Securities Industry Regulatory Defense
Financial industry regulation by the SEC, FINRA, or state securities regulators offer a wide landscape of compliance issues to navigate. Regulatory claims brought by the SEC or state securities regulators can arise from a wide range of conduct related to securities transactions. Based on this breadth this practice area is inherently complex.
- When is Best Time to Act?:
Even the most diligent and careful securities professional can be subject to potential liability arising from regulatory actions. Evidence of violations of securities regulations can stem from records of transactions and communications and often involve a number of parties as respondents and witnesses. Thus it is important to seek experienced securities regulation defense counsel at the earliest signs of potential risk or liability in order to mitigate the risk of further liability and to provide the most effective defense to these charges.
- Types of Crimes & Charges:
Alleged violations of securities regulations fall under civil jurisdiction; however, the alleged misconduct under a regulatory case can form the basis for criminal charges based on violations of state and federal criminal law. Securities regulation actons often involve: 1. Providing false or misleading information on a company's financial statement; 2. Providing false or misleading information on SEC filings; 3. Providing false or misleading information to corporate auditors; 4. Insider trading; 5. Stock manipulation schemes; 6. Embezzlement by stockbrokers; 7. Manipulation of a security’s price or volume; 8. Fraudulent or unregistered offer or sale of securities; 9. Brokerage Account and Retirement Account Fraud; 10. Theft or misappropriation of funds or securities;
- Criminal Schemes:
Civil securities regulations often track alongside criminal cases arising from the same conduct. The most common schemes related to securities regulation violations relates to providing false or misleading information in order to manipulate the markets, fraud against investors and violations of trading rules. Most of these cases are not simply technical violations, rater they involve an allegations of misconduct for personal gain. In many cases these violations are systematic and can involve liability being imputed companywide.
- Related Crimes:
Civil securities regulations often track alongside criminal cases arising from the same conduct. The most common crimes commonly related to regulatory violations include: The following are common examples of practices provided by FINRA which result in securities regulatory enforcement actions: • Insider Trading (SEC Rule 10b-5) • Backing away (NASD IM-3320). • Trading ahead of customer limit orders (NASD IM-2110-2) • Front-running (NASD IM-2110-3) • Trading ahead of research reports (NASD IM-2110-4) • Anti-Intimidation/Coordination (NASD IM-2110-5) • Churning (NASD IM-2310-2) • Suitability (NASD Rule 2310) • Selling away (NASD Rule 3040) • Unauthorized trades • Parking securities and maintaining fictitious accounts
Financial industry regulation by the SEC, FINRA, or state securities regulators covers a wide range of conduct.
- Penalties & Punishment:
Penalties for violations of securities laws involve fines or a sanction against an individual or firm’s ability to operate in the securities industry. The SEC may seek the following penalties: • Civil action: The SEC often asks for an injunction, prohibiting any further acts or practices that violate the law or Commission rules. An injunction can also require audits, accounting for frauds, or special supervisory arrangements. In addition, the SEC can seek civil monetary penalties, or the return of illegal profits (called disgorgement). The court may also bar or suspend an individual from serving as a corporate officer or director. A person who violates the court's order may be found in contempt and be subject to additional fines or imprisonment. • Administrative action: The Commission can seek a variety of sanctions through the administrative proceeding process. Administrative sanctions include cease and desist orders, suspension or revocation of broker-dealer and investment advisor registrations, censures, bars from association with the securities industry, civil monetary penalties, and disgorgement. FINRA Penalties: FINRA’s penalties can include monetary and administrative sanctions. FINRA’s guidelines establish specific penalties based on the type and severity of conduct. These guidelines are found at http://www.finra.org/web/groups/industry/@ip/@enf/@sg/documents/industry/p011038.pdf
- Successful Defense:
Defending securities regulatory actions involves a nuanced approach to handling what is a complex body of regulation and the high risk involved. Defenses to securities regulation violations often involve challenging the factual allegations which constitute the alleged misconduct or the respondent’s intent such as acting with fraudulent or deceitful intent for personal gain.
- Differences between State & Federal Charges:
Financial industry regulation by the SEC, FINRA, or state securities regulators covers a wide range of conduct. The differences between state and federal regulatory schemes are often similar, yet their methods of enforcement and procedures for defending against regulatory enforcement actions can be markedly different.
- High Profile/ Govt. cases:
Given the number of high profile securities related scandals and with the passage of Sarbanes-Oxley, the regulatory enforcement in the securities industry has become more hostile. This is evident in the SEC’s recent publication of a list of its financial crisis enforcement actions. These include more than 150 firms and individuals resulting in $2.6 billion returned to investors.