Wednesday, April 30, 2014

Half of all FINRA Enforcement Respondents Settle Without Counsel?

We all know that most FINRA enforcement cases settle. I will leave the "why" they settle to another day, but a significant reason is the cost of defense, and the draconian penalties that FINRA seeks if you have the audacity to try to defend yourself.

Clarence Darrow
Clarence Darrow (Photo credit: Wikipedia)
The settlements are a discloseable item, and we also know that despite FINRA's statements, Yes answers on Form U-4 never go away. (Remember the rule that said that a verbal customer complaint comes off your license after two years? Sure, it's "off" your license but FINRA keeps it on BrokerCheck).

FINRA Enforcement settlements, known as AWCs, are important. They can cause licensing issues down the road, become a significan issue if there is another violation later, and may give customers pause before using a broker for investment advice. The wording and language make a difference. The exact charge alleged makes a difference. The rule that is charged makes a difference.

Having an experienced securities defense attorney with you during the process makes a difference.

I was therefore quite surprised to see this study from Dynamic Securities Analytics, Inc. They analyzed first quarter 2014 FINRA Disciplinary Actions Letters of Acceptance, Waiver & Consent (AWC) to determine legal representation trends. They found that of the 164 AWCs published during the first quarter of 2014 approximately half of the respondents, individuals and firms alike, were not represented by counsel.

I can see scenarios where a firm facing an routine exam and minor AWC handles the matter in-house with its compliance department, but 47% of the individual respondents did not use an attorney?

A serious mistake, and one that undoubtedly cost some of those individuals more than the legal fee would have been.

More details are available at 1Q14 FINRA Disciplinary Actions: Law Firm Representation Stats
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