Welcome to #finraFridays!
This Blog breaks down the mysteries of FINRA’s 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.
NEW! Given the immense interest in the blog, #finraFridays is expanding to now include a free, live, online discussion group chat about this month’s topic – receiving and responding to FINRA requests for information. It will be held on Friday, July 10, 2020 at 3:00 pm (Eastern time). Space is limited and by registration only by sending an email to gary@finrafridays.com
This Week: Receiving that First Request for Information (an 8210 Request)
In the more than 25 years that I worked at FINRA, I issued hundreds of requests for information. I understand the distress it can cause for an individual or firm to receive one of these requests and the seriousness in which FINRA takes obtaining truthful, complete, and timely responses to its requests for information. It is an important step in the life of a FINRA investigation that often catches brokers off-guard and leads to disciplinary action that is avoidable and completely unrelated to the underlying conduct being investigated.
Here you are as a broker on an ordinary day at the office (before the pandemic). Then you get the letter. It is addressed to you and it is from FINRA’s Enforcement Department. The first thing you notice as you quickly scan the letter is that your Compliance Officer has also been copied on the letter. It is a request that you answer questions and provide documents for an investigation FINRA is conducting.
Then you begin to realize the breadth of the request as it goes on for two pages. FINRA wants my personal email records, cell phone records and bank statements going back three years? It wants information on where I have securities brokerage accounts? Information about my outside businesses away from the firm? Questions about my personal relationship with certain clients who I have been servicing for years? Do I really need to answer all of these questions, and within the two weeks FINRA has given me to respond?
Within minutes you will also learn that your firm’s Compliance Officer not only got a copy of the letter sent to you, but got a second letter from FINRA Enforcement directing the firm to produce additional documents related to the same investigation. Those documents include your personnel file, a schedule of your commissions, account statements for those same clients, and a long list of other documents.
At this moment, there is a lot swirling in your head as to what to do. Here are a few basics on getting started:
What is my obligation to respond to the request?
Since you are a registered and licensed securities broker, you are obligated to respond, as is the firm as a FINRA member. Failure to respond is a quick ticket to being barred from the securities industry. Every year, FINRA bars many brokers for just that – failing to respond to requests for information. It is a quick way for FINRA to boost its disciplinary statistics without ever determining whether anyone actually did anything wrong. So, it is how and when you respond that will help guide the path of getting the matter resolved.
What are the first steps?
Not all requests for information sent by FINRA Enforcement are to targets of their investigations. Some may be to other potential witnesses who may have useful information about a target. However, in this case, since so much information appears to be focused on your compensation and communications with clients, it is probably safe to assume for now that your behavior is being targeted by FINRA for investigation. Here are some of the most important first questions to resolve.
Who is going to represent me?
You need to determine whether your securities firm will be using legal counsel and if so, whether they are willing to pay for your legal representation. Often, if a firm believes that it is facing some liability and wants to maintain control and coordination of the information flowing to FINRA, it will offer to represent the broker. You should also check your employment contract to see whether the firm is obligated to pay your attorney fees in this situation.
While it is certainly an initial cost savings to have the same counsel as the firm and cover your legal fees, it may come at a cost. After all, the lawyer is being paid by the firm, not you and that is where his or her first loyalties are. You need to determine whether any conflicts of interest between you and the firm would compromise your ability to be ably represented by that attorney. Ask the lawyer to address that issue with you. Sometimes, a firm will agree to retain separate counsel for the broker, and that is far preferable. If the firm will not cover the cost of counsel, you may need to spring for the cost on your own.
Do I really need to provide FINRA with all this information, and how am I supposed to get this done in 2 weeks?
You and your counsel should read through the request letter and make a preliminary assessment of the scope of the request and whether you have the documents or are capable of retrieving them. How onerous is the request? Are the documents available even if you had to go to the service provider (phone company or bank, for example)? How long would it take to obtain the information?
Do you believe that FINRA is casting too large a net and is capturing a lot of information, including personal information that it does not need to conduct its investigation? Is there anything FINRA is requesting that puts you in a bad light even if it is not related to the issue being investigated pursuant to the investigation? Also, how long would it take for your attorney to review the responsive documents before producing them to FINRA?
Once you and your lawyer have made that preliminary assessment, it is time for your attorney to call the FINRA Enforcement attorney or investigator who sent the letter. It is much better for your attorney to have that conversation with FINRA after getting a handle on the scope of the request but before waiting until the due date. The attorney can then give an informed rationale for requesting to narrow the scope of the request and seek additional time to respond, which is routinely granted for first requests.
For document requests asking for a voluminous production, you are often able to negotiate a tiered response of documents over a more extended period of time. What can you produce right away and what will take additional time to collect and review before producing? What documents does FINRA place a premium on if they agree to a tiered production? What is the significance of FINRA’s priorities in production?
Sometimes for more extensive productions, FINRA will agree to narrowing the scope of the response by compressing the time period, or producing emails based on key word searches, or by named customer, to name but a few ways. Determine what is most favorable for you if you can narrow the scope of the production. Also, the attorney should not be afraid to ask FINRA questions about the investigation along the way.
This is just the beginning of the process of responding to a FINRA request for information, but it is a big topic. We will be discussing this topic in our free #finraFridays discussion group on July 10, 2020 at 3:00 pm (Eastern Time). Please join our discussion by sending your name and email address to gary@finraFridays.com.
Next Time -We look at another important step in FINRA Enforcement’s investigations and litigation. There is lots to discuss. Stay safe and see you for our online discussion on July 10.
In Case You Missed It – You can find prior blogs on the FINRA investigative and disciplinary process at www.carletonlaw.net and go to the Blog tab.
The prior topics include:
* An Early Opportunity to Discover FINRA’s Evidence and Present Your Case
* 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.