A law firm has released its annual study of disciplinary actions taken by the Financial Industry Regulatory Authority, Financial Advisor reports.
The firm, Eversheds Sutherland, reviewed FINRA’s monthly disciplinary reports, press releases and online database to compile its information from 2024.
It found that after declining the previous eight years, the number of disciplinary cases brought by FINRA rose 22% last year, going from 453 to 552.
The fines reported by FINRA in 2024 fell to $59 million from $89 million in 2023, a 35% decrease. But it was noted that the fines in 2023 included a single $24 million fine against one firm, Bank of America Securities. Without that one large fine, 2023’s total fines would have been $65 million, or 10% more than 2024.
“Although fines were down, the amount of restitution ordered by FINRA in 2024 increased substantially,” Eversheds Sutherland partners Brian Rubin and Adam Pollet wroate. “FINRA ordered restitution of approximately $23 million, which was up 207% from the $7.5 million in restitution ordered in 2023.”
This increase reflected the number of “supersized” restitution orders of $1 million or more. In 2024, FINRA ordered seven firms to pay supersized restitution, totaling about $18 million.
The year’s largest fine was $6 million levied on Merrill Lynch for failing to implement proper safeguards to detect and report suspicious transactions under the Bank Secrecy Act and more than $6 million in penalties against LPL Financial for supervisory failures.
Total monetary sanctions imposed by FINRA dropped from $101 million in 2023 to $87 million in 2024, a decline of 14%. These include fines, restitution, and disgorgement.
The study lists the top FINRA enforcement issues for 2024 measured by total fines assessed:
1: Trade Reporting cases resulted in the most fines for FINRA in 2024, the fifth consecutive year that trade reporting cases have been on the Eversheds Sutherland Top Enforcement Issues list. FINRA reported 21 trade reporting cases in 2024, resulting in a total of about $9 million in fines.
2: Spoofing cases ranked second on the list. Though there were only two spoofing cases in 2024, one resulted in a $6 million fine, the largest of the year. The study points out that spoofing is a type of fraudulent trading involving the use of non-bona fide orders to create a false appearance of market activity on one side of the market to induce other market participants to execute against bona fide orders entered on the opposite side of the market in the same security or a correlated product.
3: Options Trading cases appeared on the list for the first time. FINRA reported four options trading cases in 2024, resulting in a total of approximately $4.3 million in fines. In the largest options trading case, FINRA fined a firm over $2 million for failing to detect customers with cash accounts who engaged in “free-riding” in options and issued options on more than 4.2 million occasions. Free-riding is the buying and selling of securities before paying for them.
4: Technological Issue cases resulted in a total of approximately $3.5 million in fines. These cases involve a system malfunction due to technological or human error that results in failure to comply with regulatory obligations.
5: Fingerprinting of Non-Registered Persons cases. FINRA reported six cases where non-registered persons were not fingerprinted, resulting in a total of approximately $2.7 million in fines. In the largest case, FINRA fined a firm $1.25 million for failing to fingerprint and screen for statutory disqualification any of its 2,317 non-registered associated persons based in foreign locations and 1,663 US-based non-registered associated persons who were required to be fingerprinted and screened.
The study also notes that the authors of Project 2025 called for the abolishment of FINRA as well as issuing proposals for how the authority should be significantly changed.
“Despite these constitutional and political challenges to FINRA and its enforcement program, it’s highly unlikely that FINRA will be abolished over the next four years, even if litigants or politicians are successful in curtailing certain practices or having the SEC more closely supervised FINRA,” Pollet said.
The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. Our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.
