Sutherland Asbill & Brennan LLP recently completed a study of cases over a two-year period from October 2008 to September 2010 where the SEC or FINRA charged broker-dealers and individual representatives with violations, according to InvestmentNews.com. Sutherland concluded that, although “the odds are not in your favor” when regulators assert charges against broker-dealers and registered representatives, past results show it may be worthwhile to challenge the charges under certain circumstances.
During the two-year period of Sutherland’s study, 237 charges were litigated to at least an initial decision. The study reports that 13% of those charges were dismissed entirely while another third of the cases resulted in fines lower than what was originally proposed. One of the authors of the study, Brian L. Rubin, said, “firms think they don’t have a chance, that it makes more sense to settle” but “depending on the facts, it may make sense to take on the SEC or FINRA.”
According to the study, firms and representatives are often motivated to settle because attorneys “fees can cut in to any gains from dismissed charges or reduced fines” and because of a “perceived home field advantage for the SEC and FINRA.” Disciplinary hearings for FINRA take place in front of two current or former industry members along with one FINRA employee who serves as the hearing officer. The “SEC administrative-enforcement proceedings are tried before an SEC administrative-law judge who is independent of the commission.”
In analyzing options, firms and individual representatives need to carefully consider the benefits and costs of settlement as well as the benefits and costs of fighting. Of course, fighting the regulators will generally involve a significant financial cost in terms of attorney’s fees and time. However, a settlement, even if entered into without admitting or denying wrongdoing, effectively puts a black mark on the firm’s or representative’s record. This black mark can result in significant future costs and problems for a settling party when additional/new registrations are sought, if additional violations occur in the future, and if collateral civil claims are brought or pending.
Page Perry has over 125 years collective experience representing defendants in securities regulatory actions and disciplinary proceedings all over the country.