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Watch List Issued by FINRA

On January 31, 2012, the Financial Industry Regulatory Authority (FINRA) posted a letter on its website outlining its 2012 priorities for regulation and examination. According to the letter, “FINRA is informing its examination priorities against the economic environment that investors have faced since 2008, as these circumstances have steadily contributed to conditions that foster an increased risk of aggressive yield chasing, inappropriate sales practices, unsuitable product offerings, and misappropriation and fraud.” The letter goes on to state FINRA’s concerns that investors “may be inadvertently taking risks they do not understand or that are inadequately disclosed.”

This is a concern that is shared by investment attorneys as they are faced with client after client that have suffered significant losses as a result of insufficient disclosure or lack of understanding.

Top products on FINRA’s watch list for suitability problems include non-traded real estate investment trusts (REITs), residential and commercial mortgage-backed securities, municipal securities, variable annuities, structured products, exchange-traded funds using synthetic derivatives and significant leverage, life settlements and private placements.

Another concern stated in FINRA’s letter is that of fees. FINRA states, “We remain concerned about firms’ charging retail investors hidden, mislabeled or excessive fees.” In fact, FINRA brought several cases related to excessive fees against broker-dealers in 2011.

Other priorities listed by the agency are oversight of the creation and redemption of exchange-traded funds and high-frequency trading.

In the letter, FINRA also stated that it is targeting high-risk firms with its enforcement efforts and undertaking a “broader data collection effort.” Red flags for FINRA monitoring are inadequate cash flow in investment and lack of liquidity.

Investors who believe they have been the victim of stock broker fraud can seek the recovery of their losses through FINRA securities arbitration. If you believe you have a valid claim, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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