Financial Services Litigation & Investigation Monitor : Financial Services Lawyer & Attorney : Perkins Coie Law Firm : Government Investigations, Class Actions

On Wednesday, February 17th, the Financial Industry Regulatory Authority (FINRA) announced that it will seek authority from the SEC to significantly expand the amount of information available to the public on current and former securities brokers through its online BrokerCheck service.

The proposed BrokerCheck expansion would enable the public to access more data on customer complaints; extend the time that the public may view the full record of a broker who has left the industry from two years to 10 years; and make certain information about former brokers available permanently, such as criminal convictions and certain civil and arbitration judgments.

Commenting on FINRA’s proposals to make more information about former brokers available to the public for longer periods of time, FINRA Chairman and CEO Rick Ketchum stated that such changes “will provide valuable information about persons who have left the securities industry, often not of their own accord, but who can still cause great harm to the investing public. Recent regulatory and criminal proceedings in the financial services sector reveal that former brokers have been engaging in fraud and other misconduct long after establishing themselves in other segments of the financial services industry.”

Specifically, FINRA's proposed expansion of BrokerCheck would:

Disclose all historic complaints, including customer complaints, arbitrations or certain litigation dating back to 1999 for individual brokers who are currently registered or whose registrations were terminated within the preceding two years.  If the SEC approves all of FINRA’s proposals, the reporting of historic complaints could apply to brokers whose registrations were terminated within the preceding 10 years.

Expand the disclosure period for former brokers from two years to ten years.  The current two-year period coincides with the period in which an individual remains subject to FINRA's jurisdiction.  The new proposal calls for making a former broker's record public for 10 years.

Increase the amount of information that is permanently available on former brokers.  Last year, BrokerCheck made information about final regulatory actions (i.e., bars, suspensions, fines, etc.) against former brokers permanently available to the public.  The new proposal would add more information to that list, including criminal convictions or pleas of guilty or nolo contendere; civil injunctions or findings of involvement in a violation of any investment-related statute or regulation; and arbitration awards or civil judgments based on the individual's involvement in an alleged sales practice violation.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Effective February 8, 2010, FINRA members will be subject to new rules governing financial responsibility that are based in part on, and replace, provisions in the NASD and Incorporated NYSE Rules. The rules add new requirements relating to minimum net capital, financial reporting, and notification rules for member firms that clear or carry customer accounts and firms that operate under an exception created under SEC Rule 15c3-3(K)(2)(i) that either (1) clear customer transactions pursuant to this exemption, or (2) hold customer funds in a bank account established pursuant to this exemption.

Collectively, the FINRA Financial Responsibility Rules consist of FINRA Rules 4110, 4120, 4130, 4140, and 4521. The new Rules also amend FINRA Rules 9557 and 9559 to provide an expedited appeals process for members served with a notice under the Financial Responsibility Rules to increase capital or net worth. FINRA Regulatory Notice 09-71 provides an overview of the Financial Responsibility Rules, including their impact on: minimum net capital requirements; notification rules; certain restrictions on business activities; reporting requirements; and audits.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In response to various crises that have besieged the financial services industry in recent years, will the government create more governmental regulation or expand the role of SROs, such as Finra, to bolster public confidence in financial institutions? This topic is addressed in an article recently published in InvestmentNews by Perkins Coie partner Pravin Rao and Howard Rosenburg, general counsel and chief regulatory officer of the Chicago Investment Group LLC. The article, entitled “Forecasting Finra's Future,” features an in-depth discussion of Finra’s current jurisdiction and likely changes that would need to take place should the government further expand Finra’s authority.  Among the recommendations provided by the authors are: consolidating oversight of broker-dealers and investment advisers and adopting uniform fiduciary standards for these investment professionals; revising Finra’s internal operating procedures to allow for greater transparency in decision-making and financial management processes; and increasing coordination with other regulatory authorities, including the CFTC, the Federal Reserve, and the SEC.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Financial Industry Regulatory Authority (FINRA) has announced that the SEC approved a major expansion of  FINRA's BrokerCheck service — to make records of final regulatory actions against brokers permanently available to the public, regardless of whether they continue to be employed in the securities industry.  Under current rules, a broker's record generally becomes unavailable to the public two years after he or she leaves the securities industry and is no longer under FINRA's jurisdiction.

BrokerCheck is a an online service through which investors can reviewthe employment, qualifications and disciplinary history of more than 650,000 brokers under FINRA's jurisdiction. FINRA estimates there are more than 15,000 individuals who have left the securities industry after being the subject of a final regulatory action and whose disciplinary history is not currently available on BrokerCheck.

Disclosure records for former brokers will become available on November 30 and will include any final sanction (such as bars, suspensions and fines) imposed by the SEC, the Commodity Futures Trading Commission, any federal banking agency, the National Credit Union Administration, any other federal regulatory agency, any state regulatory agency, any foreign financial regulatory authority or any self-regulatory organization (such as FINRA).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Recognizing the importance of investor complaints and insider tips in the current economic environment, the Financial Industry Regulatory Authority (FINRA) has established a new Office of the Whistleblower to be headed by FINRA Senior Vice President, Cameron Funkhouser. The Whistleblower Office is intended to expedite FINRA’s review of - and significantly - the response to, high-risk investor fraud tips. Indeed, some of FINRA’s most well-known enforcement actions have resulted from complaints or tip-offs, including a 2007 action against Citigroup Global Markets, a $5 million fine against Merrill Lynch in 2006, and a 2002 action against Credit Suisse First Boston.

In a press release issued on March 5th, FINRA’s Interim CEO, Stephen Luparello, stated that “[t]his new initiative will ensure that individuals with significant information will reach senior staff, who can quickly assess the level or risk involved and make sure that each tip is properly evaluated. Those tips warranting additional review and investigation will be subject to an expedited regulatory response.”

View the FINRA press release announcing the new Office of the Whistleblower, here.

• Email This
• Print
• Comments
• Trackbacks
• Share Link