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Florida Business, Whistleblower, & Securities Lawyers / Blog / Thumbs Up Or Down? The Year In Review For FINRA And The SEC

Thumbs Up Or Down? The Year In Review For FINRA And The SEC

As we proceed into 2012, we have reviewed some of the matters that the Financial Industry Regulatory Authority (FINRA) and Securities and Exchange Commission (SEC) have done well or not so well. Here are our top-five areas in which FINRA and the SEC deserve a thumbs up or thumbs down.

Thumbs Up

  1. Launch Of FINRA’s Anti-Fraud Hotline To Help Elderly Investors: The hotline launched in November 2011 is a collaboration of the National Adult Protective Services Association (NAPSA), the Financial Planning Association (FPA), the Investor Protection Trust (IPT) and the Investor Protection Institute (IPI). The hotline’s goal is to provide seniors with advice on general financial matters as well as ways to prevent becoming the victim of financial fraud.

    The toll-free hotline operates from 9:00 a.m. to 6:00 p.m. EST. For general finance questions: (888-227-1776) Callers can speak to experts from the Financial Planning Association about their family financial security. For financial abuse questions: (888-303-3297) Callers to this number will speak with an adult protective services professional about elder financial abuse and strategies for keeping themselves or older loved ones independent.

  2. Optional All Public Arbitrator Panel In FINRA Arbitration Cases: In January 2011, the Securities and Exchange Commission approved Financial Industry Regulatory Authority (FINRA) Rule 12403(d) which gives investors the option of having all public arbitrators hear their dispute. Previously, all three-member FINRA arbitration panels that heard investor arbitration cases were comprised of two public arbitrators and one industry arbitrator.
  3. FINRA Enforcement’s Crack Down: FINRA announced that in 2011, it levied over $63 million in fines and ordered more than $19 million in restitution to investors for alleged wrongdoing by its member firms. This represents an increase of 70% over 2010.
  4. Accredited Investor Standards for Private Investments: As a result of the Dodd-Frank Act, the SEC has amended the accredited investor standards for private investments to exclude the value of a person’s primary residence for purposes of determining whether the person qualifies as an “accredited investor” on the basis of having a net worth in excess of $1 million. This should help reduce the brokerage industries’ liberal designation of investors as “accredited investors” in order to sell them speculative investments which should only be sold to those who are truly accredited investors.
  5. SEC Seeking SIPC Protection for R. Allen Stanford Victims: In a recently filed lawsuit, the SEC seeks to force the Securities Investor Protection Corp. (SIPC) to cover some of the losses suffered by victims of R. Allen Stanford’s alleged $7 billion Ponzi scheme. In its court filing, the SEC argued that Stanford customers should be covered by SIPC because the fraudulent CDs were sold through the brokerage firm and because R. Allen Stanford controlled all of the firm’s non-brokerage entities.


  1. Make it Clear that the Fiduciary Standard Applies to All Stockbrokers: Regulators need to make it clear that the fiduciary standard, which requires individuals to act in the best interest of their clients and disclose all conflicts of interest, applies to all stockbrokers, not just “financial advisors.” This would extinguish the argument by some defendants that they are not governed by any fiduciary duty.
  2. Full Disclosure of Compensation: Many brokers discuss fees generally with their clients and oftentimes, the basic “fee structure” of the firm is contained in the fine print of a brokerage account agreement. However, clients are rarely told in actual dollars how much the broker and firm are being compensated. How much the firm and broker were compensated should be clearly disclosed in dollars and cents on every trade confirmation.
  3. Annuity Fees: Investor demand for variable annuities is at an all-time high. Currently, most annuities require advanced degrees in mathematics in order to calculate their fees and surrender charges. Annuity fees should be clearly spelled out in plain language on the first sheet of the contract with a concrete example of all fees and charges given.
  4. Nature of the Investment: Many investors often have no idea what the investment they purchased is tied to. A recent example is the numerous “municipal” bonds tied to American Airlines. Many investors had no idea that what they purchased was not actually linked to the financial health of a municipality. A review of the hundreds of pages of a typical prospectus may reveal that it is tied to the health of a corporation. The entity that the investment is actually linked to should be clearly disclosed in plain language on the first page of the prospectus and offering documents.
  5. Application of Blue Sky Laws and Investor-Protection Statutes: Investors currently are required to bring claims against FINRA member firms before FINRA arbitration panels. Arbitration panels, however, are not uniform in the application of the law. FINRA arbitration panels should be mandated to follow and uniformly apply the Blue Sky Laws and each state’s investor-protection statutes. If an arbitration panel finds that a violation of law has occurred, the relief mandated in that law should be awarded every time. Following the law should not be discretionary.
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