According to a new study, in 2011 the Financial Industry Regulatory Authority’s (FINRA) enforcement actions and fines were significantly higher than in 2010. Enforcement actions rose from $45 million in 2010 to $68 million in 2011. Of that $68 million, the largest portion was for improper advertising penalties. Furthermore, the FINRA sanctions survey stated that 1,488 disciplinary actions were filed and 329 brokers were barred by FINRA in 2011 for broker misconduct. Both of these figures saw a rise from 2010.
A common claim made by securities fraud attorneys for investors occurs when an unsuitable recommendation is made by their broker or financial adviser. Fines for suitability violations more than doubled in 2011, as did the number of cases filed. There were 106 suitability cases filed, with fines amounting to $7.7 million in 2011, compared to 53 cases and $3.75 million in fines in 2010. These fines do not include arbitration awards to investors for losses as a result of suitability violations.
FINRA hopes the new suitability rule will keep pressure on brokers to only offer investments that are in keeping with individual investors’ investment needs, risk appetite and timeline. The new suitability rule is scheduled to be finalized in the summer of 2012. According to Brian Rubin, the former deputy chief counsel of FINRA’s predecessor, the National Association of Securities Dealers, “We anticipate this will continue to be a hot area for FINRA. The new rule gives FINRA additional ammunition.”
FINRA has also been focusing on internal communications that are inaccurate or fraudulent. This is a major problem when investment firms tell their brokers that a product is not risky because brokers will then, without realizing they are committing fraud, give this same inaccurate information to their clients. FINRA Executive Vice President Brad Bennett stated, “If you see products being sold by people who don’t understand them to people who don’t understand them, that’s a suitability problem. That is a common theme that will underline product cases coming out this year.”
If you have suffered significant losses as the result of an unsuitable recommendation by your broker or adviser, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.