Enforcement activity spiked in 2010

Disciplinary actions brought by Finra grew 13% last year to 1,310, from 1,158 in 2009, according to a study. At the same time, fines fell slightly. Last year, the Financial Industry Regulatory Authority Inc. hit firms and individuals with about $45 million in total fines, down from $50 million in 2009, according to a survey by Sutherland Asbill & Brennan LLP, a law firm that tracks Finra cases. The level of monetary penalties is running well below 2005, 2006 and 2007, when fines were $184 million, $111 million and $77 million, respectively, according to the study. Several years ago, major mutual fund fines and other large scandals drove up the penalties. Nevertheless, Finra remains aggressive in uncovering potential violations, said Brian Rubin, a Sutherland partner. Finra is demanding “a lot more data, and is slicing and dicing requests” for information, he said. Firms being investigated are under the gun to meet tight deadlines for document production, Mr. Sutherland said. Last year, cases in which advertising violations were found generated the largest amount of total fines — $4.75 million. Advertising cases seem to be getting increased attention, according to Sutherland. These violations made their debut on Sutherland's list in 2009 when Finra hit several firms for misleading internal-use-only advertisements regarding auction rate securities. The advertising fines last year show that Finra is likely to continue placing emphasis on similar materials that are distributed to investors as well, the law firm said. “One of the reasons why [advertising fines are substantial] is because ... Finra doesn't have to prove scienter, or a bad intent,” on the part of the target, Mr. Rubin said. Cases involving improper communications to institutional customers of credit default swaps took second place last year, with $4.5 million in fines. Electronic-communications cases were third, generating $4 million in penalties. Fines for e-mail violations have fallen in the past few years as firms have improved their retention programs, Mr. Rubin said. Finra has yet to bring any cases involving social media, he said. But Finra has been looking at how firms supervise brokers' use of social media and likely will bring cases within the next few years, he said. E-mail Dan Jamieson at [email protected].