Chapter 16 - § 16.22 • FINRA DISCIPLINARY ACTIONS

• Jurisdiction: Colorado

§ 16.22 • FINRA DISCIPLINARY ACTIONS

FINRA is a member organization, a self-regulatory organization (SRO) supervised by the SEC under the provisions of the 1934 Act. As such, it has jurisdiction over member firms, registered representatives, and "associated persons," a term that includes any employee of a member firm whose functions are not simply clerical or ministerial. The term "associated person" also includes any person in control of or controlled by a member firm that is "engaged in [the] investment banking or securities business."⁵⁷⁶ FINRA enforces the federal securities laws as well as its own rules. When it investigates conduct that may be a violation of those laws and rules, FINRA generally requests the production of documents and information, including possibly taking testimony.⁵⁷⁷ Members, registered representatives, and associated persons must comply with such requests or else they can be sanctioned through a disciplinary proceeding and are often barred from the securities industry.

Fact-finding investigations are conducted by FINRA's Department of Enforcement. If the investigations reveal facts that suggest a disciplinary action should be taken, the Department of Enforcement will file a complaint with FINRA's Office of Hearing Officers. Thereafter the conduct of the proceeding is governed by the Code of Procedure.⁵⁷⁸

When the parties settle a case prior to the filing of a complaint, the respondent signs a Letter of Acceptance, Waiver and Consent (AWC). In the AWC, FINRA makes findings of fact and law that the respondent neither admits or denies. In fact, the respondent is prohibited from denying the facts or taking future positions inconsistent with the AWC. If the respondent settles a case after the filing of a complaint, the settlement is accomplished through an "Offer of Settlement."⁵⁷⁹

If a case does not settle, FINRA will appoint a hearing panel to conduct the hearing and issue a decision. Each hearing panel is comprised of three members, a hearing officer who acts as the chair of the panel (who is an attorney employed by the FINRA Office of Hearing Officers), and two current or past industry members.⁵⁸⁰ The hearing officer and the panelists are independent from the FINRA Department of Enforcement; they are not responsible for investigating possible misconduct or instituting disciplinary actions. Furthermore, neither the Office of Hearing Officers nor the panelists will be involved in deciding whether investigations should be conducted...