Note from the author: This is the first article in a series discussing FINRA investigations and the disciplinary process. In the future, this column will discuss investigations, dispositions, as well as strategies connected to accepting a FINRA plea bargain as well as preventing enforcement initiation proceedings. We will discuss the FINRA enforcement process as well as the steps needed to return to the industry following a suspension.
For a financial advisor, receiving a Rule 8210 notice from FINRA is a gut-wrenching feeling. This notice is the first step into an investigation into your conduct. You will be required to answer questions and produce a variety of documents from your business and personal life. There are a number of circumstances that may trigger a FINRA subpoena. These include activity in your client’s accounts that is deemed unusual and a written complaint from a customer or a former firm alleging that you might have engaged in misconduct when filling out the form U5 after termination.
Regardless of the reason behind the subpoena from FINRA, stay calm. This doesn’t mean your career is coming to an end. Usually, Rule 8210 notices are sent in conjunction with an informal inquiry that will not need to be reported on in the Form U4. This step is taken by FINRA to determine if securities or industry rules/regulations have been violated by you. At this stage, it’s essential that you focus your attention on avoiding FINRA escalating this inquiry to the point where it will become a formal investigation. When that happens, then it will be put on your Form U4.
As we’ve already laid out, it is FINRA Rule 8210, officially known as “Provision of Information and Testimony and Inspection and Copying of Books,” that allows them to send you questions and request documents.
The section of rule 8210 that is relevant in this situation states the following:
“For the purpose of an investigation, complaint, examination, or proceeding authorized by the FINRA By-Laws or rules, an Adjudicator or FINRA staff shall have the right to require…a person associated with a member…to provide information orally, in writing, or electronically…and to…inspect and copy the books, records, and accounts of such…person with respect to any matter involved in the investigation, complaint, examination, or proceeding…”
Just in case there was a doubt, you have no option but to respond to a Rule 8210 notice.
“No member or person shall fail to provide information or testimony or to permit an inspection and copying of books, records, or accounts pursuant to this Rule.”
What are the consequences of playing dumb and pretending that the FINRA subpoena is something that you can ignore? In short, you will be suspended from your firm and suspended from the industry until you are in compliance. In most cases, you have 90 days to reverse things before your suspension is changed into a permanent ban from the industry. So, basically, if you get a Rule 8210 notice, it is exceptionally serious, and you should take immediate steps to address it.
When you receive the notice, the first thing you should do is talk to your firm, including the branch manager as well as the compliance department. Your firm will need to help you get the relevant documents. Also, being honest and upfront with your firm will go a long way in making it clear that you are not hiding anything.
Step two is talking to FINRA directly and requesting an extension of time. FINRA subpoenas usually have an outrageously short deadline for response. They do this because they know that advisors will ask for extensions. So take advantage of this provision. When talking to the sender, be polite and explain that you are in the process of getting legal representation as well as collecting the documentation needed. Inform them that it will take several weeks for you to provide an answer. If an extension is not granted, this may be a sign that you are in serious trouble.
Assuming you receive the extension, you need to get to work and make the best use of the time. Part of this means working with an experienced attorney who understands FINRA disciplinary circumstances. At Spodek Law Group our attorneys at law are familiar with FINRA disciplinary actions and are able to provide sound legal counsel. When your future depends on it, you need the best. You need us. We can help refine the answers you provide to the FINRA subpoena. The goal is to present your case and any possible exposure you may have in the best light. We want to minimize, or if possible avoid, future regulatory danger.
Once you get legal counsel, it’s time to think, refresh your memory, and gather the information that’s going to be beneficial to you. Go through your documentation, whether it’s at home or on your business or personal computer or anywhere else. Rule 8210, in its current form, gives FINRA more authority requiring individuals who receive subpoenas to provide documents that they either possess, have custody of, or control. This means that even if you don’t have the document in your hand right now, but it’s reasonable to think that you could get the document, you are required to produce it. Honesty is a must when it comes to producing documents. Remember, FINRA may have gotten documents from a third-party. If you try to hide documents, it is likely going to be less than flattering for you.
When you have the documentation, review it to get the facts straight about whatever incident has triggered the subpoena. Then you should get to work to writing your response. This is often the most important part of the process. The lawyers at Spodek Law Group can work with you to draft a response that not only defends your position but when possible advocates for you in a subtle yet clear way.
We work with our clients to help them produce a written response that clearly explains why the complaints or remarks on the U5 are nonsense and that pursuing the complaints would be a waste of FINRA’s valuable time. Honesty is the key to success while at the same time crafting an argument that shows there is more to the story than what is presented in the complaint.
Depending on the seriousness of the complaint, FINRA may not respond for months or may seek follow-up information or more documents over the course of months or years.
At Spodek Law Group, we work with our clients every step of the way to provide them the protection they need to prevent the informal inquiry from advancing to become a formal investigation.