When the going gets tough, some reps and broker-dealers get going in suing the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA)—and sometimes it pays off.
That is the finding of the just-released annual study by Sutherland, Asbill & Brennan analyzing whether it pays for reps and BDs to litigate against regulators instead of settling. The Sutherland study analyzed cases from October 2010 through March 2012 where BDs and individuals were charged with violating SEC and FINRA statutes, rules and regulations.
Reps and BDs often cower from hitting back against the SEC and FINRA. However, Sutherland details in its report the four areas in which reps and BDs did indeed find some success.
Liability
Of the 126 charges that were litigated by the SEC and FINRA and resulted in SEC initial decisions or FINRA Hearing Panel decisions during the study period, BDs and individuals succeeded in getting 12.7% of the charges dismissed.
- SEC Respondents
Only seven respondents litigated against the SEC during the study period, and none persuaded the administrative law judge (ALJ) to dismiss any charges.
- FINRA Respondents
These respondents succeeded in getting 14.3% of the charges dismissed, nearly double the success rate of respondents during fiscal years 2009 and 2010 (7.6%).
- Representation by Counsel in FINRA Proceedings
FINRA respondents with counsel were significantly more successful than pro se respondents. FINRA respondents represented by counsel succeeded in getting 18.8% of charges dismissed. FINRA respondents without counsel, on the other hand, went 0-for-27 during the period. Since January 2006, only one pro se FINRA respondent has succeeded in getting any charge dismissed.
Fraud Charges
During the study period, SEC staff successfully proved all three of the fraud charges brought. FINRA, however, failed to prove two of its nine fraud charges, or more than 22%, which Sutherland says is far less than its success rate for charges generally. In fiscal 2009-2010, FINRA succeeded in proving all of its fraud charges (five fraud charges against four respondents).
FINRA Enforcement Priorities
