When registered brokers, their associates, or other financial advisors receive a FINRA 8210 letter, how they respond can make a big difference in the potential outcome. Ignoring the request for documents, pursuant to FINRA rule 8210, can have serious professional repercussions. Disclosing more information than requested can needlessly expose the recipient to legal action and even a potential investigation for violating securities laws.
FINRA 8210 Letters are Document Requests
It is important to remember that FINRA 8210 letters are nothing more than demands for documents or other information that are pertinent to a potential or ongoing investigation by FINRA, or the Financial Industry Regulatory Authority, the private entity that has been authorized by Congress to regulate the securities industry. Recipients of these letters who keep this goal in mind are in a better position to respond reasonably than those who downplay or exaggerate the importance or threat of the request.
Generally, FINRA 8210 letters will describe the documents or information that the agency is demanding from the recipient. They will also set a deadline for the return of that information. The letter will also tell the recipient if he or she is currently under investigation.
How Recipients Should Respond: 4 Steps
How the recipient responds to a FINRA 8210 letter is crucial. Doing nothing or disclosing too little can lead to professional sanctions from FINRA, up to and including a bar from the industry. Over-disclosing can give FINRA evidence of a securities violation that it was not aware of, which can lead to legal action and potentially even criminal liability.
1. Report the Letter to Supervisors According to Internal Procedures
The first thing that recipients should do is to follow their brokerage firm’s rules for reporting FINRA letters up the chain of command. Generally, this means informing your supervisor or compliance department of the FINRA 8210 letter immediately. However, some firms may have specific or unique requirements.
This step is important because the compliance director or one of the firm’s executives will have often received a copy of the letter from FINRA, as well. A failure to follow protocol and report the letter’s receipt rarely goes unnoticed. This can lead to internal reprimands and other sanctions within the firm.
2. Hire an Independent FINRA Defense Lawyer
Once the letter has been reported internally, recipients should strongly consider hiring an independent FINRA defense lawyer, one who has experience in FINRA and the Securities and Exchange Commission (SEC). There are several reasons to do so.
First, in many cases, there is some uncertainty about what FINRA is up to. It is often unclear whether the recipient is the target of an ongoing or a potential investigation, or if the recipient is merely a collateral player in someone else’s investigation. An experienced FINRA defense lawyer who has been through numerous FINRA investigations can read between the lines of the 8210 letter to see what is really going on, whether the recipient is personally at risk, the extent of that risk, and how to best respond.
Second, a FINRA defense lawyer can help the recipient comply with the demands in the 8210 letter. These letters often demand reams of documents that are difficult to access and provide very little time to do so. An attorney may be able to negotiate the terms of the letter with a FINRA staff attorney, and either narrow the focus of the document request or get an extension for fulfilling it.
Third, the negotiation process and its outcome can provide valuable information about FINRA’s goals. How FINRA’s personnel interacts with the recipient and his or her attorney can reveal important details about its investigation.
Fourth, a defense lawyer can analyze the request and see which documents must be disclosed, and what information could reasonably fall outside the scope of the demand. A FINRA defense lawyer can then review the documentation that may not have to be disclosed to determine, based on the other indications regarding the investigation, whether it would be wise to hand them over or to hold on to them.
Fifth, and perhaps most importantly for the recipient of the FINRA 8210 letter, hiring an independent FINRA defense lawyer ensures that the recipient has been counseled with their best interests in mind. It is not uncommon for brokerage firms facing FINRA sanctions and securities investigations to flip on their brokers or associates and use individuals as scapegoats so the firm can avoid liability. If that becomes the firm’s strategy, its in-house counsel’s interests are no longer aligned with the interests of the recipient of the FINRA 8210 letter. Having independent legal representation and a good attorney-client relationship is critical in these situations.
3. Fulfill FINRA’s Request
FINRA 8210 letter recipients face serious professional sanctions if they do not fulfill the request for documents and information. They can be suspended from the securities trade or can even be barred from the industry. Worse, these penalties can happen for knowing or unknowing FINRA Rules 8210 violations: FINRA Rule 8210(c) says that “no member or person shall fail to provide information or testimony” when requested. It does not say that such a failure has to be intentional.
Hiring a FINRA defense lawyer to increase the timeframe and to understand, and potentially even narrow, the scope of the disclosure is important. As Dr. Nick Oberheiden, founding partner of the white-collar defense firm Oberheiden P.C. explains, “At the very least, a lawyer can work to lighten the workload that a FINRA 8210 letter imposes on securities professionals, freeing them up to perform their job.”
4. Determine Whether the Letter Must Be Disclosed on Form U4
Securities professionals are obligated to disclose certain “reportable events” on their Form U4. According to FINRA’s interpretive guidance, a reportable event includes receiving written notice that the registered professional is the subject of a FINRA investigation. While a written notice of an investigation often first comes in the form of a Wells Notice, it may be made in a FINRA 8210 letter. If the letter specifically says that the recipient is under investigation, he or she will have to update Form U4 to disclose the development.
Conclusion
Receiving an 8210 letter is an important step in a Financial Industry Regulatory Authority (FINRA) investigation. Registered securities professionals are obligated to comply with the request for documents and other information. However, providing too much information is often unwise. There are numerous benefits to hiring a FINRA defense lawyer – one who is independent of the brokerage firm – to comply with the demands of the FINRA 8210 letter and avoid potential liability.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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