The following article appeared in InvestmentNews on January 8, 2013:
Finra, the brokerage industry self-regulator that seeks to have financial advisory firms added to its regulatory domain, said it ordered members to return a record $34 million to harmed clients last year. That’s a 75% increase from the $19.4 million in restitution Finra ordered in 2011.
In its annual assessment of enforcement and other achievements, the Financial Industry Regulatory Authority said it also ordered firms and individuals to pay $68 million in penalties, about $4 million less than in 2011. The number of new disciplinary actions that Finra began last year increased to 1,541 from 1,488 in 2011, making 2012 the fourth year of increased enforcement activity.
Calling the association the “first line of defense for investors,” Finra chairman and chief executive Richard Ketchum touted the group’s switch to a more risk-based examination program in 2012 and its use of cross-market surveillance to better detect manipulative electronic trades.
“Protecting investors and helping to ensure the integrity of the nation’s financial markets is at the heart of what we do every day,” Mr. Ketchum said.
In one November 2012 case, Finra alleged WR Rice Financial Services and its owner fraudulently sold $4.5 million in limited partnership interests to about 100 investors who were told the investments would pay 9.9% and be invested in land contracts on residential real estate in Michigan. The owner failed to tell investors that their money actually went to provide unsecured loans to companies that he controlled and that these entities could not pay back the loans, Finra said.
The SRO referred 692 matters of potential fraud to the Securities and Exchange Commission and federal or state law enforcement officials last year, a 6% increase from the number in 2011.
Financial advisers have fought Finra’s claim that it can better monitor advisory firms than the SEC, which now regulates large financial advisers. Discussion of whether advisers need additional oversight erupted after spectacular investor rip-offs like the Ponzi scheme by Bernard Madoff that was revealed in the final days of 2008.
For its part, the SEC has boosted its enforcement of financial advisers. In its 2012 fiscal year that ended Sept. 30, the SEC filed 147 enforcement actions against advisers and investment companies, a 19% boost over fiscal year 2011, according to the SEC. The agency said it filed a total of 734 enforcement actions in 2012 and obtained $3 billion in fines and restitution for harmed investors.