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securities
FINRA BROKER BARRED FOR MAKING FALSE STATEMENTS AND PROVIDING FALSIFIED DOCUMENTS

The Financial Industry Regulatory Authority has barred a veteran financial advisor for providing falsified financial documents and making false statements during an investigation in violation of FINRA Rules 8210 and 2010. Timothy James Breslin, who owned and operated his own registered investment advisory firm, TJB Wealth Management (CRD # 325641), submitted a Letter of Acceptance, Waiver, and Consent (AWC) settling the alleged rule violations and accepting a bar from the industry on August 2, 2023.

securities
MONMOUTH CAPITAL MANAGEMENT EXPELLED BY FINRA

FINRA has announced it has expelled Monmouth Capital Management for various violations, including churning, excessive trading, failure to supervise its representatives and providing false and misleading disclosures to retail customers on its client relationship summary (“Form CRS”). During its investigation, FINRA obtained evidence which reflected Monmouth, by way of approximately six (6) registered representatives, excessively traded 110 accounts. 42 of those accounts also exhibited signs of churning. This improper account activity resulted in customers incurring $3.9 million in commissions and trading costs, in addition to suffering significant losses.

securities
FINRA PROPOSES NEW LIQUIDITY RISK MANAGEMENT REQUIREMENTS

On June 12, 2023, FINRA published Regulatory Notice 23-11,1 soliciting comments on proposed Rule 4610 concerning liquidity risk management requirements. Rule 4610 would require covered members—those with the “largest customer and counterparty exposures”—to “have and maintain sufficient liquidity on a current basis” at all times. The purpose of Rule 4610 is to “ensure that members have sufficient liquid assets to meet their funding needs in both normal and stressed conditions.”

securities
SEC UPDATES STANDARDS OF CONDUCT FOR BROKER-DEALERS AND INVESTMENT ADVISORS

On April 20, 2023, the Securities and Exchange Commission (”SEC) released a staff bulletin regarding the standards of conduct for broker-dealers and investment advisors. The bulletin is focused primarily on the Care Obligation of Regulation Best Interest (“Reg BI”) for broker-dealers and the duty of care enforced under the Investment Advisers Act of 1940 (the “IA fiduciary standard”) for investment advisers (together, “care obligations”). Both Reg BI for broker-dealers and the IA fiduciary standard for investment advisers are drawn from key fiduciary principles that include an obligation to act in the retail investor’s best interest and not to place their own interests ahead of the investor’s interest. The care obligations generally include three components:

securities
HIGHLIGHTS FROM THE FINRA’S FIRST BOARD OF GOVERNORS MEETING OF 2023

FINRA’s Board of Governors held its first meeting of the calendar year on March 9-10. The Board voted to amend FINRA rules to align with the Securities Exchange Commission’s (“SEC”) recent rule changes which shorten the securities settlement cycle and addressed a variety of regulatory issues and technological initiatives. Specifically, the Board discussed FINRA’s recently finalized Digital Experience Transformation, which integrates and simplifies broker-dealer’s digital interactions with FINRA. The objective of FINRA’s Digital Experience Transformation is to facilitate more innovative, efficient, and effective compliance programs. The Board also addressed FINRA’s Regulatory Operations and Membership Application Program.

securities
FINRA SUSPENDS TWO NEW YORK REGISTERED REPRESENTATIVES FOR VIOLATING REGULATION BEST INTEREST
The Financial Industry Regulatory Authority (FINRA) is ramping up enforcement against registered representatives who violate the Best Interest Obligation of the SEC’s Regulation Best Interest (“Reg. BI”).  In February 2023, FINRA announced that it had disciplined two New York-based registered representatives for violating Reg BI.  Tony Cirella and Edward Scott Short, both of the Melville, New York, office of Laidlaw & Company, were both charged by FINRA with trading activity that was “excessive, unsuitable, and not in the customer’s best interest.” 
securities
FINRA’S EXAMINATION AND RISK MONITORING PROGRAM
The Financial Industry Regulatory Authority (“FINRA”) has released its 2023 report regarding FINRA’s Examination and Risk Monitoring Program (the “Report”). FINRA’s intent is that the Report be an up-to-date, evolving resource which member firms can use to strengthen their compliance programs. This year’s Report addresses a materially broader range of topics than in prior years. Additionally, the Report introduces a new Financial Crimes section, consisting of four topics—Anti-Money Laundering (AML); Fraud and Sanctions; Cybersecurity and Technological Governance; and Manipulative Trading—that highlight FINRA’s increased focus on protecting investors and safeguarding market integrity against these ongoing threats.
securities
MULTIPLE GOVERNMENT AGENCIES ANNOUNCE CHARGES AGAINST FORMER FTX CEO SAM BANKMAN-FRIED
On December 13, 2022, the Securities and Exchange Commission, the U.S. Attorney for the Southern District of New York, and the Commodity Futures Trading Commission each announced charges against Sam Bankman-Fried, the co-founder and former CEO of bankrupt cryptocurrency trading platform FTX Trading Ltd., stemming from parallel actions following the swift collapse of his company.
securities
SEC CHAIR LAMBASTS NON COMPLIANT CRYPTO INDUSTRY AFTER FTX BANKRUPTCY

In a November 10, 2022, interview with CNBC’s “Squawk Box”, SEC Chair Gary Gensler called for greater protections for investors in the cryptocurrency space following the stunning collapse of crypto exchange FTX.  According to FTX’s now-former CEO Sam Bankman-Fried, the crypto exchange is facing a shortfall of up to $8 billion.

securities
NEW YORK REGISTERED REPRESENTATIVE FIRST TO BE DISCIPLINED FOR VIOLATING REG BI

The Financial Industry Regulatory Authority has disciplined a formerly registered representative for violating Regulation Best Interest (“Reg BI”).  In a first-of-its-kind disciplinary action, Charles Malico of Huntington Station, New York, has been fined $5,000 and suspended for six months for “recommending a series of transactions in the account of one retail customer that was excessive in light of the customer’s investment profile and therefore was not in that customer’s best interest,” according to FINRA’s order.

securities
FINRA FINES BANK OF AMERICA SECURITIES $5 MILLION FOR FAILING TO REPORT LARGE OPTION POSITIONS

The Financial Industry Regulatory Authority (FINRA) has announced that it has fined BofA Securities Inc. (BofAS) $5 million for failing to report over-the-counter positions to the Large Options Positions Reporting system (LOPR).  BofAS failed to report more than 7.4 million OTC positions it held between January 2009 and October 2020.  BofAS was also censured.

securities
FINRA PROPOSES OVERHAUL OF EXPUNGEMENT PROCESS

FINRA has proposed a new set of rule changes to overhaul the expungement process. The proposed changes have been sent to the SEC for approval. When discussing the proposed amendments, FINRA advised the proposal targeted “straight-in expungements” and are an attempt to modify the system so these expungements “operate as intended” and “work as a remedy that is appropriate only in limited circumstances in accordance with the narrow standards in FINRA rules.”

securities
MERRILL LYNCH, PEIRCE AND FENNER & SMITH, INC. FINED 15.2 MILLION BY FINRA FOR SALES OF CLASS C MUTUAL FUND SHARES

FINRA has announced Merrill Lynch, Peirce and Finner & Smith, Inc. was fined more than $15.2 million for restitution owed to customers who purchased Class C mutual funds shares despite the availability of Class A mutual fund shares. In differentiating between the two types of mutual fund shares, FINRA noted Class A shares are subject to a front-end sales charge, in contrast to Class C shares, which are not subjected to front-end sales charges, but instead have ongoing fees and expenses that are higher than those associated with Class A shares. In many instances, mutual fund issuers allow customers to purchase Class A shares without incurring a front-end sales charge if the total purchase exceeds certain thresholds. FINRA noted that in instances where a customer qualified for the purchase of Class A shares without a front-end sales charge, there “would be no reason for the customer to purchase Class C shares with a higher annual expense.”

securities
THE SEC PROPOSES NEW RULE ON ESG DISCLOSURES

The Securities and Exchange Commission has proposed new regulations that could be disruptive to Financial Advisors. There are currently 12 proposals and 26 more being discussed.

securities
WEFUNDER AND STARTENGINE CAPITAL FINED FOR CROWDFUNDING RULE VIOLATIONS

FINRA has announced that it has fined Wefunder and StartEngine Capital for failure to comply with various securities rules and laws designed to protect crowdfunding investors.  Wefunder was fined $1.4 million for violations that occurred from 2016 to 2021.

securities
FINRA RELEASES GUIDANCE ON RESTRICTED FIRM OBLIGATIONS

FINRA released Notice 21-43 which answered frequently asked questions about Restricted Firm Obligations. Rule 4111, or Restricted Firm Obligations, became effective on January 1, 2022, and sets additional requirements for broker-dealers with a significant history of misconduct. Rule 4111 requires member firms that are identified as Restricted Firms deposit cash or qualified securities in a segregated, restricted account; adhere to specified conditions or restrictions; or comply with a combination of such obligations.

securities
JPMORGAN FINED 200 MILLION FOR BOOKKEEPING FAILURES AS A RESULT OF WHATSAPP, TEXTING AND OTHER SOCIAL MEDIA

JPMorgan Chase was recently fined $200 million for allowing employees to use their personal devices to utilize WhatsApp and other social platforms to communicate about company business and sensitive business matters. The SEC found the messages included a wide array of content, including investment strategies, client meeting and market observations. The SEC indicted that the offline communication was widespread throughout the company and even managers and senior personnel were responsible for the unauthorized communications.

securities
FINRA’S 2022 REPORT ON EXAMINATION AND RISK MONITORING PROGRAM

FINRA has released its 2022 Report on Examination & Risk Monitoring which included new risks to monitor this year. The list includes several categories related to 2021’s meme-stock short-squeeze and its continuing fallout. Included in the report for the first time this year include: Muni Shorts & Fails, Trusted Contacts, Crowdfunding and Portals, and Margin and Intraday Trading. Trusted Contact risks refers to FINRA Rule 4512(a)(1)(F), which requires firms to make reasonable efforts to obtain trusted contact information for customer accounts. This is part of an ongoing effort to protect customers, especially elderly customers, from financial abuse. Muni shorts and fails refers to firms trading municipal securities which can result in taxable substitute interest to customers expecting tax-free transactions. Firms engaging in these trades need to have systems in place to monitor municipal trading.

securities
FINRA REACHES SETTLEMENT WITH SIX MEMBER FIRMS RESULTING IN 16.8 MILLION IN RESTITUTION TO CUSTOMERS

FINRA recently announced the results of its targeted examination of Unit Investment Trust (UIT) early rollovers. The investigation resulted in settlement with six member firms, totaling $16.8 million in restitution for approximately 10,000 investors. Following its investigation into the six firms, FINRA concluded that each firm failed to reasonably supervise early rollovers of UIT’s, which caused customers to incur potentially excessive sales charges. UIT’s are generally intended as long-term investments and have sales charges based on their long-term nature. These charges include deferred sales charges, and a creation and development fee. When a registered representative recommends a customer sell his or her UIT before the maturation date and then roll those funds over into a new UIT, a customer incurs a greater sales charge than if the customer had held the UIT until maturity, thereby raising suitability concerns.

securities
REGULATORS ARE SET TO INCREASE OVERSIGHT OF RETAIL INVESTORS' ABILITY TO MAKE RISKY OPTIONS BETS

After a dramatic boom in options trading this past year, FINRA plans to increase rules governing these risky trades. FINRA plans to solicit opinions on options rules from the public in the coming weeks.

"We share the concerns raised by the SEC and others that retail investors may be opening accounts to trade options and other complex leveraged products without fully appreciating the risks involved," FINRA Chief Executive Officer Robert Cook said in a congressional testimony earlier this year.


securities
FINRA RELEASES SEPTEMBER 2021 BOARD OF GOVERNORS MEETING REPORT

FINRA Board of Governors met on September 23-24, 2021 to approve new maintaining qualifications fees and to reaffirm FINRA’s Financial Guiding Principles.

securities
FINRA ADOPTS NEW RULES TO ADDRESS FIRMS WITH A SIGNIFICANT HISTORY OF MISCONDUCT

FINRA has adopted new rules specifically tailored towards firms with a significant history of misconduct. The new rules, which become effective on January 1, 2022, allow FINRA to impose new obligations on broker-dealers with significantly higher levels of risk-related disclosures than other similarly sized peers. The new rules would also apply to firms with a high concentration of individuals with a significant history of misconduct. 

securities
FINRA REMINDS FIRMS OF THEIR SUPERVISORY OBLIGATIONS RELATED TO OUTSOURCING TO THIRD PARTY VENDORS

In light of the fact that many member firms are increasingly using third-party vendors to perform a variety of core business functions, FINRA recently published Regulatory Notice 21-29, “FINRA Reminds Firms of their Supervisory Obligations Related to Outsourcing to Third-Party Vendors.”

securities
FINRA AMENDS RULES ASSOCIATED WITH PRIVATE PLACEMENT OFFERINGS

FINRA recently published Regulatory Notice 21-26, “FINRA Amends Rules 5122 and 5123 Filing Requirements to Include Retail Communications That Promote or Recommend Private Placements.” The notice amends FINRA Rules 5122 and 5123 to require additional filing requirements by member firms as it relates to the sale of private placement offerings.

securities
FINRA, SEC, AND NASAA OFFER NEW RESOURCE TO ASSIST SECURITIES FIRMS IN IMPLEMENTING THE TRAINING REQUIREMENTS OF THE SENIOR SAFE ACT

FINRA, SEC, and NASAA recently announced a new presentation intended to assist securities firms in detecting, preventing, and reporting financial exploitation of seniors pursuant to the Senior Safe Act, Section 303 of the “Economic Growth, Regulatory Relief, and Consumer Protection Act,” which was signed into law on May 24, 2018, as well as the state training requirements for certain firms and financial institutions relating to senior investor protection. 

securities
FINRA ANNOUNCES ALL DISPUTE RESOLUTION HEARING LOCATIONS WILL BE OPEN FOR IN PERSON PROCEEDINGS ON AUGUST 2, 2021
In March of 2020, FINRA announced that due to the COVID-19 pandemic, it had administratively postponed all in-person arbitration and mediation proceedings.  Subsequent announcements extended those adjournments through July 3, 2021.  In mid-May, 2021, FINRA announced that 62 hearing locations would be open for in-person hearings starting July 5, 2021, and recently, FINRA stated that starting August 2, 2021, all FINRA dispute resolution hearing locations will be open for in-person hearings.  In-person proceedings at the following hearing locations were further postponed through July 30, 2021: Augusta, Maine; Boca Raton, Florida; Buffalo, New York; Detroit, Michigan; Philadelphia, Pennsylvania; Providence, Rhode Island; and Wilmington, Delaware. 

securities
FINRA ISSUES GUIDANCE REGARDING PREDISPUTE ARBITRATION AGREEMENTS FOR CUSTOMER ACCOUNTS
FINRA recently issued Regulatory Notice 21-16 “FINRA Reminds Members About Requirements When Using Predispute Arbitration Agreements for Customer Accounts.” The Notice reminds members firms about certain requirements when using predispute arbitration agreements for customer accounts, as FINRA has recently become aware of customer agreements containing provisions that do not comply with FINRA rules.
securities
SEC DIVISION OF EXAMINATIONS ANNOUNCES 2021 EXAMINATION PRIORITIES

The SEC Division of Examinations recently announced its examination priorities for fiscal year 2021, discussing key risks, trends, and examination priorities in an overall effort to promote and improve compliance.

The two largest programs run by the Division, Investment Adviser/Investment Company Program and Broker-Dealer and Exchange Program, focus on the protection of retail investors and retirement savers.  The Division stated in its annual report that this year’s emphasis will be on sales related to mutual funds and exchange-traded products, municipal securities, other fixed income products, and microcap securities, but the examinations will be in the context of compliance with Regulation Best Interest (“Reg BI”).


securities
HIGHLIGHTS FROM THE FINRA 2021 RISK MONITORING AND EXAMINATION PRIORITIES LETTER

On February 1, 2021, FINRA published the 2021 Report on FINRA’s Examination and Risk Monitoring Program (“2021 Report”). Annually, FINRA publishes the Report on its Examination and Risk Monitoring Program in order to provide member firms with information they can use to assess and strengthen their compliance, supervisory, and risk management programs. The Report summarizes noteworthy findings from recent examinations, outlines effective practices that FINRA observed during its oversight, and provides additional resources that may be helpful to member firms in fulfilling their compliance obligations.

securities
FINRA URGES FIRMS TO REVIEW THEIR POLICIES AND PROCEDURES RELATING TO RED FLAGS OF POTENTIAL FRAUD INVOLVING LOW PRICED SECURITIES

FINRA recently issued Regulatory Notice 21-03 providing information to help FINRA member firms that engage in low-priced securities business assess and, as appropriate, strengthen their controls to identify and mitigate their risk, and the risk to their customers, including specified adults and seniors, of becoming involved in activities related to fraud involving low-priced securities.  FINRA issued this guidance because it has observed potential misrepresentations about low-priced securities issuers’ involvement with COVID-19 related products or services, such as vaccines, test kits, personal protective equipment, and hand sanitizers.


securities
FINRA RELEASES DECEMBER 2020 BOARD OF GOVERNORS MEETING REPORT

FINRA’s Board of Governors met on December 2-3, 2020, to review FINRA’s 2020 financial performance, approve the organization’s 2021 proposed budget, reaffirm FINRA’s Financial Guiding Principles, approve rule proposals, and receive several operational updates.

The Board approved two rule proposals to be filed with the Securities and Exchange Commission (SEC), directing impacting our clients. As customary, the proposed rules will be published for public comment within the year and must be approved by the SEC before becoming effective.

securities
SEC ADOPTS RULE CHANGES TO PRIVATE OFFERING EXEMPTIONS

On November 2, 2020, the SEC adopted amendments to “simplify, harmonize, and improve certain aspects of the exempt offering framework” under the Securities Act of 1933. The amendments are intended to meet evolving market needs by providing, among other changes, all of the following: greater clarity around the SEC’s integration doctrine that can pose challenges for companies with ongoing or recurring financial needs to permit concurrent private and public offerings; increased efficiency of the private capital raising process by increasing the ceiling on the amount of funds that can be raised under Regulation A, Regulation Crowdfunding, and Rule 504 of Regulation D offerings; clear and consistent rules governing certain offering communications, including permitting certain “test-the-waters” and “demo day” communications; and aligned financial disclosure requirements for Rule 506(b) offerings to non-accredited investors with the requirements under Regulation A.

securities
FINRA ADOPTS RULE REGARDING REGISTERED REPRESENTATIVES BEING NAMED A CUSTOMER’S BENEFICIARY OR HOLDING A POSITION OF TRUST FOR A CUSTOMER

FINRA recently adopted Rule 3241, limiting registered representatives from being named a customer’s beneficiary or holding a position of trust for a customer. The rule limits a registered representative from being named a beneficiary, executor or trustee, or to have a power of attorney or similar position of trust for or on behalf of a client, unless specifically approved by the broker dealer prior to accepting the position of trust. The rule does not apply, however, where the customer is a member of the registered person’s immediate family.

securities
FINRA SEEKS COMMENT ON PROPOSED AMENDMENTS TO FINRA RULE 2165

In 2019, FINRA launched a retrospective review to assess the effectiveness and efficiency of its rules and administrative processes meant to help protect senior investors from financial exploitation.  Based on feedback received during the review, FINRA is now proposing amendments to Rule 2165 regarding financial exploitation of specific adults to extend the hold period and allow temporary holds on transactions.

securities
FINRA ISSUES GUIDANCE

FINRA recently issued Regulatory Notice 20-30 “Fraudsters Using Registered Representatives Names to Establish Imposter Websites.” The Notice warns of individuals maliciously using publicly available information regarding registered representatives in order to create “imposter websites” exhibited as the registered representative’s personal website. Through these “imposter websites,” individuals are able to collect personal information from potential customers with the likely goal of committing financial fraud.

securities
SUPREME COURT LIMITS SECURITIES AND EXCHANGE COMMISSION’S POWER OF DISGORGEMENT

For over 40 years, the Securities and Exchange Commission (SEC) has used disgorgement as a common enforcement tool. In securities enforcement matters, disgorgement requires wrongdoers to disgorge ill-gotten profits or commissions. The Ninth Circuit has stated that “disgorgement is designed to deprive a wrongdoer of unjust enrichment, and to deter others from violating securities laws by making violations unprofitable.” See Security and Exchange Commission v. JT Wallenbrock & Associates., 440 F.3d 1109, 1113 (9th Cir. 2006).

securities
SEC APPROVES FINRA RULE CHANGE APPLYING MINIMUM FEES TO REQUESTS FOR EXPUNGEMENT OF CUSTOMER DISPUTE INFORMATION

On February 7, 2020, FINRA filed with the SEC a proposed rule change to amend FINRA’s Code of Arbitration Procedure for Customer Disputes and Code of Arbitration Procedure for Industry Disputes to apply minimum fees to requests for expungement of customer dispute information.  The SEC recently approved this proposed rule change in an order dated May 26, 2020, which was published in the Federal Register on June 1, 2020. 

securities
FINRA ISSUES GUIDANCE ON FINANCIAL FRAUD AMIDST COVID 19 PANDEMIC
FINRA recently issued Regulatory Notice 20-13 “FINRA Reminds Firms to Beware of Fraud During the Coronavirus (COVID-19) Pandemic.” The Notice was released in response to the COVID-19 pandemic, which has had a strong impact on the U.S. economy and markets.
securities
FINRA AMENDS ARBITRATION CODE TO EXPAND OPTIONS FOR CUSTOMERS IF A FIRM OR ASSOCIATED PERSON IS OR BECOMES INACTIVE

FINRA amended its Code of Arbitration Procedure for Customer Disputes (Customer Code) to expand the options available to customer claimants dealing with “inactive members”—those firms or individuals whose FINRA registration has been terminated, suspended, canceled, or revoked, or who have been expelled or barred from FINRA.  FINRA has amended the Customer Code to further the routes available to customers in situations where a firm becomes inactive during a pending arbitration or where an associated person becomes inactive either before a claim is filed or during a pending arbitration. 





securities
SEC ISSUES GUIDANCE ON REGULATION BEST INTEREST

In June 2019, the SEC adopted Regulation Best Interest. The Regulation requires broker-dealers (and natural persons associated with broker-dealers) to act in the best interest of their retail customers in making a recommendation of any securities transaction or investment strategy involving securities. Since the rule’s promulgation, there have been several questions relating to compliance with Regulation Best Interest. Accordingly, within the past few months, and as recent as February 2020, the U.S. Securities and Exchange Commission (SEC) Division of Trading and Markets released answers to Frequently Asked Questions (FAQs) relating to compliance with Regulation Best Interest.





securities
HIGHLIGHTS FROM THE FINRA 2020 RISK MONITORING AND EXAMINATION PRIORITIES LETTER

FINRA released its 2020 Risk Monitoring and Examination Priorities Letter.  The Letter addresses emerging priorities for FINRA’s risk monitoring, surveillance, and examination programs in the coming year.


securities
FINRA RELEASES DECEMBER 2019 BOARD OF GOVERNORS MEETING REPORT

The FINRA Board of Governors met on December 4-5, 2019 to discuss the organization’s 2020 proposed budget, reaffirm its Financial Guiding Principles, discuss several operational updates, and approve two rule proposals.

Of noted importance to our clients, the Board approved two rule proposals to be filed with the Securities and Exchange Commission (SEC). Both proposed rules will be published for public comment within the year and must be approved by the SEC before becoming effective.






securities
FINRA REQUESTS COMMENT ON A PROPOSED RULE TO LIMIT A REGISTERED PERSON FROM BEING NAMED A CUSTOMER’S BENEFICIARY OR HOLDING A POSITION OF TRUST FOR OR ON BEHALF OF A CUSTOMER

FINRA is seeking comments on a new rule proposal that would limit any registered person of a broker-dealer from being named a beneficiary, executor or trustee, or to have a power of attorney or similar position of trust, for or on behalf of a customer.  FINRA believes being a customer’s beneficiary or holding a position of trust may present significant conflicts of interest and hopes the proposed rule would help further address misconduct in this area.





securities
FINRA PUBLISHES 2019 REPORT ON EXAMINATION FINDINGS AND OBSERVATIONS

On October 16, 2019, FINRA published its 2019 Report on Examination Findings and Observations (“The Report”). The Report essentially details observations from recent examinations of broker-dealer firms. In the past, broker-dealer firms have used these reports to anticipate potential areas of concern and improve their procedures and controls accordingly.





securities
FINRA PROVIDES GUIDANCE ON DISCLOSURE INNOVATIONS IN ADVERTISING AND OTHER COMMUNICATIONS WITH THE PUBLIC

In recently published Regulatory Notice 19-31, FINRA responded to questions regarding how members can comply with FINRA’s communications rules, Rules 2210 through 2220, when using electronic media.  FINRA issued this guidance to facilitate simplified and more effective disclosure in communications with the public, particularly in the context of members’ marketing and advertising of their products and services using websites, email, social media, search advertisements, mobile applications, and other electronic media.  






securities
FINRA ISSUES GUIDANCE ON MEMBER FIRMS’ SUPERVISORY OBLIGATIONS WHEN PARTICIPATING IN INVESTMENT RELATED ACTIVITIES WITH MUNICIPAL CLIENTS

FINRA recently issued Regulatory Notice 19-28 addressing member firms’ supervisory responsibilities as it pertains to customer accounts owned by municipal entities. The guidance was issued to clarify misconceptions surrounding the definition of the term “municipal advisors” and to ensure compliance with relevant FINRA and SEC regulations.






securities
FINRA REQUESTS COMMENT ON RULES AND ISSUES RELATING TO SENIOR INVESTORS

FINRA commenced a retrospective review of its rules and administrative processes meant to help protect senior investors from financial exploitation and is now requesting comment on suggested changes to and creation of rules and administrative processes addressing the issue.





securities
FINRA ISSUES GUIDANCE ON COOPERATION BY BROKER DEALERS AND BROKERAGE FIRMS DURING REGULATORY INVESTIGATIONS

FINRA recently issued Regulatory Notice 19-23 addressing “extraordinary cooperation” by broker dealers and broker dealer firms.  The Notice highlights FINRA’s hopes to incentivize broker dealers and broker dealer firms to take “proactive and voluntary steps beyond those required under FINRA rules” by crediting such cooperation in FINRA’s regulatory enforcement decisions. The Notice also clarifies the difference between “required cooperation” and “extraordinary cooperation” by broker dealer and broker dealer firms, in light of FINRA rules and policies that already require cooperation in regulatory investigations.





securities
SEC ADOPTS RULES AND INTERPRETATIONS REGARDING BROKER DEALER AND INVESTMENT ADVISER STANDARDS OF CONDUCT
On June 5, 2019, the SEC voted to adopt a package of rulemakings and interpretations regarding broker dealers’ and investment advisers’ standards of conduct, including new Regulation Best Interest, new Form CRS Relationship Summary, and two interpretations under the Investment Advisers Act of 1940.




securities
FINRA REQUESTS COMMENT ON PROPOSED RULE 4111 IMPOSING ADDITIONAL OBLIGATIONS ON FIRMS WITH A SIGNIFICANT HISTORY OF MISCONDUCT
FINRA is requesting comment on proposed Rule 4111 (Restricted Firm Obligations) that would impose obligations, including financial requirements, on designated member firms that cross specified numeric disclosure-event thresholds. FINRA believes that the proposal would promote investor protection and market integrity and provide another tool to incentivize broker dealers to comply with regulatory requirements and to pay arbitration awards.
securities
FINRA EXTENDS DEADLINE FOR BROKER DEALERS TO SELF REPORT 529 SAVINGS PLAN VIOLATIONS AS PART OF NEW INITIATIVE
FINRA recently announced a self-reporting initiative to promptly compensate harmed investors and promote firms’ compliance with the rules governing the recommendation of 529 savings plans.  529 plans are tax-advantaged plans that are designed to encourage saving for the future educational expenses of a designated beneficiary, and shares are commonly sold in different classes, with fees and expenses that vary widely from plan to plan.
securities
HIGHLIGHTS FROM THE FINRA 2019 RISK MONITORING AND EXAMINATION PRIORITIES LETTER

FINRA released its 2019 Risk Monitoring and Examination Priorities Letter.  Compared to previous years, this Letter takes a novel approach by highlighting those topics that will be materially new areas of focus for FINRA’s risk monitoring and examination programs this year.  The Letter also identifies areas of ongoing concern that FINRA will continue to review.





securities
FINRA APPROVES FILING WITH THE SEC RULES PROHIBITING COMPENSATED NON ATTORNEY REPRESENTATIVES FROM PRACTICING IN FINRA ARBITRATION AND MEDIATION
FINRA currently allows non-attorney representatives to work with investors filing securities arbitration claims and throughout mediation.  FINRA’s Board of Governors recently approved filing with the SEC amendments to the Codes of Arbitration and Mediation Procedure which would prohibit non-attorney representatives from practicing in the arbitration and mediation forums. 




securities
FINRA PUBLISHES SECOND ANNUAL REPORT ON EXAMINATION FINDINGS
FINRA published its 2018 Report on Examination Findings, its second annual report detailing observations from recent examinations of broker-dealer firms that it considers worth highlighting because of their potential significance, frequency, and impact on investors and the markets.  It also describes practices FINRA has observed to be effective in certain circumstances. 




securities
SEC’S OWN INVESTOR ADVISORY COMMITTEE RECOMMENDS SEC CLARIFY PROPOSED REGULATION BEST INTEREST
On April 18, 2018, the SEC proposed a new rule under the Securities Exchange Act of 1934 entitled “Regulation Best Interest” to establish a standard of conduct for broker-dealers and natural persons who are associated persons of a broker-dealer to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to the retail customer.




securities
FINRA ESTABLISHES A PER ARBITRATOR FEE AND HONORARIUM FOR LATE CANCELLATION OF PREHEARING CONFERENCES
The SEC approved amendments to FINRA’s customer and industry arbitration rules to charge parties who request cancellation of a prehearing conference within three business days of the prehearing conference a $100 per-arbitrator fee. The amendment also provides for a $100 honorarium to each arbitrator scheduled to attend the cancelled prehearing conference.
securities
THE SEC APPROVES FINRA RULES AMENDMENTS FOR SIMPLIFIED ARBITRATIONS
The SEC recently approved a rule amendment to create an intermediate form of adjudication for small claims.  The proposal amends Rules 12600 and 12800 of the FINRA Code of Arbitration Procedure for Customer Disputes and Rules 13600 and 13800 of the FINRA Code of Arbitration Procedure for Industry Disputes.  The amendments provide parties with claims of $50,000.00 or less an opportunity to argue their cases before a single arbitrator in a shorter, more limited telephonic hearing format.




securities
FINRA SEEKS COMMENT ON PROPOSED AMENDMENTS TO FIRM AND ASSOCIATED PERSONS DOCUMENT PRODUCTION LIST
FINRA is requesting comment on proposed amendments to the Firm and Associated Persons Document Production List and Discovery Guide. The proposed amendments to the Discovery Guide require firms and associated persons, upon request, to produce documents concerning third-party insurance coverage in a customer arbitration proceeding. These proposed amendments would strictly limit the circumstances under which insurance coverage information could be presented to the arbitrators.
securities
FINRA ANNOUNCES INITIATIVE TO TRANSFORM REGISTRATION SYSTEMS THAT WILL LEAD TO ENHANCED EFFICIENCIES AND REDUCED COMPLIANCE COSTS FOR FIRMS
On June 14, 2018, FINRA announced details of a multi-phased effort to overhaul its registration and disclosure programs, including the Central Registration Depository (CRD). FINRA operates the CRD for the U.S. securities industry and its regulators and it provides the backbone of BrokerCheck.
securities
ENHANCEMENTS TO FINRA’S DISCLOSURE REVIEW VERIFICATION PROCESS PERMITS FIRMS TO RELY ON PROCESS FOR COMPLIANCE WITH PUBLIC FINANCIAL RECORDS SEARCHES OF APPLICANTS AND REGISTERED PERSONS
Beginning on July 9, 2018, FINRA is enhancing its disclosure review process to enable it to conduct a public records search of information relating to bankruptcies, judgments and liens, within fifteen calendar days from the date of an applicant’s Form U4. These enhancements will allow FINRA to verify the accuracy and completeness of an applicants’ information relating to all bankruptcies, judgments and liens reported to the Central Registration Depository (CRD) system through the Form U4.
securities
FINRA REVISES THE SANCTION GUIDELINES
FINRA revised its Sanction Guidelines to instruct adjudicators in the disciplinary process to consider customer-initiated arbitrations that result in adverse arbitration awards or settlements when assessing sanctions. As a result, when a Respondent’s disciplinary history, and history of arbitration awards and arbitration settlements, together with the violation found in a disciplinary case, form a pattern, the new Sanction Guidelines will advise that adjudicators should consider imposing more stringent sanctions.




securities
U.S. APPEALS COURT VACATES OBAMA ERA ‘FIDUCIARY RULE’ REQUIRING FINANCIAL ADVISORS TO ACT IN CUSTOMERS’ BEST INTEREST
On March 15, 2018, the 5th U.S. Circuit Court of Appeals in New Orleans voided the U.S. Department of Labor’s “fiduciary rule” adopted by the Obama administration in 2016 as a means to limit and reduce conflicts of interest among financial advisors providing retirement planning advice. The majority found in the case, Chamber of Commerce of the United States of America v. U.S. Department of Labor, 17-10238, that the Department of Labor overstepped its authority and that the Obama-era rule’s redefinition of “fiduciary” was unreasonable.




securities
FINRA SEEKS COMMENT ON PROPOSED NEW RULE GOVERNING OUTSIDE BUSINESS ACTIVITIES AND PRIVATE SECURITIES TRANSACTIONS

FINRA launched a retrospective review of its outside business activities and private securities transactions rules in May of 2017 to assess their effectiveness and efficiency. This request for comment stems from that review of FINRA Rule 3270 (Outside Business Activities of Registered Persons) and FINRA Rule 3280 (Private Securities Transactions of an Associated Person). The proposed rule would replace FINRA Rules 3270 and 3280 and is intended to reduce unnecessary burdens, while strengthening investor protections relating to outside activities.





securities
FINRA ARBITRATION 2017 STATISTICS

Arbitration case filings through December 2017 reflected a 6 percent decrease compared to cases filed in 2016 during the same time frame.  More specifically, 3,681 cases were filed in 2016, but 3,456 cases were filed in 2017.  Of the 3,456 cases filed, 65 percent or 2,260 were customer disputes and 35 percent or 1,196 were intra-industry disputes. 

securities
HIGHLIGHTS FROM THE FINRA 2018 REGULATORY AND EXAMINATION PRIORITIES LETTER

FINRA released its annual list of Regulatory and Examination Priorities for 2018.  FINRA will continue its focus on high-risk and recidivist brokers in terms of rulemaking initiatives and examinations. This year’s priority includes strengthening the current operation, while becoming more efficient. 

securities
ARBITRATION PANEL GRANTS EXPUNGEMENT IN RECENT CASE

Our firm recently obtained an award from a FINRA panel granting a Motion for Expungement.  The claim (Arbitration number 16-01770) was filed in June, 2016 and alleged negligence, breach of fiduciary duty, negligent supervision, and breach of contract.  The claims were related to charges Claimant suffered when he surrendered a fixed annuity and losses he incurred in various types of moderately aggressive investments.




securities
FINRA SEEKS COMMENT ON THE EFFICACY OF ALLOWING COMPENSATED NON ATTORNEYS TO REPRESENT PARTIES IN ARBITRATION

The FINRA Codes of Arbitration and Mediation Procedure currently allow compensated non-attorney representatives (“NAR”) to represent clients in securities arbitration and mediation subject to some exceptions.  Some parties are represented by relatives or friends who assist with case preparation or presentation.  NAR firms typically provide public investors an alternative to representation by attorneys in disputes between investors and broker dealers. FINRA is conducting a review of the efficacy of continuing to allow such representation and is accepting comments from member firms and other interested parties.




securities
THE ALABAMA SUPREME COURT CONFIRMS DISCOVERY MUST BE LIMITED IN STATE COURT WHILE A MOTION TO COMPEL ARBITRATION IS PENDING

In Ex parte Locklear Chrysler Jeep Dodge, LLC and Locklear Automotive Group, Inc., the Alabama Supreme Court granted a Petition for Writ of Mandamus (“Petition”), finding that the trial court exceeded its discretion when it granted a Motion to Compel discovery on issues unrelated to arbitration while a Motion to Compel arbitration was presently pending.




securities
OCTOBER IS FINRA MEDIATION SETTLEMENT MONTH

Every October, FINRA’s Office of Dispute Resolution significantly reduces mediation prices in order to encourage mediation and settlement of customer and industry disputes.  The goal of Settlement Month is to encourage parties to experience the benefits of mediation for the first time and to reinforce its value and effectiveness for those who have been through the mediation process already.




securities
THE DEPARTMENT OF LABOR SEEKS AN 18 MONTH DELAY ON THE FIDUCIARY RULE’S EXEMPTIONS

The Department of Labor (“DOL”) recently submitted a proposal to delay implementation of the remaining parts of its fiduciary rule from January 1, 2018 until July 1, 2019.  Two provisions of the rule, which greatly expands the definition of who counts as a fiduciary under the Employee Retirement Income Security Act and the Internal Revenue Code, took effect on June 9, 2017.  One remaining provision includes the best interest contract exemption, which allows brokers to charge variable compensation for products as long as they sign a legally binding agreement to put their clients’ interests ahead of their own.  The other exemptions include those for principal transactions and for insurance agents and brokers.


securities
SEC APPROVES FINRA’S PROPOSED RULE CHANGE TO EXPEDITE THE ARBITRATOR LIST SELECTION

The SEC approved a proposed rule change to amend FINRA Rules 12402 and 12403 of the Customer Code and Rule 13403 of the Industry Code to allow the Director of FINRA’s Office of Dispute Resolution (“Director”) to send the list generated by the Neutral List Selection System to all parties at the same time, within 30 days after the last answer is due.  The list will now be sent within this time, regardless of whether the parties agree to extend any answer due date.


securities
ARBITRATION PANEL GRANTS ELIGIBILITY MOTION TO DISMISS AND EXPUNGEMENT IN RECENT CASE

Our firm recently obtained an award from a FINRA panel denying all of Claimant’s claims and finding for Respondents.  The panel also granted our Motion for Expungement.  The claim (Arbitration number 16-03568) was filed in December, 2016.  Claimant alleged claims of breach of fiduciary duty, breach of contract, failure to supervise, violation of the Alabama Securities Act, violation of securities regulatory rules, ongoing fraud, and common law claims of misrepresentation, unjust enrichment and negligence.  The claims were related to Claimant’s purchase of preference plus variable annuities in 2005 and 2007.


securities
FINRA REVIEWS RULES ON OUTSIDE BUSINESS ACTIVITIES AND PRIVATE SECURITIES TRANSACTIONS

In Regulatory Notice 17-20, FINRA announced it is requesting comments on Rules 3270 and 3280 governing outside business activities and private securities transactions.  The request for comments comes as a result of FINRA’s new retrospective rule review.  The review concentrates on rules governing broker dealer employees’ business and securities activities carried out away from their firm—activities that are outside the regular course of scope of their employment with the firm.




securities
FINRA ARBITRATION 2016 STATISTICS

Arbitration case filings for year-end 2016 reflected a 7 percent increase compared to cases filed in 2015 during the same time frame.  More specifically, 3,435 cases were filed in 2015, but 3,681 cases were filed in 2016.  Of the 3,681 cases filed, 68 percent or 2,519 were customer disputes and 32 percent or 1,162 were intra-industry disputes. 




securities
THE ELEVENTH CIRCUIT HOLDS THAT THE SAFE HARBOR PROVISION IS AVAILABLE TO DEFENDANTS IN SEC ENFORCEMENT ACTIONS

In SEC v. Levin, the United States Court of Appeals for the Eleventh Circuit (“Eleventh Circuit”) held that the safe harbor provision of Regulation D’s Rule 508(a) is available to a defendant in a Securities and Exchange Commission (“SEC”) enforcement action based on a failure to register securities under Section 5 of the Securities Act.




securities
HIGHLIGHTS FROM THE FINRA 2017 REGULATORY AND EXAMINATION PRIORITIES LETTER
FINRA released its Regulatory and Examination Priorities Letter for 2017.  The letter provides information about areas FINRA plans to review in its 2017 exams based on observations from their regulatory programs, as well as input from various stakeholders, including broker dealers, other regulators and investor advocates.
securities
RECENT CASE INVOLVING ALTERNATIVE INVESTMENTS RECEIVES AWARD FOR RESPONDENT
Our firm recently obtained an award from a FINRA panel denying all of Claimant’s claims and finding for Respondents.  The claim (Arbitration number 16-01352) was filed in May, 2016.  Claimant alleged claims of unsuitability, breach of fiduciary duty, breach of contract, failure to supervise, violation of the Alabama Securities Act, violation of securities regulatory rules, and common law claims of misrepresentation, unjust enrichment and negligence.
securities
FINRA’S RECOMMENDATIONS FOR EXPEDITED ARBITRATIONS

 FINRA allows for expedited arbitration proceedings in cases involving senior and seriously ill parties.  While there is no specific rule within the Code of Arbitration Procedure, once FINRA determines that a matter involves an elderly or ill party, the case is flagged as an expedited case.  FINRA then endeavors to complete the arbitration process as quickly as possible.  FINRA recently formed a committee to determine how to process expedited cases more efficiently.  

securities
FORUM SELECTION PROVISIONS IN CUSTOMER AGREEMENTS

FINRA released Regulatory Notice 16-25 reminding broker dealers that claimants have a right to request arbitration through FINRA at any time and do not forfeit that right by signing any agreement with a forum selection provision specifying another dispute resolution process or an arbitration venue other than the FINRA arbitration forum.   

securities
RECENT RULEMAKING ITEMS APPROVED BY FINRA

FINRA recently authorized filing with the SEC two proposed amendments to rules from the Code of Arbitration Procedure for Customer Disputes and Industry Disputes.  The rules affect chairperson eligibility in arbitration and the arbitrator panel selection process.

securities
FINRA ISSUES GUIDANCE ON USE OF STOP ORDERS DURING VOLATILE MARKET CONDITIONS

FINRA issued Regulatory Notice 16-19 in an effort to encourage firms to review their practices regarding stop orders.  Registered representatives often recommend stop orders as a tool for managing market risk.  Investors use stop sell orders to protect profit position in the event a stock’s price declines and stop buy orders if they have a short position to limit losses in the event a stock’s price increases.  Once stop orders are triggered, they become market orders, which are inherently risky, especially in volatile market conditions.  

securities
SEC APPROVES RULE REQUIRING FIRMS TO SEND AN EDUCATIONAL PAMPHLET TO THE FORMER CLIENTS OF THEIR NEWLY HIRED REPRESENTATIVES

The SEC recently approved the adoption of FINRA Rule 2273 which creates an obligation to deliver educational communication in connection with firm recruitment practices and account transfers.  The new rule affects financial firms that want to recruit the former clients of newly hired representatives.

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