The total amount of fines levied by the Financial Industry Regulatory Authority (Finra) fell 10% in 2010, despite a 13% increase in the number of disciplinary actions filed, according to the annual Sutherland FINRA Sanction Study.
The study, conducted by the Washington, D.C.-based law firm Sutherland Asbill & Brennan LLP, shows the number of disciplinary actions filed against broker-dealers and associated persons grew in 2010 to 1,310 from 1,158 in 2009. The current level marks the highest number of actions since 2005, when Finra filed 1,412 disciplinary actions. The total amount of fines for 2010 was $45 million, compared with $50 million in 2009.
"We are seeing more aggressive enforcement from Finra. Substantively, Finra is focusing on an increasingly broad range of issues," said Brian Rubin, who represents firms and individuals being investigated and prosecuted by Finra, the Securities and Exchange Commission (SEC) and states "Procedurally, this aggressiveness has been illustrated by the types of information requested and the deadlines being imposed. Broker-dealers need to be aware of Finra's high-priority issues, as well as learn how to navigate through investigations in the most efficient and effective way possible."
Advertising cases topped the list of enforcement issues, yielding approximately $4.75 million in 24 cases. Credit default swap cases generated the second-largest amount of fines, yielding $4.5 million in six cases. Electronic communication violations took the number three spot, with 34 disciplinary actions yielding approximately $4 million in fines. Suitability and short-selling cases took the number four and five slots; each with more than 50 cases yielding $3.75 million and $3.5 million respectively.
The report also pointed to a decline in mutual fund cases, with 20 cases yielding $2.4 million in fines, compared with $12 million in 2009 and $10.3 million in 2008. The current numbers are also a far cry from 2005 and 2006 totals, when FINRA levied $104 and $95 million in fines respectively in mutual fund violations.
Conversely, Finra seems to be focusing more on advertising cases, which jumped from the number five spot in 2009 to the number one spot for 2010. The report also noted that the amount of fines in advertising violations dropped from $5.5 million in 2009.
Fines of more than $1 million, called supersized fines, were on the decline as well for 2010, with only six cases filed compared with ten the previous year.
Electronic communications, which ranked third highest in overall fines, remained largely unchanged from the previous year. The Sutherland report notes that Finra has yet to file any cases involving social media violations, and expects stricter enforcement in that area of electronic communication within the next year or two.
A representative of Finra declined to comment on the Sutherland report.