It frequently happens as follows: a registered representative or associated person of a broker-dealer (RR) receives a Rule 8210 letter from FINRA requiring that she respond to questions or worse, appear before FINRA to provide testimony under oath (OTR). Any hope that your departure from a broker-dealer that marked up Form U5 with unsavory details of your termination would just blow over has ended. After what seemed a long period of silence, FINRA is now contacting you and wants answers. What should you do?
As a former FINRA enforcement attorney, I had often observed registered representatives and others respond to Rule 8210 requests, or appear before FINRA, without an attorney. Often RRs face serious charges and any formal discipline can severely impact a RR’s securities career. The reality is FINRA enforcement attorneys and examiners are well trained in asking questions and developing evidence necessary to prove violations of the federal securities laws and FINRA rules. Mistakes made in responding to FINRA questions, whether in writing or sworn testimony, can make things much worse — denials to key lines of questioning may lack credibility, and inaccurate statements may quite literally end a RR’s career.
FINRA Rule 8210
Rule 8210 provides in pertinent part as follows:
a) Authority of Adjudicator and FINRA Staff
For the purpose of an investigation, complaint, examination, or proceeding authorized by the FINRA By-Laws or rules, an Adjudicator or FINRA staff shall have the right to:
(1) require a member, person associated with a member, or any other person subject to FINRA’s jurisdiction to provide information orally, in writing, or electronically … and to testify at a location specified by FINRA staff, under oath or affirmation administered by a court reporter or a notary public if requested, with respect to any matter involved in the investigation, complaint, examination, or proceeding; and
(2) inspect and copy the books, records, and accounts of such member or person with respect to any matter involved in the investigation, complaint, examination, or proceeding that is in such member’s or person’s possession, custody or control.
(c) Requirement to Comply
No member or person shall fail to provide information or testimony or to permit an inspection and copying of books, records, or accounts pursuant to this Rule.
The rule requires FINRA members, their associated persons and others under FINRA jurisdiction to provide FINRA books and records, and to respond in writing or orally to FINRA questions.
FINRA as a self-regulatory organization (SRO) is not the government and thus does not have subpoena power. So, to oversee regulated activities and meet its regulatory mission, FINRA utilizes Rule 8210 requests to compel responses to its questions. Subpoenae generally require the production of books and records, or testimony; Rule 8210 requests do the same and often request even more. For example, a Rule 8210 request may require you to write a response or compile data responsive to a FINRA request. Subpoenae generally can be challenged by making a motion in court to quash; Rule 8210 requests, regardless of how intrusive or seemingly improper they may appear, have no formal mechanism to challenge their scope. If you wish to challenge a Rule 8210 request, all you can do is not comply with the request and hope to persuade a FINRA hearing panel later that the request was improper. This approach is not advisable as the failure to comply with FINRA Rule 8210 will result in a bar against the RR from ever again associating with any FINRA member in any capacity (or expel a broker-dealer from the securities industry). The bottom line is you must respond to a Rule 8210 request to remain employed in the industry.
What to do when you receive a Rule 8210 Request?
Rule 8210 investigations are serious matters. They inform you that a regulatory investigation is underway and steps need be taken immediately to protect your legal rights and interests. Recipients should consult seasoned counsel experienced in dealing with FINRA investigations to obtain legal advice. I have seen many instances where early submissions or statements to FINRA by RRs, before they retained counsel, were very damaging and made something bad into something much worse. Seasoned securities counsel can evaluate the facts, recommend strategy and prepare you for the tough questions and the brow beating you likely will face.
The information and materials in this blog posting are provided for general informational purposes only and are not intended to be legal advice. The issues discussed include complicated areas of law and legal advice should be obtained from a securities attorney about your specific circumstances.