National investment fraud lawyers KlaymanToskes reports the Financial Industry Regulatory Authority (“FINRA”) has announced that the self-regulatory body is conducting a targeted exam of brokerage firm practices regarding retail communications with respect to Crypto Asset products and services.
Investors that suffered losses in Crypto Assets recommended by their financial advisor may hold them liable for engaging in private securities transactions or “selling away” and/or their brokerage firm’s failure to supervise their financial professional.
If you suffered losses in Crypto Assets due to a recommendation by a broker/financial advisor, you are encouraged to contact attorney Lawrence L. Klayman, Esq. at (888) 997-9956 or lklayman@klaymantoskes.com to discuss recovery options. All consultations are free and we do not collect attorney’s fees unless we are able to obtain a financial recovery for you.
According to FINRA’s Crypto Asset Communications Notice, the regulator has launched its examination with a focus on retail communications regarding crypto assets and related services made by brokers/financial advisors and their firms in the relevant time period from July 1, 2022 through September 30, 2022.
As part of FINRA’s investigation, firms will required to “provide all retail communications that were distributed or made available by the firm or its affiliate(s) on its behalf that refer to, relate to, or concern a Crypto Asset or a service involving the transaction or holding of a Crypto Asset.”
Additionally, FINRA will require firms to provide detailed information for each individual communication, including identifying each Crypto Asset and/or service involving the transaction or holding of a Crypto Asset that the Communication refers to, the date the communication was first made available to the public, whether it was filed with FINRA’s Advertising Regulation Department, and whether a principal at the firm approved the communication.
Brokerage firm’s supervisory procedures regarding crypto will also be examined, with FINRA stating that firms will need to provide their “written supervisory procedures concerning the review, approval, record keeping and dissemination of communications in effect for any portion of the relevant period.”
FINRA states that this includes providing any compliance policies, manuals, training materials, compliance bulletins, and any contracts or other written agreements in place between the firm and any affiliate concerning the firm’s creation or dissemination of communications on behalf of the affiliate or concerning services offered by the affiliate. This would also include the affiliate’s use of information concerning the firm’s customers to determine who will receive communications.
FINRA defines a Crypto Asset as “an asset that is issued or transferred using distributed ledger or blockchain technology, including, but not limited to, so-called ‘virtual currencies,’ ‘coins,’ and ‘tokens.’ A Crypto Asset may or may not meet the definition of a ‘security’ under the federal securities laws, provided, however, that the term ‘Crypto Asset’ shall not include a security registered under the Securities Act and transferred through the system of a registered clearing agency.”
FINRA Rule 3280 defines a private securities transaction as “any securities transaction outside the regular course or scope of an associated person’s employment with a member.”
“Selling away” in private securities transactions occurs when a broker/investment advisor engages in selling an investment to a customer that is not being offered by their brokerage firm, and without the approval of the brokerage firm. When financial professionals choose to offer unapproved securities to their customers, they may be subject to FINRA sanctions.
FINRA-regulated brokers and advisors are required to disclose “outside business activities” to regulators and their firms under financial industry rules and regulations. Investors can review their broker/advisor’s public disclosure history, including investor complaints, by using FINRA’s free Brokercheck tool.
Investors that believe their investment losses may be the result of their broker/investment advisor engaging in private securities transactions or “selling away” and/or their brokerage firm’s failure to supervise their financial professional, are encouraged to contact attorney Lawrence L. Klayman, Esq. at (888) 997-9956 or lklayman@klaymantoskes.com to discuss recovery options. All consultations are free and we do not collect attorney’s fees unless we are able to obtain a financial recovery for you.
KlaymanToskes previously reported that the SEC approved a new FINRA BrokerCheck Rule for high-risk firms. The “restricted” designation will be displayed on the firm’s BrokerCheck page and will include a link with further information regarding why the firm has been designated as high-risk by FINRA.
The rule is intended to protect investors and public interest in that it “creates incentives” for firms and individual brokers/financial advisors to change their behaviors and activities, to avoid being designated or re-designated as a “Restricted Firm”. The disclosure will further indicate if the firm is subject to a “Restricted Deposit Requirement” ordering it to deposit cash or qualified securities with an aggregate value that is not less than the member’s Restricted Deposit Requirement.
The SEC’s order states that the “restricted” designations will begin appearing “no later than” FINRA’s second annual evaluation of its member firms in June 2023.
KlaymanToskes is a leading national securities law firm which practices exclusively in the field of securities arbitration on behalf of retail and institutional investors throughout the world in large and complex securities matters. The firm has recovered over $250 million in FINRA arbitrations and over $350 million in other securities litigation matters. KlaymanToskes has office locations in California, Florida, New York, and Puerto Rico.
KlaymanToskes, P.A.
Lawrence L. Klayman, Esq.
888-997-9956
lklayman@klaymantoskes.com
www.klaymantoskes.com