Research shows that one in seven cases dismissed; fines often lowered
When regulators come after you with charges, the odds are not in your favor. It still may pay to fight City Hall, however.
Sutherland Asbill & Brennan LLP, a Washington law firm,
looked at cases over the last two years where the Securities and Exchange Commission or the Financial Industry Regulatory Authority Inc. charged broker-dealers and individual reps with violations.
Of the 237 charges that were litigated to at least an initial decision between October 2008 and September 2010, approximately 13% of the charges were dismissed. More interesting: In about one third of the cases that resulted in a fine, respondents who challenged the charges won a lower fine than the agencies sought. Only one decision resulted in a higher fine than sought.
“Firms think they don't have a chance, that it makes more sense to settle,” said Brian L. Rubin, one of the authors of the study, which was released Wednesday. “Depending on facts, it may make sense to take on the SEC or Finra.”
Of course, lawyers' fees can cut in to any gains from dismissed charges or reduced fines. And many broker-dealers and registered representatives settle rather than litigate because of the SEC's and Finra's perceived “home field advantage,” the study said.
Finra disciplinary proceedings are heard before a hearing panel. Such panels are comprised of current or former District Committee members -- that is, former board or National Adjudicatory Council members. Thus, they may or may not be industry participants.
SEC administrative-enforcement proceedings are tried before an SEC administrative-law judge who is independent of the commission.
