Here's a little news that might interest you: Sometimes it pays to litigate against the Financial Industry Regulatory Authority (FINRA, formerly NASD) rather than settle. In fact, when a firm or rep decides to settle with FINRA rather than go to trial before a hearing panel, the sanctions are often just as severe as they would have been in trial, says a recent study by law firm Sutherland Asbill & Brennan LLP. Occasionally, settlement sanctions are even more severe, says the study. So much for the so-called settlement discount — a carrot often waved in front of member firms and advisors to encourage settlement.
“The conventional wisdom is that the staff has spent a long time on the investigation and they have a lot of resources to bring upon litigants, so individuals and firms often think it does not make sense to litigate,” says Brian Rubin, a partner at Sutherland, a former Deputy Chief Counsel with the NASD's Enforcement Department and a former senior counsel in the SEC's Division of Enforcement.
The study compared 31 hearing panel decisions in 2007 involving 42 respondents and 73 total charges to previous years (2000 to 2006) to see how often FINRA wins, and gets the sanctions it asks for. Although the study found the vast majority of the time the FINRA staff won (only 11 percent of the 72 charges litigated during 2007 were dismissed), Rubin says that about 50 percent of the time, respondents were successful in convincing the hearing panel to order a lower monetary or suspension sanction.
Specifically, the study found that, on average, respondents convinced the panel to reduce suspensions by 55 percent — from about 7.8 months to 3.6 months — and fines were reduced by over 60 percent on average — from $16,000 sought to $6,000 awarded. Furthermore, while settlements offered by FINRA staff are assumed to be less harsh, in fact, 83 percent of the time they are equal to — or more severe than — the hearing panel's sanctions.
“People should tend to fight if they don't get a reasonable settlement offer from FINRA because they have at least a 50 percent shot at doing better at a hearing panel,” says Jacob Zamansky, an attorney with Zamansky & Associates, who represents financial advisors in arbitrations.