I continue to wade my way through a few months’ worth of cases, press releases, etc., looking for things that manage to catch my attention. I found this SEC settlement from the end of July involving Integral Financial, a BD out of California, and its founder, majority owner, President, and Chairman of the Board of
Suitability
SEC Not Only Reverses FINRA Disciplinary Action, But Provides Blueprint For Respondents To Use In Their Defense Of Similar Claims
My friend and former colleague, Brian Rubin, publishes annually his analysis of FINRA Enforcement cases, spotting trends in terms of the number and types of matters it brings, the sanctions meted out, etc. It is an excellent tool, and eagerly anticipated by lots of us who practice in this industry. One of the hard parts…
Goodbye Suitability, Hello Best Interest. But What Does That Mean, Practically Speaking?
After having proudly served for decades, and surviving a dramatic face-lift in 2012 (when old NASD Rule 2310 was replaced by shiny new FINRA Rule 2111), it seems that the “suitability rule,” as we’ve come to know it, has, at long last, been quietly sent out to pasture by FINRA. Although the title of Reg…
When It Comes To Suitability Violations, There Is No Flattening Of The Curve
Let’s take a step back from Covid-19 news, for a moment, which, rightfully, has dominated the news and everyone’s collective conscience, and focus on something that has been pervasive in the broker-dealer world for much, much longer than this virus, and which has taken its own toll on the industry in terms of dollars –…
Implicit Recommendations To Hold: FINRA’s Suitability Rule Goes Toe-To-Toe With SEC’s Regulation BI
Nearly ten years ago, FINRA decided to update its old suitability rule, NASD Rule 2310. It had been around a long time, and while it seemed to work fine, FINRA decided to incorporate into the new amended rule – FINRA Rule 2111 – some new concepts. One such concept concerned recommendations to hold. Under the old rule, only recommendations to purchase, sell or exchange a security had to be suitable. Under the new rule, FINRA added to that list recommendations to hold, provided, of course, that such recommendations are “explicit.”
And that’s been the law of the land since July 2012. There was a great deal of consternation, at first, as firms tried to figure out what, exactly, constituted an explicit recommendation to hold, and, more troubling, the best way to capture such recommendations from a books-and-records perspective. (Since no order ticket is generated by a hold recommendation, firms had to come up with some method of memorializing them, and that was a bit tricky.) But, really, it hasn’t turned out to be that big of a deal. To be honest, I don’t think I’ve ever seen a FINRA disciplinary action that involved an allegation that a broker made an unsuitable recommendation to hold.
The only place where recommendations to hold have managed to become the focus of any attention are in customer arbitrations, particularly cases where the recommendation to buy the investment at issue was made a long time ago. Pursuant to the “eligibility rule,” FINRA Rule 12206, for a claim even to be eligible for arbitration, the Statement of Claim must be filed within six years of the date of the event or occurrence which gives rise to the claim. Thus, if the purchase was made more than six years before the Statement of Claim was filed, the case is subject to dismissal. To avoid such dismissals, clever lawyers representing investors bake into their Statements of Claim vague allegations that at some time – typically no date is specifically identified – within the six-year period preceding the filing of the Statement of Claim, the BD and/or the broker made an unsuitable recommendation to hold the investment at issue. These claims serve one purpose: to avoid dismissal for being untimely. At the hearings, if the cases get that far, claimants devote almost no effort to pursue their hold claims.
Continue Reading Implicit Recommendations To Hold: FINRA’s Suitability Rule Goes Toe-To-Toe With SEC’s Regulation BI
Good Grief! MetLife Agrees To $20 Million Fine, And Another $5 Million In Restitution! For Negligence!
FINRA announced today that it entered into a settlement with MetLife Securities, Inc. in which MetLife agreed to pay FINRA a $20 million fine and its customers up to $5 million in compensation for, basically, making misrepresentations over a five-year period to customers who replaced one variable annuity with another regarding the costs of making…
FINRA’s 2016 Examination Priorities Letter: Focus On “Firm Culture”
Yesterday, FINRA released its annual Examination Priorities Letter in which it set forth the top issues that would guide its examinations in the coming year. Running 13 pages in length (while complaining about having to be so “brief”), FINRA set forth some of the “many areas of potential concern” it expects to encounter this year.…
Day Two of FINRA’s Annual Conference
I wish I was able to report some fireworks, or something semi-controversial, but FINRA and its hand-picked panelists managed to avoid saying anything particularly remarkable in any way. If you have never attended one of these conferences, and think that people come to learn cutting edge strategies, forget it. It is all very basic, very…
Why are Senior Investors so Special? (Part 1)
Over the last few months and years, securities regulators have repeatedly emphasized the special care and attention senior investors[1] should be afforded by broker-dealers and their associated persons. As part of that focus, on April 15, 2015, FINRA and the SEC Staff published their National Senior Investor Initiative Report. The report highlighted recent…