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FINRA Report: Brokers Often Refuse to Cooperate During Investment Fraud Investigations

September 11, 2020 Blog

In a recent article titled, Working on the Front Lines of Investor Protection – The Importance of FINRA Rule 8210, the Financial Industry Regulatory Authority (FINRA) discusses the single most-common reason why brokerage firms and individual brokers get barred from the securities industry. As the article begins:

“You might think that the most brokers [are] barred for violating FINRA’s rule against misuse of customer funds (FINRA Rule 2150) or making fraudulent misrepresentations (Rule 2020) or, perhaps, for excessively trading customer accounts in violation of FINRA’s suitability rule (Rule 2111), but that’s not the case. . . .”

These are all common grounds for brokerage firms and brokers losing their registrations—and they are common grounds for investors to pursue recovery of their investment losses with the help of an attorney in FINRA arbitration as well. But, none of them are the most-common reason why brokerage firms and brokers get barred. According to FINRA, this title goes to violations of FINRA Rule 8210, which requires brokerage firms and brokers to cooperate during FINRA investigations.

More Than a Third of Brokerage Firms and Brokers Barred By FINRA Refused to Cooperate During Fraud Investigations

Under FINRA Rule 8210, registered brokerage firms and brokers have an obligation to provide records, written information and testimony during fraud investigations. As FINRA explains, “FINRA is not a government entity, thus we do not have the ability to subpoena information. What we do have is FINRA Rule 8210 [which] require[es] individuals under FINRA’s jurisdiction to provide information when requested.”

While, as FINRA notes, being barred for failing to cooperate during an investigation, “may seem severe,” there is a very good reason why FINRA has a very low tolerance for this type of conduct:

“[I]n reality, the underlying wrongdoing that [leads] to the Rule 8210 request is often quite serious; in many cases, there are suspicions of fraud, conversion of customer funds or other egregious misconduct.”

In other words, in many cases, a brokerage firm’s or broker’s refusal to cooperate during a FINRA investigation is a sign that the firm or individual is aware that there is damaging information to be found.

What Should You Do if You Have Concerns About Your Brokerage Firm or Broker?

Maybe you have read a press release or a story in the news. Maybe you have experienced unexplained losses in your investment portfolio. Whatever the reason, you have concerns about your brokerage firm or broker, and you are wondering: What can you do to ensure that your life’s savings is secure?

One thing you can do is look up your brokerage firm or broker on FINRA’s BrokerCheck. BrokerCheck will tell you not only if a brokerage firm or broker is currently facing enforcement action or arbitration, but also if a brokerage firm or broker has raised concerns in the past.

However, even if a firm or individual does not have a history on BrokerCheck, this does not mean that your concerns are invalid. As a result, regardless of what you find on BrokerCheck (if anything), you should also consult with a FINRA attorney promptly. An experienced FINRA attorney will be able to determine if you have grounds to seek recovery of your losses; and, if so, he or she will be able to take appropriate legal action on your behalf.

Speak with a FINRA Attorney at Zamansky, LLC

Do you have concerns about your brokerage firm’s or broker’s investment recommendations or business practices? If so, we encourage you to speak with one of our FINRA attorneys in confidence. To schedule a free consultation at your convenience, call 212-742-1414 or inquire online today.

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