FINRA/SEC ENforcement actions 2016

and the DOL's new Fiduciary rule

2015 FINRA enforcement cases

MyComplianceOffice presents our guest hosts from Sutherland Asbill and Brennan, LLC as they recap on major FINRA actions of 2015.



Brian Rubin

Brian is the Washington office leader of Sutherland’s Litigation group and the Administrative Partner in charge of the Securities Enforcement and Litigation Team. Brian previously served as Deputy Chief Counsel of Enforcement at NASD (FINRA) and Senior Enforcement Counsel at the SEC.


Andrew McCormick

Andrew McCormick is a Litigation Associate at Sutherland and represents financial firms in investigations, enforcement actions, and civil litigation.


 You can download a full copy of the slides from this webinar.



Full video transcript available below:

The initial slide deals with 2015 FINRA actions and the number of cases filed. As you could see, for 2015, there is a 5% increase in the number of cases filed, 36% increase since 2008. When you go to conferences, FINRA often emphasizes that they're focusing more on individual reps because they're the cop on the beat or the cop on the street, and the statistics bear that out. If you look at the number of individuals who've been suspended and also the number of individuals who've been barred, you can see the increase. Also, they're kicking out of the industry the worst firms.

Let's move onto the next slide. The next slide deals with the fines that have been reported, and you can see that there is a 30% decrease. 2014 was a huge, huge year. 123% increase compared to 2013. There were a few very, very big cases, and that was the main driver for the big number. As you can see, overall, there's sort of a gradual upward trend for the past several years, since 2008. Just for the fun of it, we looked at the S,P index since 2008, and as you can see on the screen, there's a 236% increase in fines since 2008. The S,P on the other hand increased by 41%, so if FINRA put out an ETF for something in terms of fines, people could end up making a lot of money. Now, while fines have decreased, overall sanctions have increased, and Andrew will talk about some of the numbers for restitution, which is a key that FINRA is focusing on now.

If you can move to the next slide. Thanks, Brian, and thanks for everyone for joining the webinar today. As Brian mentioned, we're going to talk about restitution now from 2015. It was a record-breaking year for FINRA in that front. FINRA ordered $96 million in restitution in 2015, a substantial increase of 200% from the $32 million that was ordered in 2014, and so you can see the chart to see how the amount of restitution has increased exponentially since the financial crisis back in 2009 of $8 million of restitution ordered. Just last year, there was $96 million, so it's an incredible increase. The huge bump in 2015 was largely driven by mutual fund and UIP sales charge discount cases where FINRA alleged that the firms did not give the appropriate sales charge discount to retirement accounts, charity accounts, things like that. FINRA's reported about 25 of those cases. Those alone resulted in about $52 million in restitution in 2015, so that was the driver of the big spike in restitution in 2015.

Because of the big restitution number of $96 million as Brian mentioned, overall sanctions increased for FINRA in 2015 from $156 million in 2014 to $190 million in 2015, and that was an increase of 14%. If we can go to the next slide.

This slide, we're looking at what we have called "supersized fines." This is not an official FINRA term or something you ever see in a regulatory action of a court case but something that we have nicknamed for these really big fines of $1 million or more, and we pay especially close attention to those cases. Here you can see the number of supersized fines for the last 3 years as well as the amount of total fines from those cases. You can see in 2014, there was a huge spike of 25 supersized fines of $100 million. Last year, 2015, there was 18 supersized fines, $52 million, so historically that's a really big amount, but compared to what we saw in 2014, it was a significant decrease. We'll always pay special attention to those few cases because they kind of often provide helpful examples of what the regulators, what FINRA, really cares about and then what's resulting in significant fines. Big firms should pay especially close attention to those cases resulting in those substantial fines going forward. You can go to the next slide.

As Brian mentioned, we do a lot of slicing and dicing of this FINRA enforcement data. What we do, we put it into different ... All the cases that FINRA reports, we put into different topical buckets and then try to analyze those buckets and see which ones are resulting in the most cases, the most fines, and what that may mean for the industry going forward and current trends and things to look out for. We went through that lengthy process in 2014. This is the top 5 issues we found resulting in the largest amount of fines. You see trade reporting was number one, $30. That's been a frequent, I guess, top 5 issue for FINRA in the past few years. I think it was number 1 the prior year in 2014. It's been in the top 5 the past 3 or 4 years, so that's something that FINRA has been paying especially close attention to.

Second was anti-money laundering, $21 million. That has, again, the last 2 or 3 years been a key focus for FINRA. In a few minutes, we'll discuss 2016 cases, and you'll see that anti-money laundering, or AML, is once again this year a very important focus for FINRA.

Number three, we have suitability, $18 million. Suitability is often a favorite for FINRA. There's the way they're directly looking out for investors and compensated investors and going after firms who they think sold unsuitable investments to those investors. Four, U4 and U5 and 3070 filings, that was the number 4 category. It's $13 million. Fifth is advertising, of $12 million, and we've seen advertising has also been a popular issue for FINRA in recent years. We think because in advertising cases, it's a relatively easy case for FINRA to bring. There's no need to prove intent or [inaudible 00:12:39] or any sort of things like that. It's just did you have this wording in advertisement, or did you not have this disclosure and kind of the end of story. I think these types of cases are becoming very popular for FINRA. That was, in 2015, the top 5 enforcement issues. As a future plug, what we usually do later in the summer, we'll do a similar analysis for the first half of 2016, so probably in the next month or so, we'll have some sort of a little article or alert that comes out doing the same sort of breakdown of the 2016 data from January through June and what that may mean for the rest of the year and beyond that.


Read our blog post, "FINRA Fines 2016 - 7 Key Facts" 

Find out how MCO can help

Request a demo today to learn how MyComplianceOffice puts you in command of your compliance program, synchronizing your business needs with regulation. 

Request a Demo



Download our four page Portfolio of Solutions to learn about;

  • Personal Trade Monitoring
  • Gifts & Entertainment
  • Political Contributions
  • Third Party vendor risk management
  • Trade surveillance
  • And more

Brochure Download