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In Addition to Awarding Damages to Investors, FINRA Can Also Impose Fines and Sanctions in Many Cases
As an investor who works with a broker or brokerage firm, one of the most important rights you have is the right to file an investment fraud claim in FINRA arbitration. By filing for FINRA arbitration, investors can not only recover their fraudulent investment losses, but in many cases, they can recover their costs and even punitive damages as well.
But, awarding damages to defrauded investors is not the only way that FINRA holds brokers and brokerage firms accountable. FINRA also has the authority to impose fines and other sanctions for fraud and other forms of misconduct. As an investor, knowing the sanctions your broker or brokerage firm is facing can help you make informed decisions about pursuing your claim—and perhaps settling your claim without going to a formal arbitration hearing.
Sample FINRA Fines and Sanctions for Brokers and Brokerage Firms
Each year, FINRA publishes an exhaustive list of fines and other sanctions in its Sanction Guidelines. This 130+ page document contains an extensive amount of information that FINRA’s enforcement personnel use to determine when fines and other sanctions are warranted. Here are some examples of the fines and other sanctions that apply to forms of broker and brokerage firm misconduct that will often give rise to investor claims in FINRA arbitration:
Churning and Excessive Trading
FINRA Rules 2010, 2020 and 2111 prohibit brokers and brokerage firms from churning customers’ accounts and engaging in excessive trading in order to generate commissions. Under FINRA’s Sanction Guidelines, small firms can face fines of $5,000 to $310,000 for churning and excessive trading, while the fines for large firms start at $50,000 with no upper limit. Churning and excessive trading can also lead to a temporary suspension or permanent expulsion from the securities industry.
False and Misleading Public Communications
FINRA Rules 2010 and 2210 prohibit brokers and brokerage firms from publishing false and misleading statements (including statements that are misleading by omission) to the public. Depending on the severity of a violation and whether the violation is the result of negligence, recklessness or an intentional act, small firms can face fines of $5,000 to $155,000, while large firms can face fines of $10,000 to $310,000. False and misleading communications can also lead to a suspension of up to 18 months and an ongoing “pre-use” filing requirement for future publications.
Fraud, Misrepresentations and Omissions of Material Facts
In addition to prohibiting false and misleading public communications, FINRA Rule 2010 (along with Rule 2020) prohibits brokers and brokerage firms from engaging in fraud with respect to current customers. This includes a prohibition against making misrepresentations and omitting material facts. Small firms can face fines ranging from $5,000 to $310,000, while large firms can face fines starting at $20,000 with no upper limit. Firms held accountable for fraud can also face suspensions or permanent expulsion.
Understanding the Risks Brokers and Brokerage Firms Face in FINRA Arbitration
Brokers and brokerage firms face three main risks as a result of their necessary relationship with FINRA. While brokers and brokerage firms are required to register with FINRA, doing so exposes them to investor arbitration claims, and it exposes them to the consequences of FINRA enforcement as well. Of course, brokers and brokerage firms can avoid these risks by maintaining compliance and acting in their clients’ best interests—but, as we all know, many fail to do so.
In addition to representing investors in FINRA arbitration, we also work alongside FINRA on behalf of our clients to assist with FINRA’s enforcement activities when warranted. When facing investor claims and parallel FINRA enforcement proceedings, the risks brokers and brokerage firms face include:
- Civil Liability in FINRA Arbitration – Brokers and brokerage firms can face substantial civil liability in FINRA arbitration. At Zamansky LLC, we have recovered millions of dollars for defrauded investors through the FINRA arbitration process, including several multi-million-dollar awards.
- FINRA-Imposed Fines – Along with civil liability, brokers and brokerage firms can also face liability for FINRA-imposed fines. These fines can also climb into the millions of dollars in many cases.
- Other FINRA Sanctions – FINRA also has the authority to impose various administrative sanctions against brokers and brokerage firms that engage in investor fraud. These include additional oversight and reporting, temporary suspensions, and even permanent bars from the brokerage industry.
If you believe you may have an investment fraud claim against your broker or brokerage firm, it will be important for you to work with a lawyer who can use the full weight of FINRA’s Rules and the nation’s securities laws to your advantage. To learn more about how we help investors who have fallen victim to fraud, schedule a free consultation today.
Schedule a Free Consultation with a Lawyer at Zamansky LLC
Our lawyers represent defrauded investors in FINRA arbitration cases against their brokers and brokerage firms. If you need to know more about the FINRA arbitration process, you can call 212-742-1414 or contact us online to arrange a free initial consultation.