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Regulation of the broker-dealer industry by a self-regulatory organization (SRO) is an integral part of the federal regulatory scheme under the Securities Exchange Act of 1934 (the Exchange Act). As a result, the Financial Industry Regulatory Authority (FINRA), the sole SRO for U.S. broker-dealers, plays an important role in protecting investors, especially retail investors, and bolstering investor confidence in the securities industry and capital markets. In 2012 FINRA brought 1,541 disciplinary actions against registered individuals and firms, levied fines totaling more than $68 million and ordered restitution of $34 million. It expelled 30 firms, barred 294 individuals and suspended another 549 individuals. Most of FINRA’s disciplinary proceedings are mundane and do not grab headlines. Consisting of a single broker accused of simple fraud, the proceedings are frequently uncontested, or if contested, the broker appears pro se. Thus, FINRA’s enforcement efforts do not garner the headlines that the SEC receives, and there has been little scholarly interest in FINRA disciplinary proceedings. This paper, prepared for Brooklyn Law School's Conference on the Growth and Importance of Compliance in Financial Firms, describes, in Part II, the evolution of securities self-regulation since the 1938 Maloney Act and, in Part III, the theory and practice of FINRA sanctions.


This article was published in 8 Brook. J. Corp. Fin. & Com. L. 23 (2013).