FINRA disciplinary actions rise 13 percent

The Financial Industry Regulatory Authority filed 1,488 disciplinary actions in 2011, a 13 percent increase over 2010, according to Sutherland Asbill & Brennan LLP’s FINRA Sanctions Survey. The report found that the number of individuals barred by FINRA increased from 288 in 2010 to 329 in 2011, an increase of more than 14 percent.

The rate of growth in fines last year surpasses the rate of growth in the number of actions, with fines in 2011 jumping 51 percent to $68 million from 2010’s $45 million. This is a significant reversal from 2010, when there was a $5 million drop in the total amount of fines, notwithstanding a 13 percent increase in the number of actions filed. While the $68 million reported in 2011 is still a far cry from the $184 million and $111 million that FINRA fined firms and representatives in 2005 and 2006, respectively, it may signal continued enforcement efforts for the near future.

The top enforcement actions taken in 2011 dealt with advertising, short selling, Auction Rate Securities (ARS), suitability and improper form U4, U5 and Rule 3070 filings. Advertising sanctions jumped from $4.75 million in 2010 to $21.1 million in 2011. The number of cases involving alleged advertising violations doubled to 45. As in 2009 and 2010, a significant amount of the 2011 advertising fines, $9.5 million, related to the sale of auction rate securities. In addition, nearly $8 million in fines stemmed from nine cases involving the use of allegedly misleading advertising materials on firm websites available to investors.

Short selling cases generated $16.8 million in fines, mostly from one $12 million fine imposed on a firm that allegedly violated Regulation SHO by failing to properly supervise millions of short sale orders that were mismarked and placed to the market without reasonable grounds to believe that the securities could be borrowed.

Seven cases involving auction rate securities resulted in $10 million in fines, a substantial increase from the $1.75 million in total fines for 2010. Most of the 2011 cases concerned the alleged failure to disclose material facts to investors, often in advertising materials.

Suitability cases resulted in $7.7 million in reported fines in 2011 and improper form filings resulted in 91 FINRA disciplinary actions and more than $6.6 million in reported fines in 2011.

Founded in 1924, Sutherland Asbill & Brennan LLP provides legal services throughout the United States and worldwide to diverse clients in seven major practice areas: corporate, energy and environmental, financial services, intellectual property, litigation, real estate, and tax.


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