FINRA’s Sanctions in 2012 on Pace to Far Surpass 2011’s Totals
Deborah G. Heilizer WASHINGTON (Thursday, August 9, 2012) – Financial Industry Regulatory Authority (FINRA) fines and disciplinary actions for 2012 are on track to significantly outpace those for 2011, according to a mid-year review announced today by Sutherland Asbill & Brennan LLP.
The results of the review, which was conducted by Sutherland Partners Deborah G. Heilizer and Brian L. Rubin, show that during the first half of 2012, FINRA ordered broker-dealers and associated persons to pay $39.4 million in fines.
Brian L. Rubin
“If fines continue to be assessed at this rate, 2012 will represent a 15% increase from the total fines reported by FINRA in 2011,” said Mr. Rubin. “Essentially, we are looking at a jump from $68 million in 2011 to projected fines of $78.4 million in 2012.”
Furthermore, the attorneys found that 609 cases were reported by FINRA during the first half of 2012; if cases are brought at this same rate for the rest of the year, the number of cases is projected to surpass 2011’s total disciplinary actions by nearly 9%.1
Additional results of the 2012 mid-year review include:
Increased Supersized Fines
FINRA has also been more aggressive in ordering “supersized” fines (fines of at least $1 million). During the first half of the year, it ordered seven “supersized” fines totalling $24 million. If this trend continues, “supersized” fines will increase from the 10 “supersized” fines in 2011, which totalled $35 million.
During the first half of 2012, FINRA has also ordered its members to pay $12.7 million of disgorgement and restitution payments.
FINRA’s projected overall increase in fines and disciplinary actions would represent a continuation of trends from recent years. FINRA’s 2011 fines surpassed the total amount of 2010 fines by 51%.2 Similarly, the projected number of 2012 disciplinary actions would represent the fourth straight year of growth. In 2009, the number of disciplinary actions grew by 8% over 2008 and by 13% in both 2010 and 2011 over each prior year.
Top Five Enforcement Issues
The top five enforcement issues for FINRA during the first half of 2012, in terms of fines imposed, have so far been:
1. Research analyst communications: $11.9 million, 8 cases;One case from this group is worth highlighting. The research analyst communications fines largely stem from an $11 million FINRA fine ordered in a case involving allegedly improper communications about research analyst ratings. In that case, which resulted in the largest fine during the first half of 2012, the firm was also ordered to pay an additional $11 million fine to the Securities and Exchange Commission pursuant to a settlement with that agency.
2. Suitability: $6.6 million, 64 cases;
3. Unit Investment Trusts: $3.9 million, 4 cases;
4. Markups and/or markdowns: $3.7 million, 14 cases; and
5. Municipal securities: $3.7 million, 24 cases.3
Comparison with 2011
The 2012 cases for the first half of the year also suggest that FINRA continues to focus on industry practices and particular product areas, but is not limiting itself to historic areas of interest. For example, here is a comparison of the top five 2011 enforcement issues, in terms of the total fines ordered by FINRA, with those same categories from 2012:
|JAN - JUNE 2012
|1. Advertising||$21,1 million||45||$2 million||22|
|2. Short Sellings||$16.8 million||38||$2.8 million||22|
|3. Auction Rate Securities||$9.9 million||7||$200,000||1|
|4. Suitability||$7.7 million||106||$6.6 million||64|
|5. Improper Form U4, Form U5,
and Rule 3070 filings
|$6.6 million||91||$1.5 million||61|
While FINRA’s overall fines are projected to increase in each of these categories, except for suitability, FINRA currently is on track to order fewer sanctions than it did the prior year. Despite declines in the amount of fines in these categories, the number of cases, with the exception of Auction Rate Securities matters, is projected to surpass the number of cases reported in 2011.
Trends Likely to Continue
“So far, 2012 is turning out to be a year of significant growth in FINRA’s fines and disciplinary actions,” said Ms. Heilizer. “This year, FINRA appears to be leaning toward product-specific cases. If these trends hold, 2012 will turn out to be a solid year for FINRA.”
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1 FINRA defines disciplinary actions to include Letters of Acceptance, Waiver and Consent; Complaints; Rule 9522 suspensions; and Minor Rule Violations. The number of disciplinary actions reported, and the total amount of corresponding fines, comes from the Disciplinary and Other FINRA Actions reports that FINRA publishes each month.
2 Deborah G. Heilizer, Brian L. Rubin and Andrew M. McCormick, Annual Sutherland FINRA Sanctions Survey Shows a 51% Jump in Fines in 2011, March 16, 2012.
3 Many cases involve multiple allegations, making it difficult to attribute the exact amount of any particular fine to a specific allegation.
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