the category of liability, in fiscal 2013, respondents convinced ALJs that the SEC staff did not prove 43.5 percent of the charges, whereas in fiscal 2012, ALJs found that the SEC did not prove 12.5 percent of the charges.

As to sanctions, including monetary penalties and suspensions or bars, in FY 2013, ALJs imposed less-than-requested monetary sanctions for 100 percent of respondents.

See also: Insurance regulation: 5 things to watch in 2014

in FY2012, ALJs imposed higher-than-requested monetary sanctions for 66.6 percent of respondents and the same-as-requested monetary sanctions for 33.3 percent of respondents.

As to suspensions and bars, in  fiscal 2013, ALJs imposed less-than-requested suspensions/bars for one out of six respondents (16.7 percent). In fiscal 2012, ALJs imposed lower-than-requested suspensions/bars against 16.7 percent of respondents and the requested suspensions/bars against 83.3 percent of respondents.

Trials involving BDs, reps

In trials involving BDs and registered reps, the Sutherland data found that when it came to cases brought by the SEC, respondents were successful in convincing SEC ALJs that the SEC staff did not prove 35.3 percent of the charges brought against them.

Also, ALJs ordered lower-than-requested monetary sanctions for 25 percent of respondents and the same-as-requested monetary sanctions for 75 percent of respondents.

In cases brought by FINRA, the respondents were successful in convincing FINRA hearing panels that FINRA staff did not prove 16.2 percent of the charges brought against them.

FINRA hearing panels imposed lower-than-requested monetary sanctions for 52.9 percent of respondents, higher sanctions for 29.4 percent of respondents, and the same sanctions for 17.7 percent of respondents.


Sutherland notes that either party may appeal an ALJ’s decision to the full commission. During the study period, only one BD respondent appealed. In that case, the commission affirmed the ALJ’s findings, affirmed the bar, and increased the penalty. 

As to FINRA cases, in which either party may also appeal a decision by a FINRA Hearing Panel to FINRA’s NAC, the NAC imposed higher monetary sanctions against 53.3 percent of respondents, lower monetary sanctions against 13.3 percent of respondents, and did not modify the Hearing Panel’s monetary sanctions decision for 33.3 percent of respondents.

As to suspensions, the NAC imposed longer suspensions for 25 percent of respondents, shorter suspensions for 18.8 percent of respondents, and the same suspension for 56.3 percent of respondents.

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