iThe Financial Industry Regulatory Authority, or FINRA, has wide investigatory powers over registered securities professionals in the United States. However, it is not a government agency, like the U.S. Securities and Exchange Commission (SEC). This means that, while FINRA’s ability to sanction you is limited, it can do so quickly and with far less due process.
Here are answers to some commonly asked questions that Dr. Nick Oberheiden, a FINRA investigation attorney and founder of Oberheiden, P.C. law firm, gets from securities professionals, as well as several defense strategies that he has used to protect clients in the past.
Frequently Asked Questions (FAQs) About FINRA Investigations
1. If I Get a FINRA Rule 8210 Letter, Does That Mean I Am Under Investigation?
Not necessarily.
Also known as an OTR Notice or on-the-record notice, 8210 Letters are a formal request for information from Financial Industry Regulatory Authority (FINRA). Securities professionals who are under FINRA investigation will generally receive one at some point during the investigation. However, many securities professionals who are not under investigation, but who might have access to information that is pertinent to one, receive these Letters as well.
FINRA often does this to get the same information from multiple sources so it can see if the target of the investigation is hiding or destroying evidence.
However, FINRA rarely states whether you are the target of the investigation in the 8210 Letter. Instead, the Letter usually says something to the effect that the request for information is just a “preliminary inquiry” into possible securities fraud.
With the help of an experienced defense counsel or FINRA investigation lawyer, though, you can often read between the lines of the 8210 Letter and apply the context of your situation to see whether you are the target or not. Taking this step is essential, as the best way to respond to the request for information can change radically if you are the target of the investigation, or if you are just a source of information.
2. What are the Hearings Like?
If FINRA’s investigation produces evidence of wrongdoing and then the case does not settle, it will go to a hearing. These hearings are completely administrative – FINRA’s enforcement team will present evidence of wrongdoing, and three members from FINRA’s Office of Hearing Officers (OHO) will be the panel of judges in the case.
The format of the hearing is similar to what would happen in a courtroom: Both sides present opening statements, FINRA’s enforcement team presents its case, and then your FINRA investigation attorney will present yours. But then FINRA’s enforcement team has an opportunity to rebut your case, and you will only have an opportunity to counter their rebuttal if the hearing panel allows it. Then each side summarizes its case in a closing argument.
In total, this usually takes a couple of days, though complicated cases can take a couple of weeks.
3. What Sanctions Can FINRA Impose?
As a private regulatory agency that oversees the securities industry, FINRA can only rescind powers that it has given to you and impose financial penalties for FINRA rules or federal securities laws violations. It cannot send you to jail on its own.
But that does not mean that FINRA is unable to cause severe damage to your professional life. A suspension or revocation of your professional securities license and your certifications to sell certain types of securities can drastically undermine your ability to work and earn a living.
Additionally, if a FINRA investigation uncovers evidence of securities fraud or some other crime, it will refer that evidence to a federal law enforcement agency that does have the power to send you to jail, like the Department of Justice (DOJ) or the Federal Bureau of Investigation (FBI). Preventing your case from escalating to this point is incredibly important, and often takes the legal advice of a FINRA investigation lawyer.
Defense Strategies for Securities Professionals Facing FINRA Investigations
The specific defense strategy that you should use will depend on your particular circumstances. However, there are some general defense moves that most FINRA investigation attorneys would agree are good ideas.
1. Do Not Destroy Evidence
One of the worst things that you can do is destroy or hide evidence. Unfortunately, this is often the impulsive response that securities professionals take when they receive an 8210 Letter.
For one thing, spoliation, or the destruction of evidence, is a crime. It can lead to a criminal conviction and a prison sentence, in addition to the sanctions that stem from the FINRA investigation.
Second, if FINRA learns that evidence has been destroyed, the evidence can still be used against you in the agency’s investigation and court, later on. Instead of the actual details in the evidence, though, there will be a presumption that the destroyed documents were so incriminating that you deliberately tried to get rid of them.
Third, FINRA sends 8210 Letters to other securities professionals in large part to find out if you are going to destroy evidence. They will learn the information one way or another.
2. Do Not Rely on Your Firm’s Lawyer
Many brokerage firms provide legal representation for the regulated professionals that they employ. Your firm’s lawyer, however, still works for the firm, not for you. If it becomes your firm’s interest to throw you under the bus to save itself, it will do just that. Having your FINRA investigation lawyer is paramount.
3. Take an Appropriate Response to the 8210 Letter
The key word is “appropriate.” To do this, you need to know whether you are the target of the investigation or not.
As FINRA investigation attorney Dr. Nick Oberheiden of Oberheiden P.C. says, “Only after determining whether you are likely the target of the investigation or not can you make an informed decision about how to best respond to the 8210 Letter. Not disclosing the information demanded can lead to new problems, but there are potential pros and cons to both under-disclosing and over-disclosing. For example, if you can justify not sending potentially damning material – whether by arguing that it falls under a privilege like the attorney-client privilege or that it is outside the scope of the document request – that can keep the investigation from escalating. On the other hand, it may be in your interests to send documents that were not requested but that clearly show that other information that must be disclosed is not as incriminating as it might seem.”
