Business Services Industry

Sutherland Annual Study Finds That It Sometimes Pays for Broker-Dealers and Registered Representatives to Litigate Against the SEC and FINRA

Business Wire, Feb 5, 2009

WASHINGTON -- Sutherland announced that it has completed its annual analysis of litigated disciplinary proceedings brought by the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA, formerly NASD) against broker-dealers and registered representatives. The study, authored by Partner Brian Rubin and Associate Christian Cannon, analyzes cases from October 2007 through September 2008 where firms and individuals were charged with violating SEC and NASD rules and statutes.

Rubin, former Deputy Chief Counsel of Enforcement for FINRA's predecessor and former Senior Counsel with the SEC, stated: "Many firms and registered representatives fear litigating against regulators because the staff has often spent months or years investigating the conduct. They are well-funded, with their own procedural rules, and an employee of the agency often serves as a judge. Respondents fear that 'the house that the regulators built' gives the SEC and FINRA a home field advantage. Our studies have shown that it often pays for broker-dealers and registered reps to litigate, rather than settle."

To request a copy of the complete analysis, e-mail brian.rubin@sutherland.com or go to http://www.sutherland.com/files/upload/RubinRelease2509.pdf.> The Results

Trials

SEC administrative proceedings begin with the SEC's Enforcement Department filing a complaint, called an Order Instituting Proceedings (OIP). The cases are tried before an SEC Administrative Law Judge (ALJ), who is independent of the Commission. The ALJ issues an initial decision that includes findings of fact, legal conclusions and, at times, a sanction.

FINRA disciplinary proceedings begin when the Enforcement Department or the Market Regulation Department, and culminate in a trial before a Hearing Panel with two current or former industry members and one Hearing Officer, who is a FINRA employee. The Hearing Officer oversees the proceedings and writes the decision.

Complaints and OIPs include one or more "charges" alleging a violation of a rule or statute.

Liability

Of the 86 charges that were litigated by the SEC and FINRA during the year ended September 30, 2008 (the SEC's fiscal year), firms and representatives succeeded in getting charges dismissed 16% of the time. SEC respondents had slightly more success (approximately 19%--5 of 26) than FINRA respondents (15%--9 of 60). Historically, the average dismissal rate for FINRA charges has hovered around 11%.

Sanctions

This section analyzes only those cases where the decisions indicate a specific sanction sought by the staff.

* Monetary Sanctions - When SEC and FINRA respondents were found to have violated one or more charges, approximately 60% of the time (12 of 20 respondents) the ALJ or Hearing Panel imposed lower monetary sanctions than those sought by the staff.

* Time Out from the Industry - When SEC and FINRA respondents lost on liability, they convinced the adjudicators to order a suspension from the securities industry which was less than that sought by the staff approximately 39% of the time (15 of 38).

About the Study

The study reviewed 14 SEC ALJ and 29 FINRA Hearing Panel decisions issued between October 1, 2007, and September 30, 2008, and compared those decisions with others issued January 2000 forward.

Rubin and Cannon are part of Sutherland's Securities Regulatory, Enforcement and White Collar Practice Group, which is one of the nation's top practices in this field. Sutherland Asbill & Brennan LLP is an Am Law 100 law firm. Please visit www.sutherland.com.