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Sutherland Finds That FINRA Sanctioned Far Less in 2008

June 3, 2009

WASHINGTON (June 3, 2009)Sutherland Asbill & Brennan LLP announced that it completed an analysis of disciplinary actions reported by the Financial Industry Regulatory Authority (FINRA) in 2008, which was FINRA's first calendar year. Partners Deborah G. Heilizer and Brian L. Rubin and Associate Shanyn L. Gillespie found that FINRA had a slow year in 2008, obtaining lower fines and bringing fewer actions compared to prior years. They also identified the top issues for FINRA in 2008, as well as enforcement trends. 

To obtain a copy of the complete analysis, called “FINRA 2008:  An Oscar Winning Year?," e-mail brian.rubin@sutherland.com, deb.heilizer@sutherland.com, or click here

The Results

Fines and Disciplinary Actions
FINRA fined firms and individuals approximately $35 million in 2008, approximately 55% less than the combined fines obtained by FINRA, NASD and the New York Stock Exchange in 2007.  In addition, FINRA resolved 1,007 formal disciplinary actions in 2008, a 9% drop from 2007.  Compared to 2005 and 2006, the declines are much greater.  

The Top Five Issues

  • Mutual funds generated the largest fines in 2008 (approximately $10.3 million), but those fines represent a fraction of the fines obtained in similar cases in 2005 and 2006.
  • Suitability cases produced the second-highest total fines (approximately $4.5 million), but those fines were small compared to 2005 and 2006.
  • Licensing cases (including registration, testing and continuing education) resulted in twice as many disciplinary actions (66 actions) as any of the other top five categories, but ranked third in total fines (approximately $4.35 million).
  • Excessive commissions/markups/markdowns appears to be an area of increasing focus for FINRA, which brought 21 cases in 2008, more than FINRA, NASD and the NYSE brought in 2005, 2006, and 2007 combined.  The total fines were approximately $3.5 million.
  • Electronic communications cases generated approximately $3 million in fines.  FINRA’s priorities in this arena appear to be shifting from traditional e-mail retention to more novel issues (e.g., substantive email review and retention of instant messages). 

Trends

  • Cases involving “blockbuster" issues (defined to be industry practice which, according to FINRA, resulted in significant customer harm) are on the wane.  Examples of past  “blockbuster" issues include market timing.
  • “Supersized" fines (greater than $1 million) fell significantly.  In 2008, there were only three “supersized" fines, compared with 19 in both 2006 and 2007. 
  • Issues that FINRA has been trying to turn into “blockbusters," such as variable product and hedge fund sales or sales to seniors, have not generally resulted in “supersized" fines.
  • FINRA seems to be focusing more on traditional violations (e.g., suitability and licensing violations) rather than novel rulemaking-by-enforcement violations, such as market timing.

Heilizer, Rubin and Gillespie are part of Sutherland’s Securities Regulatory, Enforcement and White Collar Practice Group, which is one of the nation’s top practices in this field.  Sutherland is an Am Law 100 law firm.  Please visit sutherland.com.

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Sutherland Asbill & Brennan LLP is an international law firm helping the Fortune 100, industry leaders, sector innovators and business entrepreneurs solve their biggest challenges and reach their business goals. Dedicated to unfaltering excellence in client service, we are known for our business savvy and industry intelligence, providing creative and custom solutions for each of our clients. Industry and business experience makes the difference for our clients.

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