What Investors Need to Know About FINRA Investigations

Is FINRA Investigating the Broker or Brokerage Firm You Trusted With Your Investment? If So, You Should Discuss Your Legal Rights with an Attorney

The Financial Industry Regulatory Authority (FINRA) is a government-authorized organization that oversees securities brokers and brokerage firms in the United States. All individuals and firms that offer securities to the public are required to comply with FINRA’s Rules, and those that fail to comply with the Rules can face liability, enforcement activity, and private securities arbitration.

Investors file arbitration claims against brokers and brokerage firms every day, and FINRA does not investigate each and every case. So, when FINRA decides to conduct an investigation, this matters, and if your investment is trusted by a person or a firm that is being investigated, that really matters.

If FINRA is investigating the broker or brokerage firm responsible for your investments, you should speak with an attorney about your legal rights. Most brokerage account agreements include mandatory arbitration of disputes before a FINRA arbitration panel. If you are a victim of securities fraud, you may need to pursue your claim in FINRA arbitration to recover your fraudulent investment losses. Even if FINRA takes enforcement action following its investigation, this will not result in full recovery of your losses. On the same token, if FINRA decides not to pursue enforcement action, you could still potentially have a claim for securities fraud.

What Does FINRA Investigate?

FINRA investigates brokers and brokerage firms for all forms of securities fraud. This includes fraudulent practices that violate FINRA’s Rules and federal securities laws such as the Securities Act of 1933 and the Securities and Exchange Act of 1934. FINRA’s stated enforcement priorities include:

• Fraudulent practices that result in financial harm to investors
• Fraudulent practices that threaten the integrity of the U.S. securities markets
• Egregious misconduct, particularly when a broker or firm has a history of violations
• Senior and vulnerable investor fraud

More specifically, FINRA investigates brokers and brokerage firms for forms of fraud and misconduct such as:

• Making false and misleading statements to investors
• Making unsuitable investment recommendations
• Overconcentrating investors’ portfolios
• Charging excessive fees and commissions
• Improperly selling unregistered securities
• Selling away (when a broker sells a security the firm does not offer)
• Failing to properly supervise brokers’ sales and marketing activities

What Does It Mean if FINRA is Investigating the Broker or Brokerage Firm Where I’ve Invested?

If FINRA is investigating the broker or brokerage firm that you have trusted with your investment, this does not necessarily mean there has been fraudulent conduct. In some cases, FINRA investigations simply confirm that brokers and firms have taken adequate steps to meet their legal obligations. With that said, many FINRA investigations do lead to enforcement action, and FINRA routinely imposes sanctions on brokers and brokerage firms for the types of fraudulent practices listed above.

What Should I Do if FINRA is Investigating the Broker or Brokerage Firm Where I have Invested My Savings?

If you have learned that your broker or brokerage firm that you trusted with your investment is under a FINRA investigation, you should consult with an attorney. Your attorney may be able to obtain information regarding the nature and scope of the investigation, and your attorney can assess your legal rights as an investor. You do not have to wait for FINRA to complete its investigation before deciding whether to pursue arbitration—and in fact, you should not wait to do so.

Your FINRA attorney can also advise you regarding what, if anything, you should do with your brokerage account. At this point, it may be in your best interests to withdraw your funds. In fact, there are several important decisions you need to make, and you will want to ensure that you are making sound decisions based on the advice of experienced legal counsel.

What if My Broker Says Everything is Okay?

Your broker does not want to lose you as a customer. As a result, he or she will likely try to reassure you that everything is okay. If this happens, you should not rely solely on your broker’s word when making decisions. A reputable broker will understand that you have concerns about FINRA’s investigation and will not try to dissuade you from seeking legal advice. If your broker tries to steer you away from talking to a FINRA attorney, this is a red flag that you should schedule a consultation right away.

Contact the FINRA Attorneys at Evans Law Firm for a Free Consultation

Is the broker or brokerage firm you trusted facing a FINRA investigation? If so, our FINRA attorneys can look into the investigation and advise you regarding what you should do. If you are a victim of securities fraud, we can also pursue a claim to recover your investment losses in FINRA arbitration. To schedule a free and confidential consultation as soon as possible, call or contact us now.