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

by Eversheds Sutherland (US) LLP

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.

© Eversheds Sutherland (US) LLP | Attorney Advertising

Written by:

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.