The Blog Of The Securities Industry Professional Association

Know when to hold ‘em, Know when to fold “em

Risk vs Reward when dealing with FINRA

card player gambling casino chips on green felt background selective focus


We have seen yet another increase in the ‘Death Penalty” being issued by FINRA to firms across the county for a variety of reasons ranging from failure to supervise to failure to do anything.  How did we get to this point whereby almost all actions appear to involve such a healthy fine that a small firm will not be able to survive? The answer will be somewhat surprising but there are two parties to blame for this draconian action: 1) FINRA and 2) Lawyers telling clients what they want to hear not what they need to hear.


Before we go any further, please be advised that we are not a law office nor are we offering legal advice, however we do consult for about a dozen firms and have seen time and again how a simple matter that could have been easily resolved becomes a fight to the death and so costly that the firm is on the brink of shutting down.  How does this happen so often?  Perhaps it’s because we sometimes let emotion take over our decisions and instead of making a business decision we are left making emotional and irrational decisions that will end up costing us much more in the end.  So what is a firm to do when faced with FINRA /SEC complaints?


  • Leave your ego at the door: This might be the toughest thing to do if you are a proud and ethical owner of a FINRA firm but it can also be the most costly decision you will ever make.   Sometimes, a simple dispute about things ranging from reporting OATS and Archiving Email can become a huge fight to the death and struggle.  Other times, a Failure to Supervise charge against a firm can become a life and death struggle like a Lion and a Water Buffalo on a Serengeti field.  Often times a settlement can be had early on but instead the ego gets in the way and the result is a protracted legal battle that goes on for two years and hundreds of thousands of dollars and in the end, a settlement that was available on day one is reached on day 700 at a cost of six figures.
  • Ask your lawyer to tell you what you need to hear not what you want to hear: I have been involved in hundreds of cases in my career as both an owner of a firm, a Director of Compliance, as a consultant, a Legal Aid with a law firm and as an expert witness. One of the things that has always jumped out at me is the fact that many lawyers out there will take on cases in which anyone else would refer to the client as ‘Dead Man Walking”.

We had one client spend over 2.5 million dollars on a top flight law firm and after 3 years, agreed to a permanent bar.  Huh?  He could have saved the money himself and just agreed 3 years earlier and bought himself a mansion and a Ferrari.  When we look at our clients issues we always try to tell them what they NEED to hear not what they WANT to hear.  When all is said and done, there is one overwhelming statistic that is being ignored:  FINRA enforcement wins about 95% of its actions.  Is this coincidence?  Good legal work?  Of course not, it’s a stacked deck and if any Lawyer won 95% of his cases the largest law firms would swoop in and hire them but that is not the case.  It’s a very stacked deck against firms in hearings. Bottom line is that even if you have a very strong case, you have a 5%-10% chance of success.  So before you spend hundreds of thousands defending yourself, you may want to ask your lawyer to give you odds like we have just laid out for you.  What’s even more disturbing is the number of cases that then get appealed to the National Adjudicatory Council (NAC) under this premise that you can appeal the decision and get it over turned.  You may want to follow this link Click here to view NAC decisions  You should carefully read as many of these decisions as possible before you plunk down another six figures to appeal because your odds of winning are about the same as winning the pick six or scratch off tonight at your local bodega.

We once again urge all firms to protect themselves and to fight the good fight, however there are certain fights that are just not winnable so before you jump into the battle, ask your Lawyer to tell you what you NEED to hear not what you WANT to hear.  Do not be afraid to ask them for odds or percentages of prevailing and more importantly, make them give you a written estimate of what the legal costs might be if you fight the charges from beginning all the way through at least a FINRA hearing.  If they will not provide that, you may want to seek other counsel or consider the settlement offer that might be on the table.

Post Metadata

December 9th, 2015



Comments are closed.