Sutherland Annual Study Finds That It Sometimes Pays to Litigate Against FINRA

Business Wire, May 12, 2008

* In 2007, the Hearing Panel ordered higher fines than requested by FINRA staff approximately 33% of the time. In contrast, in 2006, there were no cases where monetary sanctions sought by the staff were increased.

* When respondents lost on liability, approximately 52% of the time they were successful convincing the Hearing Panel to order a lower suspension sanction than that demanded by FINRA. Similarly, in 2006, respondents were successful approximately 45% of the time.

* When the staff sought a suspension, respondents convinced the Hearing Panel to reduce it approximately 58% of the time, which is about the same as in 2006. In those circumstances, the 2007 Hearing Panels reduced the suspension by 55%, from approximately 7.8 months sought to 3.6 months ordered. In 2006 that figure was 63%, from approximately 9.2 months sought to 3.4 months ordered.

* When the staff sought a complete bar from the industry, respondents convinced the Hearing Panel to order a lesser sanction approximately 46% of the time, which is about the same as in 2006. When reduced, the Hearing Panel ordered a suspension of 16.5 months (compared with 10.3 months in 2006).

Appeals to the National Adjudicatory Council (NAC)

After the Hearing Panel trials, appeals are heard by the NAC, which is composed of representatives of member firms and the public. FINRA staff or the respondent may appeal; alternatively, the NAC may decide on its own to review a case. The study made the following findings regarding NAC decisions:

* Respondents faced long odds on appeal. In 2007, respondents were unsuccessful approximately 81% of the time. Approximately 19% of appeals resulted in increased sanctions, while the sanctions were affirmed approximately 62% of the time. Interestingly, all of the 2007 appeals that resulted in increased sanctions were initiated by the respondent. During 2006, the percentage of losses by respondents on appeal was even higher: 92% of appeals resulted in affirmed or increased sanctions.

* Over the past two years, every time the NAC has increased suspension sanctions ordered by the Hearing Panel (which happened to 12.5% of respondents whose appeals were decided during 2006-07), it has imposed a bar.

Appeals to the SEC and Federal Courts of Appeals

Respondents who are unsuccessful before the NAC have the right to appeal to the SEC, and from there to the appropriate Federal Court of Appeals. The study made the following findings:

* In 2007, 72% of SEC appeals were either dismissed without briefing or were affirmed. The remaining 28% were reversed or remanded to the NAC for further findings. In 2006, 38% were reversed or remanded.

* During 2007, only one FINRA/NASD disciplinary appeal was decided in the federal courts. It was a success for the respondent because it remanded the case to the SEC to reduce or justify the sanctions imposed.

* During 2006, only one FINRA/NASD disciplinary appeal was decided in the federal courts. It affirmed an SEC order enforcing monetary sanctions against a respondent.