FINRA Announces Enforcement Priorities for 2020

In January, the Financial Industry Regulatory Authority (FINRA) announced its top priorities for 2020 in the areas of risk monitoring, surveillance and examination of securities offerings, stock brokerage firms and individual brokers. The list, which is in the form of a letter from FINRA President and CEO Robert Cook, highlights many of the key concerns individual investors face when it comes to obtaining reliable information, protecting their identities and investments, and avoiding substantial losses due to investment fraud.

Here, firm founder and FINRA attorney Jake Zamansky discusses some of the key issues covered in FINRA’s 2020 Risk Monitoring and Examination Priorities Letter.

What are Some of the Top Risks Individual Investors Will Face in 2020?

According to FINRA, here are five of the top risks individual investors will face in 2020:

1. Investment Sales Practice Violations

FINRA has indicated that it will focus its efforts to combat sales practice violations in six key areas: (i) complex investment products, (ii) variable annuities, (iii) private placements, (iv) fixed-income investment products, (v) representatives who are in a position of trust or authority, and (vi) senior investors. These have been persistent issues over the past several years, and these are areas in particular where investors need to be cognizant of the risk of fraud.

2. Conflicts of Interest Between Broker-Dealers and Investors

As explained in the letter, under federal law, broker-dealers are subject to a “‘best interest’ standard of conduct . . . when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities.” Conflicts of interests present obvious concerns for investors; and, too often, brokers make trades with their own best interests in mind.

3. Private Placement Fraud

Private placements are securities offerings conducted outside of the traditional exchanges. While private placements are not new, we have seen a surge in their popularity in recent years as startups (and fraud artists) target speculative investors. When offering private placements, companies have a number of obligations, and failure to strictly adhere to these obligations can give rise to a claim for investment fraud in FINRA arbitration.

4. Securities Fraud Perpetrated Through Digital Channels

In 2020, FINRA will be placing particular emphasis on targeting securities fraud perpetrated through digital channels. As communications between investors and their brokers are increasingly taking place online, and as brokerage firms and companies are utilizing email and social media more to promote investment opportunities, brokers need to be aware of the rules that apply, and investors need to be aware of the red flags of investment fraud.

5. Fraudulent Practices and Inadequate Internal Controls Relating to Initial Public Offerings (IPOs)

“As the IPO market has grown and received additional attention over the past year, FINRA is focusing its attention on [brokerage] firms’ obligations” related to IPOs. In addition to IPOs, individual investors need to be aware of the fraud risks associated with initial coin offerings (ICOs) and initial exchange offerings (IEOs) as well.

Contact a FINRA Arbitration Attorney at Zamansky LLC

If you are concerned that you may be a victim of investment fraud, you should speak with an attorney about recovering your losses through FINRA arbitration. To speak with a FINRA attorney at Zamansky LLC in confidence, call 212-742-1414 or request a free consultation online now.