FINRA Rule 8210 Investigations: How To Respond And Protect Yourself

You just received a letter from FINRA. You may have anticipated the letter, or you may be surprised to get the letter in the first place. If you carefully read the letter, you’ll notice that it was issued to you in accordance with FINRA Rule 8210.

If this is the first time you’ve received one of these inquiries, you may have a lot of questions and concerns about why FINRA is investigating you. We’ll talk about common concerns, as well as some of the methods that we employ when navigating the process. But first, let’s delve into why and how advisors get flagged by FINRA’s radar.

What is FINRA looking for? 

Every day, regulatory alerts from a variety of sources are sent to FINRA. Many investigations arise from FINRA’s own automated surveillance reports, which are confidential and maintained by FINRA. Those surveillance reports are similar to a brokerage firm’s reporting system. FINRA’s parameters trigger a report when any odd or suspicious trading occurs. The reports instruct FINRA examiners to investigate the matter further. 

Cycle examinations are a second source of information from which FINRA receives tips. Sometimes this prompts a look into the broker-dealer or the branch office. Referrals from other regulators, whether from the SEC or state securities commissions, are another source of a FINRA investigation. FINRA Enforcement receives these tips from either the investing public or through its whistleblower office.

Most commonly, FINRA uses information gathered from Forms U4 and U5 to target advisors for investigations into issues, including customer complaints, bankruptcies, litigation, terminations, and even liens and judgments. Just a few years ago, FINRA aggressively began to go after advisors who conceal or “willfully” fail to disclose judgments or liens on their Forms U4. Hundreds, if not thousands, of advisors were then sent Rule 8210 letters inquiring about the undisclosed judgments or liens. Many advisors have been slapped with negative disclosures on their public BrokerCheck or CRD record that most likely continue to haunt their careers today. 

FINRA’s Form U5 is different from the Form U4, because the Form U5 includes notices of registration terminations. These notices are common and submitted to FINRA any time an advisor changes firm registrations. All firms are required to submit a Form U5 within 30 days of an advisor’s registration being terminated. Even if the termination was on good terms or voluntary, the firm may add language that is detrimental to an advisor’s reputation. 

That’s why it’s critical for advisors to seek outside counsel any time they undergo a change of firm. In our experience, we too commonly see broker-dealers use Forms U5 as a way to retaliate against departing advisors. 

Our team of AdvisorLaw attorneys and regulatory experts know how damaging these types of disclosures can be for an advisor. Here are some of our most recent U5 termination arbitration cases. If you need assistance amending the language on your Form U5, please reach out to our team here. 

If you are under FINRA investigation, call us now at (303) 952-4025
or contact us for a complimentary consultation!

FINRA can examine a broker-dealer’s books and records, anytime.

FINRA’s Rule 8210 was purposely created to grant the regulatory entity supreme power when it comes to pursuing investigations. In the fine print of FINRA’s Rule 8210, often referred to as the “supplementary material,” you’ll find that, at any given time, FINRA is allowed to request a firm’s books and records, as well as any information regarding individual advisors’ outside business operations and/or private securities transactions. That means that, if you’re registered with FINRA as a financial advisor, any and all of your additional professional activities can be subject to FINRA investigation. This is why it’s so critical for advisors to understand the scope and power of FINRA Rule 8210 — and more importantly, why hiring your own counsel is imperative. 

FINRA Form U5 language is critical.

The way in which you respond to FINRA’s written information request can determine the outcome of a disclosure. It’s normal for clever securities industry experts, especially those with sales backgrounds, to attempt to talk their way out of a FINRA inquiry. 

But investigations from securities regulators require experience and expertise. Anything and everything you say, or any information that you provide to FINRA, will be used to build a case against you. After all, FINRA is here to protect the customer — not the individual broker or broker-dealer. Many advisors believe they’re being helpful by providing FINRA with more information than requested. But this type of “open book” strategy can inadvertently harm advisors by giving FINRA the opportunity to look into other areas that the regulator may not have paid attention to in the absence of the additional information provided by the advisor. 

Without question, the language used in response to a FINRA 8210 request is crucial. You may find that to be counterintuitive based on transparency commonly being understood to be helpful in many areas of life and career. Generally speaking, that’s true. But during this type of investigation, you should only offer what was requested and leave all other inquiries to cycle examinations. We may sound like a broken record, but the best chance an advisor has to successfully navigate an investigation from FINRA is to reach out to a team of securities attorneys who are well-versed in FINRA regulations and rules. Learn more about our team and enforcement services here. 

You just submitted all documents and information to FINRA. Now what? 

Once all of your paperwork and information have been submitted to FINRA, the next step the regulator will take will be to reach out to other sources to gather more information about the alleged infraction. It may reach out to and request information from any other individual or business with which you’ve been affiliated.

If you are under FINRA investigation, call us now at (303) 952-4025
or contact us for a complimentary consultation!

Once FINRA is satisfied that it has gathered enough documents and information from all available sources, the regulator may then summon you for an on-the-record interview, or “OTR.” An OTR is similar to a deposition in a traditional court proceeding. Learn more about OTR interviews and how you can strategically maneuver the process here. 

Although securities arbitrations are comparable to traditional court proceedings, they are different in some very important ways. The rights that you have as a registered FINRA representative submitting to an OTR interview are not the same as a person giving a deposition. 

Typically, you have the right to make a range of objections in a deposition that would be saved for trial. You would also be able to ask a judge to intervene if you were concerned about something in the investigation. But with FINRA Enforcement, there is no judge. FINRA examiners are the judge, jury, and executioner. They have the final say as to whether or not a query, line of questioning, or area of investigation is appropriate. 

FINRA’s very broad view of what constitutes an acceptable line of questioning means that the playing field is far from level. The power FINRA has in its investigations makes many advisors feel as though they’re heading into an OTR with one hand tied behind their back. 

Preparation is essential.

Most advisors in this type of situation will have neither the time nor expertise to review their documents and provide only what has been requested. That’s why having a team of attorneys who understand securities law and FINRA regulation behind you is so essential. 

Hiring counsel can help you cover your bases. Our AdvisorLaw team will reach out to former employers and do our best to examine the events that transpired to trigger the FINRA investigation in the first place. We’ll compare your situation with other cases in which we’ve assisted advisors in order to make sure we’re taking the most effective steps. 

FINRA’s settlement agreements come in the form of letters of Acceptance, Waiver, and Consent, or “AWCs.” When you’ve read as many AWCs as we have, one finds that FINRA regulators have a common pattern. Once an OTR interview with FINRA has been completed, the regulator will move on to its “sufficiency of evidence” assessment. From there, FINRA will provide a Wells Notice to the advisor, letting them know whether the case will progress further, or a formal complaint will be filed. 

If you received a FINRA 8210 letter, seek outside counsel now.

Because the stakes are so high at this level, it’s critical to answer quickly, consistently, and with great precision. Regardless of how the events unfold, each stage of the process is designed to allow Enforcement to make a case against you. Admissions at any stage could throw a future settlement or negotiation into disarray and could cost a financial advisor their job. At every stage of the process, advisors can provide themselves with the greatest protection by securing legal representation. 

There is no point in your financial career when you need AdvisorLaw more to preserve your livelihood than when you are under investigation by FINRA, the SEC, a state, or a licensing board (such as the CFP Board).

If you’re being investigated, give us a call at (303) 952-4025, or contact us using the form below for a free consultation.

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