Many people are surprised to learn that some enforcement actions pertaining to Pennsylvania securities are not actually done by the government itself. There is a self-regulatory organization called FINRA that has the power to police its own members and can levy fines and other punishments when registered members are guilty of wrongdoing.
Federal law requires securities market participants to register with an SRO. This means that both the SEC and SRO can take enforcement actions. FINRA can show up on someone’s figurative doorstep one day with a request for information under their rules. This is an indicator that FINRA is looking into potential wrongdoing by their member. FINRA has the power to request an extensive amount of information as part of their process.
FINRA will continue to investigate until it establishes whether the member has broken the rules. In many cases, FINRA will enter into a settlement agreement with the member that fines them and sets forth the rule violations. In more severe cases, FINRA will refer the member to the Office of Hearing Officers. This is reserved for more serious cases or ones where the member will not enter into a consent agreement with FINRA. These cases could result in more severe punishment, which can include suspensions and bars from the industry. Just because FINRA is not an official government agency does not mean that its sanctions are harmless.
Consequently, when a person hears from FINRA that there is a potential issue, it may be in their best interest to contact am attorney with FINRA experience. Lawyers who are familiar with the process may open a dialogue with FINRA Enforcement with an eye toward either heading off disciplinary action or obtaining a consent agreement.