Welcome to #FINRAFriday!
This Blog breaks down the mysteries of the FINRA investigative and disciplinary process so that those of you who are facing scrutiny by the regulator are better prepared to defend yourself. In each posting, we explore a small piece of the process and explain how it impacts FINRA and you.
This Week: Pre-Wells Notices – An Early Opportunity to Discover FINRA’s Evidence and Present Your Case
Did you say PRE-Wells? Yes, welcome to a relatively new step in some FINRA investigations. While many people are aware of the practice at the SEC and FINRA to issue Wells Notices at the end of investigations, relatively few are aware of the growing practice at FINRA of providing pre-Wells notices. Sometimes pre-Wells calls are initiated by Enforcement to facilitate an early settlement. However, defense counsel who request a pre-Wells call and express some interest in settlement are often afforded the courtesy of the call. If you are not familiar with the Wells Notice procedure, please request the supplemental discussion of Wells Notice strategies by writing to Gary Carleton at info@carletonlaw.net.
A pre-Wells notice serves a very important function for both you, the intended target of the investigation, as well as FINRA. Once you realize that your behavior is the subject of the investigation and you are reasonably certain that FINRA will be seeking some disciplinary action against you, it is important that your counsel let the FINRA attorney, Director and Chief Counsel overseeing the investigation know of your interest in a pre-Wells notice, if they intend to name you.
There are several reasons why it may be in your interest to receive a pre-Wells Notice:
(1) You find out Enforcement’s basis for the investigation and preliminary ideas on charges earlier in the investigative process. That gives you more time to find your evidence and present your defense before Enforcement settles deeper into its decision on charges. Once Enforcement uses the Wells Notice, it becomes much harder for Enforcement staff to negotiate a significantly lower sanction or remove potential rule violations. This is because they need to now justify a lower sanction or dropping a charge after having convinced senior management that the charge was supported by evidence;
(2) You should use this time to seriously consider Enforcement’s offer and the impact those findings and sanctions would have on your life and career. If necessary, are you able to weather the storm? Will you lose your job? Will your clients stick with you even after a settlement? Do you have or can you find the resources necessary to defend yourself in a disciplinary proceeding? Is it better for your mental well-being to try to get this past you and do your best to move on?
(3) There is no obligation to amend your Form U-4 based on the pre-Wells notice; only a formal Wells Notice triggers your obligation to update your Form U-4 to reflect that you are under FINRA investigation;
(4) A pre-Wells does not start Enforcement’s internal clock ticking to have the complaint issued withing a specific timeframe from issuance of the Wells Notice. The time will still be counted as time spent investigating the case.
(5) If and when you finally do receive a formal Wells Notice, you will be much better informed of Enforcement’s evidence and theory of prosecution as well as your own evidence and will be better prepared to write a persuasive Wells response.
As with any communication with FINRA, there could also be a downside to engaging in pre-Wells discussions. FINRA may try to use any information or documents you provide to them as more potential evidence against you. Be careful that what you are providing is indeed completely exculpatory and does not open any new avenues of investigation for FINRA. Be clear and have FINRA agree in writing that anything you provide to FINRA does not otherwise waive any privileges you have, whether it be attorney-client, spousal, or any other privilege.
To reiterate, you do not want to initiate a pre-Wells call unless you are quite certain that FINRA Enforcement intends to bring formal disciplinary action against you. You certainly do not want to invite them to bring charges against someone who they otherwise were not considering for that action. To be sure, as you sometimes see on commercials showing a dangerous driver or other actions requiring specialized skills, do not try this on your own! Please consult counsel before making this move with FINRA.
Next Time -We take a step back to discuss FINRA’s information gathering during an investigation. There’s lots to discuss. Stay safe and see you next time.
In Case You Missed It – You can find two prior blogs on the FINRA investigative and disciplinary process at www.carletonlaw.net and go to the Blog tab. The prior topics include:
* Understanding the Significance of FINRA’s Limited Jurisdiction; and
* How Old is Too Old for a FINRA Disciplinary Action
About Carleton Law PLLC
Getting a call from FINRA or SEC Enforcement telling you that your work as a securities broker is under investigation could be the worst day of your life. You have worked hard for years building your business. Now, with one wrongful allegation you can see it all swept away. But with expert counsel, it does not have to end that way.
For more than 30 years, Gary Carleton was the one conducting those investigations at FINRA and SEC and now his firm, Carleton Law PLLC, brings that savvy experience to bear to advocate for brokers and FINRA firms who find themselves in that dreaded position. Carleton Law focuses on the individual needs of each client to guide them through the maze of the investigative and disciplinary process.
Carleton Law PLLC | 1015 15th Street NW, Washington, DC 20005 | info@carletonlaw.net
The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information is for general informational purposes only. Readers of this article should contact their attorney to obtain advice with respect to any particular legal matter. No reader should act or refrain from acting on the basis of information contained herein without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this article does not create an attorney-client relationship between the reader or user and the article author or law firm.
Attorney Advertising – Gary Carleton, Principal of Carleton Law, is admitted to practice law in the State of New York and the District of Columbia. This article may be considered attorney advertising.