FINRA's Goal: Investor Protection?

​When you click on the “About FINRA” hyperlink located at the very top of FINRA’s website, the first sentence you will see is:
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“FINRA is dedicated to investor protection and market integrity through effective and efficient regulation of broker-dealers.”
 
In fact, you will see the words “investor protection” countless times on FINRA’s website and throughout its regulatory notices and guides. The names below are changed but the very true case you are about to read really begs the question of to what, exactly, FINRA is “dedicated.”
 
AdvisorLaw has been retained by previously-registered broker, Mr. FA. In 2012, while he was finishing his undergraduate coursework, FA began his securities industry career with broker-dealer, The Firm, in California. FA was registered with The Firm for less than one year in 2013, as he had plans to attend graduate school in Massachusetts for a Master’s of Business Administration, right after completing his undergraduate degree.  
 
In 2012, an acquaintance of FA’s, Mr. X, reached out for some assistance with his portfolio. At the time, Mr. X had a self-managed account at another firm, where he was engaged in penny stock trading. FA made some general recommendations, but Mr. X was hesitant.
 
In September of 2013, Mr. X reached out again. After several conversations and a proposed financial plan, Mr. X decided to open an account with The Firm. FA had Mr. X execute the necessary paperwork, including the transfer forms needed for the previous firm to move money to the new account with The Firm.
 
About a month later, Mr. X had a change of heart and decided that he wanted to go back to his self-managed platform with the previous firm. Mr. X alleged that he had never authorized FA to open the account or to move his funds to The Firm.
 
Around this time, FA was gearing up for graduate school. The Firm told him that it would handle the complaint. The Firm investigated Mr. X’s allegations and denied his customer dispute.
 
After FA had been at graduate school for a month, Mr. X filed for arbitration with FINRA. FINRA then opened an investigation inquiry after receiving Mr. X’s claim. However, instead of sending the initial FINRA inquiry notice to FA, now at school in Massachusetts, FINRA sent the 8210 Letter to his California address.
 
In Mr. X’s arbitration claim, he requested compensatory damages totaling $600, punitive damages totaling $49,000, fees, and a declaratory judgment that his investment account was not valid. An attorney, hired by The Firm, represented FA at the FINRA arbitration hearing.
 
On May 29, 2014, the arbitration panel, made up of FINRA-authorized arbitrators, denied Mr. X’s claims in their entirety. In other words, the arbitration panel empowered by FINRA, found that the claims had no basis for relief.
 
On May 30, 2014, FINRA issued a suspension letter to FA for failure to respond to the inquiry investigation letter. Yet it was not until he was informed by his family, after they received the FINRA inquiry notice, that he was even made aware of the inquiry for the first time.  
 
FA called FINRA, and FINRA informed him that he had been named in an arbitration by Mr. X and that a formal regulatory investigation had been opened into Mr. X’s allegations. FINRA also informed him that The Firm had hired an attorney to represent him.
 
Despite the fact that Mr. X’s investor claims had already been denied in their entirety by an arbitration panel, FINRA pushed forward with its investigation. FA, with the guidance of the attorney hired by the firm, responded to FINRA’s 8210 letter inquiry and attended an OTR (On the Record) interview. FINRA later presented an AWC (Acceptance, Waiver and Consent) to FA, with the “Facts and Violative Conduct” section being an exact regurgitation of Mr. X’s claims—the claims that had already been denied by both The Firm and the FINRA arbitration panel.
 
The attorney hired by The Firm, for some reason unknown, encouraged FA to sign the AWC, stating that the only consequences would be the $15,000 fine and 20-month suspension, the majority of which would occur while FA was finishing school anyway. The attorney advised him that he had his whole career ahead of him, and failed to inform FA of the permanent black mark that would be attached to his CRD record and BrokerCheck.
 
Fast forward to present day, and FA has not been able to obtain another job in the securities industry since he left The Firm.
 
Now, there is much to be inquired about the arguable malpractice on the part of the attorney supposedly representing FA, but the real questions here are glaring:

• First, what could FINRA’s motives possibly have been to push forward with an investigation of a customer complaint, after it had been denied in its entirety by an arbitration panel?

 

• Of course, FINRA would answer that FA had the option not to sign the AWC. But how, in good faith, could FINRA even present to a broker an AWC with a “Facts and Violative Conduct” section that had already been disproved through FINRA arbitration—an AWC which has served as an effective bar from the industry for FA?  

 

• How is this behavior “effective and efficient regulation?”

 

• Most important, how are investors protected by the permanent publication of AWCs that contain “facts” and allegations that FINRA knows are untrue?

 
The reason why we must keep asking these questions is exactly why AdvisorLaw fights and represents only the interests of the financial advisor. 

Erica Harris, J.D.
Associate
AdvisorLaw