Finra Restitution to Investors Triples to $96.2 million in 2015

January 8, 2016

Though fines dropped last year, experts think the regulator’s revised sanctions guidelines will mean an upward trend in penalties as well

Jan 6, 2016 @ 1:55 pm

By Mark Schoeff Jr. | Investment News

Over the last year, Finra has become much more assertive in returning money to investors ripped off by brokerages.

In 2015, the Financial Industry Regulatory Authority Inc. secured $96.2 million in restitution, almost triple the $32.3 million it recorded in 2014, according to statistics released Tuesday by the industry-funded broker-dealer regulator.

“They are clearly exercising more of their ability to aggressively seek the range of sanctions,” said Daniel Nathan, a partner at the law firm Morvillo and a former Finra vice president and head of regional enforcement. “It goes beyond simple fines. It’s more about investor protection.”

Experts anticipate the Finra fine level is on an upward trajectory despite the decline from 2014 to 2015.

“Even though the total fines are far lower than last year, they are much higher than they had been during the prior several years, when Finra assessed fines in the $50 million to $70 million range,” said Brian Rubin, a partner at Sutherland Asbill & Brennan.

Finra revised its sanctions guidelines last spring to put more teeth into penalties. In addition, it’s looking more at systemic sales practice violations, according to Mr. Nathan. Both moves mean firms will pay more for violations.

“The general trend is focused on a ratcheting upward of fines, and that is likely to continue,” Mr. Nathan said.

Finra conducted 1,462 disciplinary actions in 2015, up from 1,397 in 2014. The regulator also referred 804 cases to the Securities and Exchange Commission and other federal agencies for litigation or prosecution, up from 730 in 2014.

And Finra is trying to strengthen its enforcement muscle by working more with other regulators.

Finra preliminary enforcement statistics, 2015 vs. 2014

Fines: ▾29.9%
  • 2015    $93.9M
  • 2014   $134M

Restitution: ▴197.8%

  • 2015    $96.2M
  • 2014    $32.3M
Disciplinary actions: ▴4.7%
  • 2015    1,462
  • 2014   1,397
Litigation/prosecution: ▴10.1%
  • 2015    804
  • 2014    730
Sources: Finra


“The level and extent of cooperation between Finra and other agencies, including U.S. attorneys offices, is substantially more robust and extensive than in prior years,” said Dennis Stubblefield, a partner at Shustak Reynolds and Partners.

Brokerage firms should pay attention to the exam priorities letter Finra released Tuesday to see where it may be headed on enforcement, said Jay Baris, a partner at Morrison & Foerster.

“You can’t overemphasize the need to maintain a culture of compliance,” Mr. Baris said. “You have to hammer that message home again and again.”

If Finra homes in on a product or sales practice that wasn’t previously a priority, fines could increase.

“With rising interest rates and a possible correction of the stock market, it’s possible that Finra may focus its sights on particular products or representations firms and [registered] reps have made during the past few years,” Mr. Rubin said.

But some of the more than 630,000 brokers and 4,100 firms Finra oversees question the firm’s approach on enforcement.

“There’s still a healthy skepticism, particularly within the independent broker-dealer community, whether Finra has its priorities straight in terms of at least the appearance of going after firms and individuals for what are seen as minor infractions versus major violations,” Mr. Stubblefield said.

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Matthew C. Strife
Blue Vault Services
April 11, 2016

Blue Vault's services are without question great resources for the review of the nontraded products offered.