Compared to 2012, FINRA issued a nearly identical number of disciplinary actions in 2013, but decreased the amount of fines levied by 27%, according to the annual Sutherland report generated by Sutherland Asbill & Brennan LLP, a firm that represents brokers, brokerage firms and the financial services industry.
The analysis reported a total of $57 million in fines, FINRA's lowest amount of financial sanctions since 2010's $45 million price tag, though the 1,535 disciplinary actions in 2013—a drop of just six from 2012's 1,541 cases—were FINRA's most disciplinary actions since the start of Sutherland's analysis in 2005, second to the 2012 mark.
This ratio disparity, compared to prior years, in fines versus overall actions, reflects an overall enforcement and regulations trend to zero in on minor infractions in order to stop larger, more damaging ones from taking place later on. For instance, in October 2013, SEC Chair Mary Jo White promised to crack down on misconduct whatever "the size of the violation that victimizes the investor."
Key issues in enforcement included, ranked by dollar amounts fined:
> Electronic Communication, including e-mails from firm or broker to customer and internally as well. Technology misconduct FINRA fined firms for in 2013 included systematic failures preventing firms from accessing millions of e-mails, failure to review millions of e-mails resulting in material misrepresentations and other failures related to e-mail retention and surveillance.
> Trade Reporting, wherein firms failed to timely post trade transactions, such as sales.
> Short Selling proved harmful when firms executed short sale orders without reasonable beliefs that securities were available or eligible for lending.
> Books and Records violations often occurred because firms and/or representatives failed to accurately report transactions, including transfers. Failure to maintain accurate books and records also occurred due to misclassified transactions, instances of illicit misappropriation or conversion of funds and administrative failures, including supervisory problems.
> Municipal Securities have produced a growing number of sanctions as their popularity has grown, as these bonds that are issued by governments or their agencies often are associated with low rates of default (compared to corporate bonds, for instance) and are therefore less risky than many other types of investments.
FINRA expelled 24 firms from the securities industry in 2013 (24 in 2012), but barred 429 individual brokers, advisers or other registered individuals, an increase of 46% from 2012's 294 banishments. FINRA doled out 670 suspensions in 2013, an increase of 22% from 2012's 549 suspensions.
According to the report, the decrease in fine amounts in 2013 can be attributed to less lucrative cases, partly a result of more time passing since the high-dollar frauds and systematic misconduct of 2008 and the Financial Crisis.
If you have invested with a broker or firm whose misconduct relating to electronic communications, trade reporting, short sales, record keeping, bonds or any other enforcement area has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.