Can FINRA Lead to Criminal Charges?

Last Updated on: 9th December 2025, 07:46 pm

Can FINRA Lead to Criminal Charges?

FINRA cannot send you to prison. They don’t have that power. They’re not a government agency – they’re a private self-regulatory organization. The worst FINRA can do directly is bar you from the industry, suspend you, fine you, and destroy your career. But they cannot put you in handcuffs. They cannot file criminal charges. They cannot send federal marshals to your door. That’s the good news.

Here’s the bad news: FINRA is one of the most effective feeders of criminal prosecutions in the securities industry. In 2018 alone, FINRA referred over 900 fraud and insider trading cases to the SEC for further investigation. Many of those referrals eventually landed at the Department of Justice. Many insider trading prosecutions – the kind that result in federal prison sentences – start on the desk of a FINRA investigator. FINRA can’t prosecute you, but they can hand-deliver the evidence package that gets you prosecuted by people who can.

The investigation you think is just regulatory – just about your license, just about fines and sanctions – may already be building the criminal case against you. Every document you produce to FINRA can be shared with federal prosecutors. Every word of your On-the-Record testimony can appear in a criminal indictment. You’re cooperating with FINRA because you have to, and in doing so, you may be constructing your own prison sentence.

The Referral Machine

Heres how the pipeline works. FINRA investigators monitor trading activity, review customer complaints, examine firm records, and conduct investigations. When they find evidence of conduct that might violate not just FINRA rules but federal securities laws, they refer the matter to government authorities:

• The SEC
• The DOJ
• The FBI
• State prosecutors

FINRA maintains a public database of actions resulting from there referrals. You can look it up on there website. It lists case after case were FINRA detected something, referred it, and federal or state authorities brought charges. These aren’t rare events. This is routine. This is what FINRA does.

The referral doesn’t require FINRA to have completed there own proceedings. They can refer the moment they believe criminal conduct may have occurred. So while your still responding to 8210 requests, while your still preparing for OTR testimony, while your still thinking this is a regulatory matter – the referral might already be made. The FBI might already have your file. You wouldn’t know.

And once the referral happens, the dynamics change completely. Your not just facing career sanctions anymore. Your facing federal prison:

• Securities fraud carries sentences of up to 25 years per count
• Wire fraud is 20 years per count
• Conspiracy charges stack on top
• The 93% federal conviction rate means if there charging you, they believe they can convict you

What Triggers a Criminal Referral

Not every FINRA investigation becomes a criminal matter. Most don’t. But certain types of conduct almost guarantee referral to federal authorities.

Conversion of customer funds – taking client money for your own use – is one. This isn’t just a FINRA violation. Its theft. Its potentially wire fraud if electronic transfers were involved. Its potentially mail fraud if any documents went through the postal system. These are federal crimes with serious prison time.

Insider trading is another. FINRA’s surveillance systems are specifically designed to detect unusual trading patterns that might indicate trading on material nonpublic information. When they find those patterns, they refer to the SEC and FBI immediatly. The Tyler Loudon case showed this: FINRA detected suspicious trading, referred it within days, and Loudon eventualy pled guilty to securities fraud.

Other conduct that triggers referrals:

• Ponzi schemes and investor fraud
• Market manipulation through spoofing
• Lying to FINRA investigators – making false statements during the investigation itself – can be referred as obstruction or false statements charges

And document destruction is especialy dangerous. Spoliation – destroying evidence during an investigation – is a crime. Not just a FINRA violation. A federal crime. If you panic when you receive an 8210 letter and start deleting emails or shredding records, your not just facing a bar from the industry. Your facing potential federal prosecution for obstruction of justice.

Your Testimony Becomes Evidence

Heres the trap that destroys people. FINRA requires your cooperation. You cannot invoke the Fifth Amendment. If you refuse to testify, your barred from the industry. So you testify. You answer questions. You sit in that OTR room for hours or days, speaking under oath, with every word transcribed.

And then FINRA shares that testimony with federal prosecutors.

Everything you said trying to keep your securities license can be used against you at your criminal trial. The statements you made because you had no choice – because the alternative was immediate career death – become exhibits in a federal prosecution. You basically testified at your own trial before the trial even happened.

The SEC has the same information sharing arrangement. If your under SEC investigation and cooperating with civil subpoenas, your cooperation feeds the criminal pipeline. The SEC works closely with DOJ. They share evidence. They coordinate. What you thought was a civil matter becomes a criminal matter, and your own words from the civil investigation become the prosecution’s primary evidence.

This is why you need counsel who understands both regulatory and criminal exposure from the moment an investigation begins. The decisions you make about how to respond to FINRA affect not just whether you keep your license – they affect whether you go to prison.

Parallel Investigations You Don’t Know About

Some FINRA investigations run parallel with criminal investigations from the start. The DOJ might already be building a case while FINRA is gathering evidence. You respond to FINRA’s requests thinking your dealing with a regulatory matter. Meanwhile, federal prosecutors are watching, waiting for FINRA to do the evidence collection for them.

There is no legal requirement for FINRA to tell you a criminal investigation exists. They might not even know themselves – the DOJ doesn’t always inform other agencies. You could be fully cooperative with FINRA, providing documents and testimony, completely unaware that a parallel criminal investigation is underway and that everything your providing is flowing to prosecutors.

By the time you learn about criminal exposure – maybe when an agent shows up to interview you, maybe when you receive a target letter – you’ve already built much of the case against yourself. Your FINRA cooperation becomes your criminal undoing.

This is the cruel irony of the system. FINRA doesn’t give you Fifth Amendment protection because there not the government. But they share evidence with the government. So you lose the constitutional protection but face the governmental consequence. The private regulator extracts testimony you couldn’t be compelled to give in a criminal proceeding, then hands that testimony to prosecutors.

The Statistics That Should Terrify You

FINRA brought over 900 disciplinary actions in 2018 and referred over 900 fraud and insider trading cases to the SEC. Think about those numbers. For every disciplinary action FINRA brought internally, they were also referring approximately one matter to federal authorities for potential prosecution.

Many of those referrals result in charges. Many of those charges result in convictions. The federal conviction rate for criminal cases is approximately 93%. If DOJ decides to prosecute, they almost always win. And securities fraud convictions typicaly involve prison time. These arent probation cases. People go to federal prison for securities violations.

The sentencing guidelines for securities fraud are harsh:

• A conviction for securities fraud can carry up to 25 years imprisonment
• Wire fraud adds another 20 years per count
• If you were in a leadership position, if victims lost significant money, if you obstructed the investigation – sentencing enhancements pile on
• White collar criminals increasingly serve real time

And heres the thing about federal prison: there is no parole in the federal system. If you get 60 months, you serve at least 85% of that – over four years behind bars. The sentence is largely what you get.

What You Can Do To Protect Yourself

You cannot refuse to cooperate with FINRA. That guarantees a bar, which destroys your career anyway. But you can cooperate strategically in ways that minimize criminal exposure.

First, get counsel immediately – counsel who understands both securities regulation AND criminal defense. Not just a FINRA specialist. Not just a criminal lawyer. Someone who comprehends how regulatory cooperation creates criminal exposure and knows how to navigate both.

Second, understand that everything you say in a FINRA proceeding can end up with federal prosecutors. Frame your responses accordingly. Be truthful – lying makes everything worse – but don’t volunteer information beyond what was asked. Don’t speculate. Don’t explain motivations unless specifically questioned.

Third, preserve everything but destroy nothing. Document destruction is a separate crime that can result in prison time independent of whatever was being investigated. The moment you learn of any investigation, treat it as triggering a legal hold on all documents.

Fourth, evaluate whether the matter has criminal exposure early, before you’ve said things that cant be unsaid. If counsel believes criminal charges are likely, the calculus about FINRA cooperation changes. A bar from the industry is devastating, but its not prison. Sometimes accepting the bar to preserve Fifth Amendment rights in the criminal proceeding is the less bad option.

FINRA cannot send you to prison. But FINRA’s investigation can generate the evidence that sends you to prison. Treat every FINRA matter as if it could become criminal – because many of them do.

If you’re facing a FINRA investigation and are concerned about potential criminal exposure, contact an attorney who handles both securities regulatory defense and federal criminal defense. The strategies that protect your license may differ from those that protect your liberty.