Responding to FINRA Rule 8210 Information Request

It is disconcerting for a financial advisor or other registered person to receive a letter, under FINRA letterhead, from a FINRA investigator or staff attorney. The letter instructs the FA or industry member that FINRA requests documents, or other information itemized in the letter. The letter concludes with a request for a return of all information within two weeks of receipt.

What should you do, after you are done massaging your forehead and attempting to pull the ever-thinning hair from your head?

FINRA Rule 8210 gives FINRA’s enforcement staff the authority to investigate matters under its regulatory purview. It requires the recipient of the request to provide documents or information “with respect to any matter in [an] investigation, complaint, examination or proceeding.”

The subject matter of a FINRA investigation or inquiry can include almost anything relating to your employment at a brokerage firm. FINRA’s collective mentality is that it has the broad and almost unfettered authority to investigate violations of FINRA’s most basic, yet all encompassing, Rule 2010 (a FINRA member “shall observe high standards of commercial honor and just and equitable principles of trade”). Using Rule 2010 FINRA can seek any documents or other information that the staff feels will aid them in the conduct of their investigation. Indeed, in 2013 FINRA announced in a regulatory notice that the scope of Rule 8210 had been clarified, stating that “all aspects of the relationship between a broker-dealer and its associated persons are potentially the subject of a Rule 8210 request.”

There can be numerous reasons why a financial advisor is served with a Rule 8210 information request. You may immediately know what FINRA is investigating if you were named in a customer complaint or an arbitration claim and FINRA is seeking that client’s account records. If your current or a former employer recently filed a U-4/5 reporting the settlement of a customer complaint or that you are under internal investigation, FINRA’s letter may be seeking your records relating to the reported event.

However, in some instances, you may not immediately know the reason for the Rule 8210 information request. For instance, if a customer files a complaint directly with FINRA and doesn’t tell you or your firm, the Rule 8210 information request will seek that customer’s account records but FINRA, at least initially, will most likely not share with you the substance or even the existence of the complaint.

You could receive a Rule 8210 information request seeking account documents for a client that purchased the stock of a particular company one year ago. You recall now that shortly after the client made the unsolicited purchase (and was the only one of your customers to do so) the company was acquired by another company. As a result, the stock price of the acquired company rose dramatically. Your client made a nice profit when she sold the stock a few days later. Again, it was an unsolicited purchase and none of your other clients owned the stock. But guess what – you are now in the middle of an insider trading investigation (alternatively, this scenario could result in you receiving a subpoena from the Securities Exchange Commission. Much of what is said in this article re: Rule 8210 information requests is applicable to the receipt of an information subpoena from the SEC or any other state of federal agency).

(After you calm down), one of the first things you should do is forward the Rule 8210 information request to your Compliance Department and/or your manager. Most likely, your Compliance Director received a copy of the Rule 8210 request. Indeed, if the matter FINRA is investigating occurred while you were at your current employer, the firm probably received its own Rule 8210 information request. Nevertheless, virtually every brokerage firm has internal procedures requiring you to notify them if you receive any type of request from a regulator. You should cover yourself by forwarding the 8210 request to the appropriate person at your firm.

The next thing you need to do is GET LEGAL COUNSEL. As discussed earlier, you may or may not know the reason you received the Rule 8210 information request. You may or may not know now whether you are a potential target of the FINRA inquiry, or whether you will simply turn out to be a fact witness. In either situation, legal counsel can assist you to prepare complete, truthful and accurate responses to the Rule 8210 request.

If the subject matter of the FINRA inquiry involves your current employer, you must determine whether your employer will represent you with their in-house attorneys or retain an attorney on your behalf. If the matter concerns events at a prior employer, you should reach out to that employer for the same determination. If the FINRA inquiry, for instance, involves some type of sales practice complaint by a customer that was denied by the firm, your interest and the firm’s are most likely aligned. Also, FINRA’s practice re: investigating a sale practice complaint is to review supervisory issues after looking at the conduct of the broker. It is in the firm’s interest that the inquiry be resolved favorably so they will often arrange for counsel for the broker, assuming there is no conflict.

But in any event, you should have legal counsel, even if you have to pay for it yourself. As will be discussed further, there are multiple issues that can arise in the course of a FINRA investigation which only an experienced regulatory attorney, such as those at Lubiner, Schmidt & Palumbo, can help you navigate.

One thing you will probably NOT have to do is report the receipt of the FINRA 8210 information request on your CRD. At this preliminary stage, you are not the “subject” of a regulatory investigation and the receipt of the 8210 request is not a reportable event. It may become one sometime in the future – all the more reason to retain an attorney at this early stage – but unless FINRA tells you in the 8210 request that you are the subject of the investigation, the 8210 request is not reportable.

Lastly, one thing you should not do is ignore the 8210 request. It is not going away. The sanctions for refusing to respond to an 8210 request can include suspension or bar from the industry. You must respond to the request. As will be discussed later, your attorney can negotiate the timing and the scope of the response, but there must be a response.

The short answer is “maybe” (and this is where retention of an experienced securities regulatory attorney is crucial). Regarding the two-week response date, unless the investigation is extremely time sensitive, the FINRA staff will usually agree to additional time to respond beyond the initial two week period. Depending on the volume of documents sought, and the difficulty in gathering them, additional extensions may be provided.

In terms of the range of documents sought, if you and/or your attorney feel that the 8210 request is too broad, your attorney can attempt to negotiate with the FINRA staff to reduce the scope of documents to be produced. However, unlike civil litigation, in which a party can file a motion with a judge to limit the scope of an adversary’s subpoena, there is no formal appeal process in dealing with a FINRA 8210 information request. At best, an experienced securities regulatory attorney can contact the staff attorney’s supervisor to discuss the document production and win some relief. Otherwise, if the requested documents are not produced, FINRA can file an enforcement action charging you with failure to cooperate. If they win that action after a hearing, and obtain sanctions against you, you can then appeal that decision to the SEC. The SEC then conducts a hearing.

That can be as expensive and time consuming as it sounds.

Another issue that arises in the production process concerns what documents do you have to produce? Rule 8210 requires production of documents “in the possession, custody and control” of the person receiving the Rule 8210 letter. Certainly, customer files, notes of conversations with a client, copies of your calendar showing the dates you may have met a client, etc., which may be sitting in file cabinets in your office, can be easily retrieved and produced.

But what about phone records? In the insider trading investigation mentioned earlier, FINRA will want to see your office phone records. They will request them from your firm. They ALSO will want your home and cell phone records for the two months before and after the client bought stock of the acquired company. You probably don’t have personal phone records from a year ago sitting around your house. But – your phone carrier does. And you can contact your phone carrier to get those records. Under Rule 8210, you CONTROL those records since you have the ability to recall those records from the third party in actual possession of the records. Just like you can recall your bank statements and cancelled checks, your records being held by an attorney or accountant, etc.

What about documents that are embarrassing to you or do not portray you in a favorable light. Do you have to produce them?

If the documents are responsive to the request, the answer is a definite YES. This situation, which is not at all uncommon, again highlights the need to retain an experienced securities regulatory attorney like those at Lubiner, Schmidt & Palumbo.

What an experienced securities regulatory attorney can remind you is that you may not be the only person who has possession or knowledge of these embarrassing documents. FINRA may be aware, or become aware at a later date, of the existence of these documents. Your failure to produce these documents can possibly lead to significant negative repercussions for you down the road.

An experienced securities regulatory attorney can guide you through the process of responding to a Rule 8210 information request as you are confronted with these types of issues.

You and your attorney reviewed the Rule 8210 request together. You gathered the responsive documents and reviewed them with you attorney. Your attorney drafted a responsive letter which you reviewed and approved. Your attorney sent the letter and responsive documents to FINRA.

What happens next?

It depends. There are several possibilities.

In a few weeks, you could get another Rule 8210 request seeking additional documents.

Or, you may get a letter from FINRA six, nine, twelve months later, saying they closed their investigation and that they are not taking any further action at this time.

Or, you may get a letter from FINRA stating that they want conduct an on the record (“OTR”) examination. This is like a deposition, with a court reporter. Your attorney is permitted to attend (this will be the subject of a separate article). This means the investigation is not over.

Or, the FINRA staff attorney could call your attorney and ask if they can have an informal interview with you, either in person or over the phone. This could mean that they just want to confirm some facts and the matter is being closed, at least as far as you are concerned.

Or, you can get that “you are the subject of an investigation letter” which now means you have a reportable event with which to deal. If not yet received, the OTR letter will not be far behind. The investigation is certainly not over.

Or, you could never hear from FINRA again (on this matter).

As you can see, the ramifications of a registered person receiving a Rule 8210 information request are varied and unpredictable. The range of outcomes for the recipient of a Rule 8210 letter range from completing a response and never hearing from FINRA again to having an enforcement action filed against him. It highlights the necessity for the recipient to be represented by competent securities regulatory attorneys. Such representation should begin upon receipt of the Rule 8210 letter. The attorneys at Lubiner, Schmidt & Palumbo have the experience and knowledge to successfully guide you through the Rule 8210 process.