The sad truth is that the Government loves the easy kill. It is often easier for regulators to extract settlements and punishments against smaller market participants, including brokers, traders and analysts, than the giant wire houses, because large companies can match the resources of the Government.
The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), among other regulators, regularly engage in investigations to explore, deter and punish market conduct that violates the securities laws and industry rules. While it can be hard to know what those investigations will be, the regulators like the SEC disclose regulatory priorities on an annual basis. These examination priorities are areas where the SEC will be dedicating resources throughout 2016.
Of the 2016 Priorities announced by the SEC, the following may lead to broad investigations:
- Recidivist Representatives and their Employers – the SEC has announced they will use data analytics to identify and track individuals with a track record of misconduct, as well as the firms that employ them.
- Anti-Money Laundering (“AML”) – AML is usually a topic of great interest by the regulators. Brokers and broker-dealers will be scrutinized for their testing and adaptation to the evolving AML regulatory landscape.
- Microcap Fraud – Microcap, or small offerings by companies of $50-300 million, will be examined by the SEC for fraudulent conduct, such as aiding and abetting and “pump and dump” schemes.
- Excessive Trading – the Commission will also use analytics, especially from clearing firms, to try to identify the brokers who engage in inappropriate or “excessive” trading.
- Product Promotion – the SEC will consider suitability issues for new, complex and/or risky products.
The SEC also noted that they will be keeping a watchful eye on the EB-5 Immigrant Investor Program, transfer agents, as well as considering fee and expense issues with private fund advisors. We are actively involved in these and other such investigations by the SEC and FINRA.
Often, your first contact with the regulator like the SEC or FINRA will be by the receipt of a Subpoena. This does not mean you have done something wrong. As we have explained in prior blog posts, it could mean merely that you might be a witness and have information, but that no charges will be brought against you. Nonetheless, you may still be required to provide a written response to the Subpoena, and submit to a recorded interview where you may answer questions under oath. It is imperative that you retain securities counsel with regulatory defense experience to make sure you comply while not waiving rights you may be entitled to.
If the Commission considers you a target that has potentially violated the Securities laws or industry rules, they may file charges after issuing a Wells notice. This proceeding most often takes place before an Administrative Law Judge, though some cases may be initiated in Federal court. Either way, it will be imperative that you are represented by counsel to oppose the charges brought against you, conduct discovery, and enter evidence and witnesses at the hearing to defend yourself against the Commission’s charges. In this regulatory environment, you need to be mindful that criminal charges are not also brought against you.
The Attorneys at Malecki Law are experienced with and regularly represent clients who have become embroiled in regulatory investigations. We have obtained favorable results for our clients, including settlements and declarations of no action taken by regulators. Contact us for a free consultation. Various hourly-billing and flat-fee based options are available to make smart decisions from inception to the completion of your matter.