FINRA Enforcement Matters

FINRA OTR
FINRA Investigation
FINRA Wells Notice

FINRA OTR

“On-the-Record” Interview
FINRA Rule 8210

  • FINRA Rule 8210

    FINRA’s Rule 8210 is one of the most powerful tools in its investigative arsenal. The rule requires that, in connection with an examination or investigation, associated and registered persons provide documents and information FINRA requests. FINRA’s most frequent use of Rule 8210 is likely its standard “8210 Letter” in which it requests information from firms or associated persons. However, the rule also permits FINRA to compel associated persons to provide testimony, under oath and with a court reporter present. The rule grants FINRA staff broad authority to request access to books and records of the member firm, as well as to compel the production of records from associated persons. There are caveats. To stick, a charge for violating Rule 8210 must show that the information requested was in the “possession, custody or control” of the associated person or firm. Generally speaking, Rule 8210 grants FINRA considerable authority. If you have received a Rule 8210 request, contact a professional with experience in handling such matters.

  • FINRA OTR

    The FINRA OTR (or on-the-record interview) is in some ways like a deposition, but in other ways unique. FINRA issues requests for on-the-record testimony in connection with its investigations or examinations. A FINRA OTR is typically conducted at a FINRA District Office location. Alternatively, a FINRA OTR may take place at the FINRA offices in Rockville, MD where many of the Enforcement Department staff are located. FINRA may be flexible as to the date and location of the OTR, but that flexibility often diminishes the longer one waits from the date of the FINRA OTR letter to make the inquiry. It is not unusual for FINRA to reschedule or relocate an OTR at the request of the respondent. For example, a respondent near a FINRA District Office being asked to come to Rockville, MD may request to have their OTR at the closest District Office. There is no guarantee that the request will be granted, but FINRA will usually attempt to accommodate if possible. Responding promptly to a FINRA OTR notice is critical. Failure to appear for a scheduled FINRA OTR may result in a permanent bar from the securities industry. FirstMark recommends that anyone attending a FINRA OTR is represented by counsel. FirstMark does not offer legal services and is not a law firm. However, FirstMark works with your counsel in preparing you for a FINRA OTR.

  • FINRA Enforcement AWC

    There are several ways in which a respondent in a FINRA Enforcement proceeding may resolve a matter. Each of these approaches has its benefits and downsides. The reality is that FINRA settles many of its cases. A settlement may make sense for many reasons, including cost, time, and uncertainty of litigation. Before reaching the settlement stage, FINRA provides several opportunities for witnesses to respond to allegations, provide supplemental material and discuss the issues involved in the investigation. These matters rarely move quickly, so a respondent often has plenty of time to develop an understanding of FINRA’s concerns. FINRA may find through its investigation that there was no violation of its rules, or that the apparent violation does not warrant a formal disciplinary action. At that point, FINRA may dismiss the matter. Otherwise, it will proceed through the formal disciplinary process.

    • Dismissal– FINRA investigations are just that – investigations. The facts that arise in the matter may not warrant further action, and as such, FINRA may dismiss the matter outright. Or, the respondent may provide sufficient mitigating information that FINRA determine to bring no action or to issue a cautionary action. Either is a preferred outcome, for sure.
    • Settlement– After the investigation has concluded and FINRA has reviewed all of the evidence collected, it may believe there is enough indication that its rules have been violated to recommend formal disciplinary action. Before initiation of the formal disciplinary process, FINRA often (but not always) will inquire about whether the respondent is interested in settlement of the matter through a Letter of Acceptance, Waiver and Consent (or AWC). If so, FINRA imposes a sanction, which may include a censure and fine and/or suspension, and the respondent, without admitting or denying, consents to the findings and imposition of sanctions. The benefits to this approach are many. If a respondent believes the proposed sanction is fair, a settlement can save the substantial costs of litigation. Further, FINRA may be willing to negotiate the language in the AWC. However, if the respondent feels the proposal is unfair, or does not believe a rule violation occurred, the next step is to request a hearing.

BUILDING THE RIGHT TEAM MAKES A DIFFERENCE.

If you or your firm is involved in a proceeding involving the FINRA Department of Enforcement, you know that the stakes can be high. Whether it is about defending your reputation, or that of your firm, it is critically important that you assemble a team that will help you navigate the process.

FINRA OTR

FINRA OTR & Enforcement Process

If you have received a FINRA OTR notice (or on-the-record interview notice) you should carefully consider the circumstances and contact an experienced professional.  FirstMark recommends that, if you have received a FINRA OTR notice, you should seek representation by competent counsel.  While FirstMark is not a law firm and does not provide legal advice, FirstMark can work with your counsel to prepare any number of potential FINRA enforcement respondents for the OTR process, and to help conduct analysis of the matters that are the subject of the investigation.

Typically, FINRA issues an OTR notice (sometimes called an 8210 letter) when it is seeking investigative testimony from individuals in connection with an examination or investigation. In many cases, witnesses participate in OTRs but are never actually charged with a rule violation by FINRA. However, if one is the subject of an OTR, it is critically important to be fully prepared.

Although the FINRA enforcement process typically begins with an 8210 letter or an OTR request, as the case develops, FINRA may determine to file a formal disciplinary action against a firm, an associated person or both. This typically starts with a telephone call from a FINRA Department of Enforcement attorney who will advise the firm / associated person that FINRA has made a preliminary determination to initiate a formal disciplinary action. These calls are sometimes called “Wells” calls because FINRA will usually follow them up with a Wells notice or a draft settlement document called a letter of Acceptance, Waiver and Consent. If a settlement can be reached, the matter is concluded. If not, FINRA issues the Wells notice and the individual respondent (associated person) is required at that point to update Form U4 to indicate that he or she is the subject of an investigation. The Wells notice describes (sometimes in very little detail) the charges FINRA intends to bring. Response to the Wells notice is optional and is a matter that should be discussed with counsel. After considering the response (or lack thereof) FINRA then determines whether to proceed by filing a complaint (which is usually the case after the Wells stage).

FINRA files its complaint spelling out all of the allegations against the respondent. The matter is set for a hearing before a panel of three – a FINRA Hearing Officer and two industry members who have agreed to serve on such panels. Hearings are often expensive in terms of legal defense costs, including expert witnesses and travel expenses. Further, the FINRA disciplinary complaint, once filed, is accessible to the public via FINRA’s web-site. The period between the filing of the complaint and the hearing decision can be well over a year. The outcome is unpredictable, as with a matter taken to any trial or hearing. Many opt for a settlement to save time and money, and to eliminate the risk that a hearing panel will not view the case favorably. However, all respondents in FINRA proceedings have the right to argue their case before a hearing panel. If you wish to proceed to hearing, FirstMark recommends that you seek legal counsel. FirstMark does not offer legal services, nor is it a law firm. However, FirstMark can work with your counsel to provide litigation support services.