Fighting FINRA
Your day has started off normal and things are going well. The sun is shining, fish are jumping and the cotton is high. Then suddenly you get a call, or a letter notifying you that you are now the subject of a FINRA Enforcement Action.
That's exactly what happened to me. While I was innocent of all allegations that were made against me, knowing you are innocent and proving you are innocent are two different things.
After charges were filed against me, I fought FINRA pro se. It was a long and arduous process that took almost four years. Although I lost the initial OHO ("Office of Hearing Officers") hearing, ultimately I prevailed in the NAC ("National Adjudicatory Council") appeal. All charges and allegations that FINRA made against me were dismissed!
Now I would like to share some of the things that I learned that allowed for my success.
Fighting FINRA, the Securities and Exchange Commission ("SEC"), or any other regulator is often thought of as a futile attempt to ward off the inevitable. After all regulators win much more than they lose and FINRA in particular has a greater than 95% success rate in enforcement actions. But there are specific things you can do to help you prevail, or at least mitigate any excess damages.
First, assess the allegations against you, and ascertain your status. Many SEC and FINRA rules and regulations are not as black or white as they may initially seem. In addition, there are numerous interpretations that attempt to define the exact meaning of a rule, law or regulation.
In my case, the FINRA Enforcement attorneys misinterpreted a basic definition of a particular rule regarding a principal. As a result, they charged me for actions that I could not have possibly performed, even if I wanted to.
If after reviewing the rule, or regulation that you are charged with breaking, frankly assess your culpability. As a general rule, if you are not guilty of the infraction, you should defend yourself vehemently.
On the other hand, if your actions compromised your duties, you may want to negotiate an AWC ("Acceptance, Waiver and Consent"). An AWC is analogous to a plea of nolo contendre.
By accepting the AWC, you neither admit to nor deny the allegations. The benefit of doing so is to avoid the much harsher penalties, fines and sanctions that would be brought against you, should the matter go to a full OHO hearing.
If you decide to fight the allegations and it goes to an OHO hearing, it is important to know your judge and jury. First, is the OHO Hearing Officer, all Hearing Officers are FINRA employees. Second, are the two other members of the hearing panel, they are FINRA members, often senior officers or owners of Broker/Dealers.
Review their backgrounds thoroughly. See how the OHO Hearing Officer administered other cases. BrokerCheck and review the other panelists for disciplinary actions. Reject panelists that appear that they would be prejudiced against your case.
Request a Summary Disposition of your case. This must be done in advance of the hearing. It requires the OHO Hearing Officer to review the merits of your case, and allows them to dispose of the case if it lacks merit before a panel is seated and your hearing begins.
Remain professional at all times, and do not allow emotions to cloud your judgment or reactions. It is the rule, law, or regulation that you are arguing that you did not break, not the individuals charged with enforcing the rule, law, or regulation, ie. the FINRA Enforcement Attorneys. This was the hardest aspect that I had during my initial hearing and appeal, but it was the most important thing I did that allowed for my success.
At the same time, understand that emotions can be, and often are, part of the process. In my case, a FINRA Examiner, as well as a FINRA Enforcement Attorney, took issue with good advice that I gave to a client. Their initial negative emotional response resulted in the charges that were brought against me years after the advice was rendered.
FINRA Enforcement Attorney will do everything in their power to prevent you from entering their motivations in bringing allegations against you into the hearing forum. After all, they would argue, if you are guilty of breaking a regulatory rule or law, why does their motivation matter at all?
Well, it can have everything to do with it. Retaliatory and frivolous actions should be exposed during your hearing. But, it is essential that you understand how to enter this type of evidence so as to not negatively impact your case.
Know your witness, and challenge any and all opposition witnesses and experts. You want to make sure that your witnesses understand your case. The worst thing that could happen is that one of your witnesses unintentionally contradicts your position.
There are many other aspects that go into a successful FINRA and other regulatory defense.Should you find yourself the subject of a FINRA Enforcement Action, and want to succeed, or lessen a negative result, please feel free to reach out to me at warren@forestbrokerageadvisers.com.