Poor FINRA: its Rule 8210 letters are correspondence no one wants to get.
Whether triggered by an automated trading surveillance program, a missed disclosure, a whistleblower’s tip, or another source, a Rule 8210 investigation allows the Financial Industry Regulatory Authority to open a sweeping investigation that can encompass a firm’s entire document repository, draining an incredible amount of the firm’s time and resources.
To reduce this threat, legal teams have started proactively searching for potential red flags, investigating suspected misconduct to assess and remediate any risks before they lead to formal FINRA investigations and enforcement actions.
The challenge is that the pertinent facts are rarely evident when you first embark on an investigation. Ferreting out the truth, especially when the telltale facts are hidden, requires smart, sophisticated e-discovery and analytics tools. Therefore, in-house legal teams and outside counsel are turning to smart technology to develop leads that can move an investigation forward efficiently and with swift resolution.
When you uncover a potential FINRA infraction, you likely have little to go on: You probably don’t know who is involved or or the circumstances. But you can go to the source of the documents that triggered the investigation and work backward, starting with interviewing the custodians who created the documents in question before expanding the scope of the investigation.
A legal hold application integrated with collection tools can expedite this process. By sending known document custodians a questionnaire asking for additional information while simultaneously collecting their documents for review, you can prepare for in-person custodian interviews sooner.
The clock is the enemy when investigating potential misconduct: the goal is to get to the heart of the matter as quickly as you can by promptly identifying the key witnesses, documents and facts. The faster you can isolate the witnesses who hold critical documents and link them to other custodians, the faster you can unlock the insights that will let you accurately assess the matter.
As you gather facts from your custodians, you can apply multiple layers of advanced analytics tools to unearth important details earlier. Top-level analytics tools can help you understand the entire social network of communications across a document population, which highlights the main players. Visual analytics can then reveal these individuals’ communication patterns, pinpointing additional witnesses for interviews and targeted collection.
With the right visualization tools, you’ll simultaneously gain insight into the relationships between all of your documents, custodians, timelines and more, so you can drill down based on what piques your interest. Advanced tools can also help you avoid a fishing expedition: These tools create a methodical “breadcrumb” history of precisely how you arrived at the data in your current searches, which you can organize into folders for further review and application of technology-assisted review (TAR).
TAR, well known for its proficiency in accelerating litigation document review, can play an equally crucial role in internal FINRA investigations.
Some earlier generation TAR tools start slowly: They ingest an entire collection at once and require iterative training rounds to refine their algorithm before yielding trustworthy results. These tools won’t work in the quick-turn investigation setting: Your investigation can’t wait until you’ve collected the full universe of potentially relevant documents, or you have to start over with the TAR system when you identify new custodians whose data warrants review.
Instead, choose a TAR tool based on a continuous active learning (CAL) protocol, so you can start review once you collect the first document. The CAL protocol refines its decision-making with every judgment it makes, incorporating documents seamlessly as you collect them, so you can prioritize the most important documents for the earliest review.
If you haven’t identified pertinent documents at the start of an investigation, you can give a CAL-based tool a head start by creating a synthetic seed document that includes concepts essential to the investigation. After ingesting this document, the CAL protocol will recognize these central words and phrases and begin prioritizing similar documents. Similarly, you need not start the training and review over again as you identify new custodian and collect new data — CAL incorporates both into its learning on a continual basis.
Needle in the Haystack
When you’re starting from scratch in a possible FINRA investigation, you may worry that your limited understanding of the situation has caused you to miss a key document. With first-generation TAR tools, that review bias may continue to eliminate important information, because the algorithm looks only for documents using the concepts and documents that you expected to see.
Modern TAR tools with CAL can locate contextually diverse documents — those with unexpected concepts or terms — that may ultimately shed additional light on your investigation. That means you won’t risk missing the critical needle in the haystack of documents.
Applying the latest e-discovery technologies, including legal hold, analytics and TAR tools, can not only make FINRA compliance investigations faster and easier, but they can also help firms spot and proactively address potential FINRA infractions, all while avoiding an 8210 letter.
John Tredennick is an attorney and the founder and chairman of Catalyst, which designs, builds and runs platforms for complex e-discovery, regulatory investigations and compliance