The financial regulatory agency FINRA disciplines stock brokers and financial advisors who are associated with its members.    A FINRA investigation can culminate in an “on-the-record” interview, or OTR, also referred to as a deposition.  A FINRA OTR is a critical development in an investigation, as it signals that FINRA is seriously considering discipline against an associated person or member.  If defense counsel has not been previously consulted, it is critical that defense counsel be engaged for preparation before and advocacy at the OTR.

A FINRA OTR is typically preceded by one or more inquiry letters to the associated person and/or member.  If the associated person person has not had their association with the member broker-dealer terminated due to the occurrence which triggered the investigation, the associated person will usually rely on the broker-dealer’s compliance person to render advice and assistance.  Even when an associated person ceases to be associated with any member, they often will correspond with FINRA on their own without legal advice.  Critical missteps can occur at this juncture. (It is important to note that FINRA has continuing jurisdiction over an associated person even after they cease to be associated with a FINRA member.)

When an associated person receives a notice of a FINRA on-the-record interview, or deposition, a critical decision must be made.  If an associated person refuses to submit to the OTR, that could result in a FINRA bar (the most severe FINRA sanction).  However, if the associated person decides to testify, the testimony must be honest, truthful and forthcoming.  If damaging admissions are made that reveal possible criminal activity, FINRA can refer a case to the U.S. Attorney for prosecution.  Therefore, the defense attorney for the associated person should make a frank assessment of the pros and cons of submitting to the OTR.  Almost always it is in the associated person’s interest to submit to the OTR.

The next step is preparation for an OTR.  A license defense attorney can determine the likely topics at the OTR and prepare the witness accordingly.  Preparation includes schooling the associated person on making a good impression and displaying an appropriate demeanor that will maximize the chances of the matter being dropped after the OTR.  It is not uncommon for an on-the-record statement to become a grueling all day process.  It is never a few simple questions.

If the OTR leads FINRA to conclude that discipline should go forward, most cases result in a stipulated settlement negotiated between the attorney for the associated person and FINRA.  FINRA disciplinary hearings can be long and costly, and can result in severe sanctions including large monetary penalties.  Nevertheless, if an associated person has a meritorious defense, and the offered settlement is unreasonable (usually a FINRA bar, which is a complete loss of privileges), going to hearing may be the best option.

If you are the subject of a FINRA investigation, you are strongly encouraged to contact our office for effective and experienced federal license defense.