Monday, August 10, 2009

FINRA Fines Credit Suisse For Settlement Violations

What happens when a major brokerage firm violates its settlement agreement with FINRA? Well, it pays another fine. No one is barred or suspended, the firm pays some more money to FINRA, and everyone is happy.

Readers will recall the historic settlement reached in April 2003 with 10 major investment firms and every securities regulator over the research issue. The fines were huge - $1.4 billion combined. There were also other provisions, including a provision to make research available to their investors.

Well, it seems that Credit Suisse may not have lived up to that part of the deal. FINRA announced today that it had
fined Credit Suisse $275,000 for failing to fully comply with the part of the settlement that required it to make independent research available to their customers.

The FINRA press release is at and it confirms that not only was the violation a failure to compy with "one of the key terms of the 2003 Global Research Analyst Settlement" but that no individuals at Credit Suisse were sanctioned in any way.

According to the FINRA press release, beginning in 2004, Credit Suisse failed "on a number of occasions" to post all of the required and current independent research to its Web site. The firm posted independent research for companies not covered by Credit Suisse and was allegedly delayed in providing independent research "in a timely manner after offerings." 

It gets worse. FINRA also claims that after the firm discovered these problems, the firm "failed to implement effective measures to detect and prevent additional failures."

A brokerage firm enters into a historic settlement caused by its alleged failings with its research, it then fails to live up to a key provision of the settlement agreement, and once it learns of the failure, it fails to take sufficient steps to correct the failure. FINRA's response is a $275,000 fine against the firm.

I don't know anything about the settlement or the underlying facts, but I do know that individuals at small and mid-sized brokerage firms have been suspended for significant periods of time for less. There are often good reasons not to sanction an individual at the firm, but far too often FINRA takes the position that a violation is "too serious" for the firm to take the hit, an individual must be held responsible.

Apparently that is not so, since it is tough to imagine a more serious violation than the failure to abide by the terms of an agreement that settled a significant enforcement action.

So, the next time FINRA tells you that "someone must take responsibility" for this violation, remind them of Credit Suisse......and the dozens of other settlements where no individual was sanctioned.

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