Claimants' Perspective: What to Do When FINRA Enforcement Launches Inquiry in Response to Filing an Arbitration Claim

An investor may file a complaint before contacting an attorney.  And every now and then FINRA finds the allegations in an arbitration claim interesting and decides to ask questions and launch an investigation after a claim has been filed.  What considerations should a claimant's attorney (or claimant if representing himself or herself) have in mind when that happens?

1. The claimant may learn important information relevant to a claim by cooperating with FINRA.  Of course, respondent may pick up information too.

2. If FINRA asks questions of the respondent, then the claimant should ask to see the questions and the responses.  I have seen the broker disclose to FINRA information and documents that I had not received (and should have) in discovery.  I have also seen brokers provide such information on request or, if not, panels have ordered that brokers provide information in discovery over objection.  A claimant would be well advised to think hard about putting information in writing in response to a FINRA request.  A  respondent has little choice. but to provide written responses. 
 

3. Even if FINRA decides not to pursue enforcement or issues a no action letter, FINRA has taken steps to prevent respondents from exploiting that decision to their advantage at arbitraiton hearings.  I recently saw the following language at the end of a 2014 FINRA no action letter:

 

"It is our view that a determination by FINRA not to take action against a FINRA member or a member's associated person in connection with an examination has no evidentiary weight in any mediation, arbitration or judicial proceeding.  Further, it is inconsistent with just and equitable principles of trade for a FINRA member or a member's associated person to attempt to introduce such a determination into evidence in any of these forums."

FINRA's "Investor Complaint Program" booklet advises that a decision to close an investigation without taking discplinary action "can result from many factors unrelated to the merits of a complaint . . . ."  The same booklet states that it is "inconsistent with" the rules for a brokerage firm or its employees to even "attempt to introduce" a no action determiantion into evidence. 

4. If the claimant does not cooperate FINRA will proceed anyway and draw its own conclusions, possibly conclusions that would have differed if the claimant had been willing to cooperate.  FINRA states, "Without your cooperation we may be unable to take disciplinary action against a brokerage firm or its employees.  A complaint, by itself, without supporting evidence may not be sufficient to prove a rule violation.  That's why it is important that you be willing to speak with FINRA staff, provide documentation or supply a sworn statment of facts supporting your complaint." 

 

5. "X" factors.  Each case and client is unique. 

 

Conclusion.  An investor's decision whether to cooperate with FINRA depends on the facts and circumstances of each situation.  If an investor's purpose is recovery money or securities, a complaint to FINRA is not going to accomplish that goal -- a point FINA itself has made: "If your purpose in filing a complaint is to recover money or securities, we suggest that you also consider arbitration, mediation or the courts.  You may want to contact an attorney that specializes in resolving securities complaints to advise you."