Legal Alert: After Four Years of Increased Activity, FINRA’s Sanctions Are Dropping in 2013


Financial Industry Regulatory Authority (FINRA) 2013 fines and disciplinary actions are on track to fall well short of 2012’s totals. During the first half of 2013, FINRA reported $23 million of fines in its monthly Disciplinary and Other FINRA Actions publications. In contrast, during the first half of 2012 FINRA reported fining broker-dealers and associated persons $39 million, and it assessed fines of $78 million for all of 2012. If FINRA continues at the current 2013 rate, this year’s fines will represent a 41 percent decrease from the total fines reported by the regulator in 2012 (down from $78 million to an estimated $46 million). That would be the lowest amount of fines assessed by FINRA since $45 million of fines were imposed in 2010.

Brian Rubin, the head of Sutherland’s securities litigation and enforcement group, said, “Sanctions may be on the decline because FINRA has likely brought most of its significant cases related to the market crisis.” In addition, he noted that “FINRA has brought far fewer ‘supersized’ fines, which is what we call fines of $1 million or more.” During the first six months of 2012, FINRA reported seven “supersized” fines totalling $24 million. Only two “supersized” fines, totalling $2.25 million, had been published in FINRA’s monthly disciplinary reports through June 2013.

Despite the dramatic decrease in the amount of fines, the number of cases reported by FINRA during the first half of 2013 was nearly identical to its 2012 counterpart. During the first six months of 2012, FINRA reported 609 disciplinary actions. FINRA reported 597 disciplinary actions during the first six months of 2013, a decline of only 2 percent. The percentage of actions involving firms (as opposed to individuals) was higher during the first six months of 2013 than in 2012. Between January and June 2012, 208 of the 609 (34 percent) reported cases involved charges against firms. This percentage grew to 38 percent (226 out of 597 cases) during the first six months of 2013.

The top five enforcement issues for FINRA during the first half of 2013, in terms of the total amount of fines reported in Disciplinary and Other FINRA Actions were:

  1. Municipal securities: $4.3 million, 25 cases;
  2. Electronic communications: $2.5 million, 27 cases;
  3. Mutual funds: $2.1 million, 18 cases;
  4. Suitability: $1.7 million, 31 cases;
  5. Short selling: $1.5 million, 16 cases.1

In March 2012, Sutherland cautioned in its annual FINRA sanctions report that municipal securities would likely become a growing enforcement area after the regulator highlighted this issue in its 2011 and 2012 Regulatory and Examination Priorities letters.2 This prediction came true in 2013. The reported fines in municipal securities cases during the first six months of 2013 already equal 2012’s total fines in that area. This increase was largely driven by five related cases involving allegations that underwriting firms used fees received from the issuers of municipal and state bond funds to pay lobbyists for unrelated work.3 These firms were fined a total of $3.35 million and ordered to pay restitution of $1.13 million to issuers.

Despite the uptick in enforcement activity involving municipal securities, many historic areas of interest for FINRA have experienced significant decreases in 2013. For example, below is a comparison of the top five 2012 enforcement issues (measured by the total fines ordered by FINRA) with those same categories from the first half of 2013:

  JAN. 2013 TO
  Fines Cases Fines Cases
1. Suitability $19.4 million 117 $1.7 million 31
2. Due Diligence $12.8 million 62 $660,000 15
3. Research Report/Analyst $12.4 million 13 $355,000 5
4. Advertising $10.4 million 50 $1.2 million 26
5. Exchange-Traded Funds $7.6 million 9 $93,000 5

In each of these categories, FINRA is on track to order fewer sanctions than it did the prior year. The number of cases reported for each of these categories, other than Advertising and Exchange-Traded Funds, is also on pace to fall short of 2012’s numbers.

As evidenced by the above figures, 2013 may turn out to be a year of significant slowdown for FINRA. This is likely because a large number of cases related to the financial crisis have already been resolved. However, it is possible that the second half of 2013 may be different from the first half. In July, FINRA reported in its Disciplinary and Other FINRA Actions publication that it fined a firm $7.5 million and ordered the firm to pay $1.5 million in restitution to investors for systematic electronic email retention and review issues. In addition, FINRA reported in its August publication that it imposed “supersized” fines against three other firms. It remains to be seen whether these recent cases are precursors of increased disciplinary activity in the last half of 2013 or simply blips on FINRA’s enforcement radar.

1 Many cases involve multiple allegations, making it difficult to attribute the exact amount of any particular fine to a specific allegation.
2 Deborah G. Heilizer, Brian L. Rubin, and Andrew M. McCormick, “Annual Sutherland FINRA Sanctions Survey Shows a 51% Jump in Fines in 2011” at 3, Mar. 16, 2012, available at
3 FINRA News Release, Dec. 27, 2012, available at


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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