October 26, 2020

FINRA INVESTIGATIONS 101 What They Are & What To Do If You Are Targeted | The Business Law Insider

FINRA Investigations 101: What They Are & What To Do If You Are Targeted

For a licensed financial broker, the significance of receiving a Rule 8210 request from the Financial Regulatory Authority’s (FINRA) Department of Enforcement cannot be overstated. 

FINRA is a non-governmental organization that regulates brokerage firms (broker-dealers) and their registered representative employees (financial brokers) trading in equities, corporate bonds, securities futures, and options. 

A FINRA 8210 request is the method by which FINRA begins an investigation into alleged violations of:

  • Federal Securities Laws
  • Rules of FINRA
  • Rules of the National Association of Securities Dealers (NASD)
  • Rules of the New York Stock Exchange (NYSE)
  • Rules of the Municipal Securities Rulemaking Board (MSRB) 

What Would Trigger a FINRA 8210 Request?

A FINRA 8210 request can be triggered in many different ways, from a complaint by a dissatisfied client to a mandatory disclosure by a broker-dealer.

A FINRA investigation is commonly initiated following allegations of misconduct reported by a broker-dealer on a financial broker’s Form U5 termination form.

Responding to a FINRA 8210 Request

The FINRA 8210 request will require the financial broker to provide information, documents, and/or other materials in response to broad questions concerning the alleged violations.

How one responds to this and potential follow-up inquiries can be the difference between obtaining a swift “no-action letter,” where FINRA elects not to pursue an investigation OR having the matter escalated to an in-person On The Record Testimony proceeding, where the broker must appear for an oral examination by FINRA investigators under oath. 

Warning For Financial Brokers

The biggest mistake a financial broker can make is to ignore an 8210 request or otherwise fail to fully cooperate with FINRA’s investigation.

The failure to timely respond to or fully cooperate with an investigation into even minor allegations will likely result in:

  • The filing of formal disciplinary charges
  • A disciplinary proceeding before FINRA’s Office of Hearing Officers

Pursuant to FINRA’s sanctions guidelines, a Rule 8210 violation, as well as its accompanying “catch-all” Rule 2010 violation, can ultimately result in the broker being permanently barred from practicing in the financial industry. 

Can You Plead The Fifth?

Unbeknownst to many, FINRA’s demand for full disclosure is so encompassing that it circumvents the protections of even the Fifth Amendment’s self-incrimination clause, which does not apply in a FINRA investigation.

Pleading the Fifth Amendment will be deemed a failure to cooperate and will result in the broker being permanently barred from the industry.  

This consideration was recently highlighted in March 2020 when FINRA barred a broker following allegations involving the theft of client funds.

Though the broker initially cooperated in responding to FINRA’s 8210 request, he refused to appear for an On The Record Testimony oral examination by FINRA investigators.

Rather than face a certain disciplinary hearing for violating Rules 8210 and 2010, the broker consented to FINRA’s recommended sanction of a permanent bar from the financial industry without admitting or denying any wrongdoing.

As the broker’s full cooperation would have necessitated a waiver of his Fifth Amended right against self-incrimination, given the criminal nature of the allegations, the broker had little choice but to refuse to provide potentially incriminating statements under oath that could later be used against him in a criminal proceeding. 

I just got a FINRA 8210 Request. Where can I go for help?

If you are the target of a FINRA 8210 investigation, contact an experienced attorney immediately. An experienced attorney can help ensure full compliance with Rules 8210 and 2010 while proffering a strong defense to avoid escalation to an On The Record Testimony proceeding or the filing of disciplinary charges. 

Israel Klein is an attorney with Pardalis & Nohavicka, LLP. Mr. Klein has represented financial brokers in all stages of the FINRA investigatory process, including Rule 8210 requests, On The Record Testimony proceedings, and disciplinary proceedings. Mr. Klein has also represented financial brokers in FINRA arbitrations throughout the United States, including New York, New Jersey, Pennsylvania, Maryland, Illinois, Iowa, and Colorado.  Mr. Klein is regularly quoted by the media, including Fox News and the New York Post, and has been selected to the Super Lawyers Metro New York Rising Stars List in 2018 and 2019.

Contact Mr. Klein today for a free consultation at:

212.213.8511| 718.635.0957 | Israel@pnlawyers.com

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