Welcome to #finraFridays!
This Blog breaks down the mysteries of FINRA’s Conduct Rules, and its 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 rule or small piece of the process and explain how it impacts FINRA and you. If you want a topic covered on #finraFridays, feel free to contact Gary Carleton at gary@carletonlaw.net.
This Week:
SEC’s Seemingly Endless Delays in Ruling on FINRA Disciplinary Appeals –
Justice Delayed Means Justice Denied
Securities brokers and firms who find themselves wrongfully entangled in FINRA’s formal disciplinary process and seek justice through the appeals process invariably realize, as the maxim goes, that justice delayed means justice denied.
FINRA’s disciplinary process for contested disciplinary actions requires that brokers be subject to a disciplinary hearing administered by FINRA’s Office of Hearing Officers (“OHO”) and prosecuted by its Department of Enforcement.
These hearings come many months the broker’s required disclosure of being under investigation and FINRA publicizing the filing of the complaint. Even after the hearing, brokers typically have to wait months before OHO issues its decision.
The vast majority of brokers who have OHO hearings appeal the decision to FINRA’s own National Adjudicatory Committee (“NAC”). That process, too, is quite lengthy. It takes more than a year to work through that appeal to finally get a decision by the NAC. FINRA’s Office of General Counsel essentially administers the NAC hearings and drafts the NAC decisions.
Not surprisingly, the majority of brokers and member firms who are adjudicated by OHO and the NAC appeal FINRA’s final decision to the U.S. Securities and Exchange Commission “SEC”). In 2022 and 2023, a combined 8 of 13 NAC decisions were appealed to the SEC.[1] See my prior Blog, Why FINRA’s Disciplinary Decisions are so “Appealing” at https://carletonlaw.net/why-finras-disciplinary-decisions-are-so-appealing/
An appeal to the SEC was at least in part, intended to be a check on the fairness of FINRA’s adjudicatory process as a self-regulatory authority. This appeal comes after brokers have already endured years defending themselves before FINRA.
Unfortunately, instead of being font of justice by an independent reviewer of fact and law, an appeal to the SEC has turned into a black hole where justice delayed to brokers truly becomes justice denied.
There are more than a dozen cases brought by FINRA respondents (including one filed by Carleton Law) who have appealed FINRA decisions to the SEC and have been waiting at least two full years after full briefing to get a decision. Some respondents have been waiting more than three years!
Indeed, in one case where a broker has been waiting for more than three years for a decision, he has filed with a U.S. Court of Appeals a Petition for a Writ of Mandamus to compel the SEC to set aside FINRA’s disciplinary action or, alternatively, to promptly issue a decision.[2]
Because the sanctions imposed by FINRA’s NAC typically go into effect and are not stayed pending appeal to the SEC, it is imperative that the SEC recognize the need to act with all deliberate speed in addressing these appeals. That is the only way that the SEC can claim that the system it established has any chance of maintaining its integrity and a sense of justice for the respondent.
The SEC needs to appreciate that those appellants that are waiting for years for a resolution represent real people who are maintaining their innocence against FINRA’s allegations of wrongdoing. In the meantime, their lives, reputations, and livelihoods hang in the balance. It is truly unjust to make these people wait years for a resolution by the SEC.
Conclusion
As the standard bearer for market integrity, and as ultimate regulator of the securities industry, the SEC must now act with a sense of urgency to work through years of backlog for those who seek justice through the appellate process. Brokers who maintain their innocence from charges levied against them from FINRA, a non-governmental self-regulatory organization, must have a reliable and honest way of seeking review to the SEC. A seemingly endless delay caused by SEC demonstrates how justice delayed is justice denied.
Gary Carleton focuses his practice representing individuals and firms facing FINRA investigations, disciplinary proceedings and appeals, and statutory disqualifications. He also serves as co-counsel with attorneys who have clients facing a FINRA investigation or disciplinary proceedings Contact Gary Carleton at 202.744.6297 or gary@carletonlaw.net to set up an initial consultation.
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. #finraFlashback blogs in which we discuss notorious FINRA disciplinary proceedings can also be found at www.carletonlaw.net.
The prior topics include:
* FINRA’s Disciplinary Hearings Disappearing Act
https://carletonlaw.net/finras-disciplinary-hearings-disappearing-act/
* Guarding Against Excessive Trading in a Customer’s Account
* Keeping Stockbrokers Out of Trouble by Updating Their FINRA Form U4 Filings
https://carletonlaw.net/keeping-stockbrokers-out-of-trouble-by-updating-their-finra-form-u4-filings/
* Why FINRA’s Disciplinary Decisions are so “Appealing”
https://carletonlaw.net/why-finras-disciplinary-decisions-are-so-appealing/
* FINRA Flashback – FINRA’s Investigation Uncovers Stock Manipulation
https://carletonlaw.net/finra-flashback-finras-investigation-uncovers-stock-manipulation/
* FINRA Flashback to Stratton Oakmont
https://carletonlaw.net/finra-flashback-to-stratton-oakmont/
* Where have all the FINRA Members (and disciplinary actions) gone?
https://carletonlaw.net/where-have-all-the-finra-members-and-disciplinary-actions-gone/
* Special Considerations for Small Firms when Negotiating Settlements with FINRA https://carletonlaw.net/special-considerations-for-small-firms-when-negotiating-settlements-with-finra/
* Receiving that First Request for Information (a Rule 8210 Request) https://carletonlaw.net/receiving-that-first-request-for-information-a-rule-8210-request/
* Pre-Wells Notices – An Early Opportunity to Discover FINRA’s Evidence and Present Your Case
* Understanding the Significance of FINRA’s Limited Jurisdiction;
https://carletonlaw.net/315-2/
and
* How Old is Too Old for a FINRA Disciplinary Action
https://carletonlaw.net/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 attorney 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 | 2001 Massachusetts Avenue NW, Washington, DC 20036 | 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.
[1] Of the five not appealed, one case was a remand from the SEC to revisit sanctions, and the other was a respondent who failed to respond to a Rule 8210 request for information.
[2] In re Eric S. Smith, Case 24-1189, filed Mar. 7, 2024, before the U.S. Court of Appeals for the Sixth Circuit.