The Financial Industry Regulatory Authority (FINRA) has released its end-of-the-year report card on various regulatory achievements it made in 2012, along with progress highlights in detecting fraudulent activity, increasing transparency of securities markets and protecting investors.
Among FINRA’s key accomplishments in 2012:
- Fines totaling $68 million were assessed.
- A record $34 million in restitution to harmed customers was ordered.
- 1,541 disciplinary actions (an increase of 53 from 2011) were brought against FINRA-registered individuals and firms.
- 30 firms were expelled from the securities industry; 294 individuals were barred; and 549 brokers were suspended from association with FINRA-regulated firms.
- 692 matters involving potential fraudulent conduct were referred by FINRA’s Office of Fraud Detection and Market Intelligence (OFDMI) to the Securities and Exchange Commission (SEC) and other federal or state law enforcement agencies, including 347 insider trading referrals and 260 fraud referrals.
Disciplinary actions levied by FINRA in 2012 entailed several high-profile cases involving complex financial products, including exchange-traded funds (ETFs), structured products and non-traded REITs, as well as research analyst conflicts, inadequate disclosure and mispricing.
Among the 2012 cases: David Lerner Associates. FINRA sanctioned David Lerner Associates, the firm’s founder, President and CEO, and the firm’s head trader in an action related to the non-traded Apple REITs involving suitability and supervision violations. The settlement also consolidated numerous matters, including a municipal and CMO markup case, a pending enforcement investigation of more recent municipal and CMO markups, and 10 pending market regulation matters involving municipal markups identified through surveillance reviews.
FINRA also sanctioned Citigroup Global Markets, Inc; Morgan Stanley & Co., LLC; UBS Financial Services; and Wells Fargo Advisors, LLC a total of more than $9.1 million for selling leveraged and inverse ETFs without reasonable supervision and for not having a reasonable basis for recommending the securities. Fines totaling more than $7.3 million were levied against the firms, which were required to pay a total of $1.8 million in restitution to certain customers who made unsuitable leveraged and inverse ETF purchases. Similar cases were brought by FINRA against Merrill Lynch and Scott & Stringfellow.
Finally, Merrill Lynch was fined $450,000 for supervisory failures relating to sales of structured products to retail clients. The firm relied upon automated exception-based reporting systems to flag transactions and/or accounts that met certain pre-defined criteria, but did not specifically monitor for potentially unsuitable concentration levels.
Check back for Part 2 of FINRA’s 2012 Year in Review and the various investor protection and transparency initiatives launched in 2012.