What is FINRA?

Financial Industry Regulatory Authority

When it comes to our stock investments, we understand that there is always a potential for loss, which is why we do our research and due diligence before committing to any course of behavior.  In so doing, however, we assume a level playing field.  The accuracy of this belief is sometimes belied by the actions of bad actors leading to severe investment loss.  

While just about everyone knows about the existence of the Securities and Exchange Commission (SEC), much less is known of another regulatory group that can help defrauded investors, which is known as the Financial Industry Regulatory Authority (FINRA).  Let’s take a closer look at this authority and see what role it plays in ensuring a fair and level playing field in the market.

A Brief History of Stock Regulation

Americans understood by the early 1930s that the stock market collapse of 1929 was the most visible domino of the larger economic failure that followed.  As part of the larger reform efforts of Franklin Delano Roosevelt’s New Deal, new legislation sought to reign in the largely unregulated securities market.  The 1934 passage of the Securities and Exchange Act sought to ensure greater financial transparency while limiting fraud or stock manipulation.

When faced with criticism over his first choice to lead the new agency, Joseph P. Kennedy, who was well known for his own adeptness at manipulating stocks, FDR relied on that “It takes a thief to catch a thief.”  Kennedy, the future president’s father, proved Roosevelt correct, and in a mere 431 days between 1934 and 1935, Kennedy convinced the larger business and investing community that having the SEC in operation would prove better than not having the organization.    

Indeed, Kennedy did not envision broad investigative and policing powers for the new agency, but rather understood that the success of the mission depended on a strong culture of self-reporting within the financial industry.  In terms of the general public, complaints have been frequently leveled over the years have been that the agency only did as much as is needed to pacify public opinion.  

What is FINRA and How Does it Differ from the SEC?

With the expansion of the economy and development of an entirely new tech sector that boasted it own listing, the NASDAQ, which offered its own regulatory arm to ensure transparency within the tech sector, but In 2007, in an effort to cut back on redundant regulations to lessen compliance costs.  As such, in a consolidation effort, the NASDAC and the regulation, enforcement, and arbitration role of the New York Stock Exchange into what would become the Financial Industry Regulatory Authority.

Whereas the Securities and Exchange Commission is a governmental agency, FINRA is a private not-for-profit group that acts under the auspices of the SEC.  FINRA has no police power, but the authority serves as the responsible body for writing and enforcing the rules that govern the actions of registered brokers and broker-dealer firms operating within the United States.  For those brokers that run afoul of the Authority’s rules and regulations, they could face fines or suspension of their broker’s license.  Serious cases of misconduct can result in being barred from the brokerage industry.  The SEC serves as the first level of appeal for those facing FINRA sanctions.  Most importantly, FINRA works to protect investors against unscrupulous brokers.  At what time should you consider contacting a FINRA lawyer if you believe you have been created in your stock dealings?  Let’s look at some of the causes for seeking out legal help.  

Examples of Breach of Fiduciary Duty

To begin, when it comes to pressing a legal claim against your broker, the claim can only be successful if you are able to prove that your broker engaged in a breach of fiduciary duty.  Fiduciary duty or “the duty of fair play” applies only to registered brokers, so always ensure that you work only with a registered broker house for full protection.  Some of the more common complaints lodged against brokers include:

  • Unauthorized trading
  • Negligence
  • Churning
  • Failure to supervise
  • Unregistered trading
  • Elder abuse
  • Failure to diversify

Speaking with an attorney experienced in the ins and outs of FINRA regulation is your best defense against unscrupulous brokers and firms. If you suspect that you have been the victim of unsavory investing practices, an experienced attorney can help you seek full payment of any losses you may have suffered as a result of these actions.

Call the Team at Wolper Law Firm for Help

If you believe that you have been the victim of a breach of fiduciary duty, we encourage you to reach out to our office here at Wolper Law Firm for a free consultation.  With 14 years of experience in the realm of securities law, you can trust that our team will aggressively fight for your rights and the recovery of any lost investments.  As mentioned, risks are part and parcel of the investing game, but when those risks are exacerbated by bad-faith actors in the brokerage industry, you have legal recourse within the arbitration and investigation capabilities of the Financial Industry Regulatory Authority and we can help you.  

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