Securities industry rules exist to protect investors from abusive sales practices, hidden conflicts, and negligent supervision. When brokers or firms violate those rules, investors can suffer serious losses. Haselkorn & Thibaut, P.A., operating as Investment Fraud Lawyers, represents injured investors nationwide.
We pursue recovery through Financial Industry Regulatory Authority (FINRA) arbitration and related proceedings. Call 1-888-885-7162 for a free case review.
Our attorneys are former Wall Street defense lawyers with 95+ years of combined experience. We know the regulations, the firm policies, and the defenses brokerage firms raise. We work on a contingency fee basis, so you pay nothing unless we recover money for you.
What are securities industry regulations?
The Financial Industry Regulatory Authority, or FINRA, is an independent, self-regulatory organization. Congress authorized it to write and enforce rules for broker-dealers and registered representatives. The U.S. Securities and Exchange Commission, or SEC, oversees FINRA and enforces federal securities laws.
These rules cover everything from how brokers recommend investments to how firms supervise their employees. Violations can lead to fines, suspensions, expulsion from the industry, and private liability to injured investors. Investors can use evidence of rule violations to support claims for damages in FINRA arbitration.
The rules are organized in the FINRA Manual. Key chapters include the Conduct Rules, which govern sales practices, and the Membership and Registration Rules, which govern firm operations. The Code of Arbitration Procedure and the Code of Procedure for disciplinary actions are also part of the rulebook.
Common broker and firm regulation violations
The specific violation depends on the conduct, but several rules appear repeatedly in investor recovery cases. The table below summarizes the most common violations, the rules involved, and the harm they cause.
| Violation | Primary rule | How investors are harmed |
|---|---|---|
| Unsuitable recommendations | FINRA Rule 2111 | Investors buy products that do not match their risk tolerance, age, or goals. |
| Excessive trading (churning) | FINRA Rule 2111 and Rule 2090 | Commissions and fees erode account value. |
| Unauthorized trading | FINRA Rule 3260 | Trades are executed without the investor’s permission. |
| Misrepresentation or omission | FINRA Rule 2020 and SEC Rule 10b-5 | Investors rely on false or incomplete information. |
| Failure to supervise | FINRA Rule 3110 | Firms miss red flags and allow misconduct to continue. |
| Best interest violations | SEC Regulation Best Interest | Recommendations favor the broker’s compensation over the investor’s welfare. |
How regulators enforce the rules
FINRA and the SEC can bring disciplinary actions against firms and individuals. These actions are separate from an investor’s private claim, but they can provide important evidence. The table below compares the main enforcement tools.
| Regulator | Enforcement tools | Typical outcome |
|---|---|---|
| FINRA | Fines, suspensions, bars, restitution orders | Disciplinary action; may require the firm to repay investors. |
| SEC | Civil enforcement, disgorgement, injunctions | Federal court or administrative action; can bar individuals from the industry. |
| State securities regulators | Administrative actions, license revocation | State-level enforcement; often focuses on local victims. |
| Criminal prosecutors | Fraud and conspiracy charges | Prison sentences and criminal fines in egregious cases. |
State securities regulators also play an important role. The North American Securities Administrators Association coordinates enforcement among state regulators and provides investor education resources. Many cases start with a state complaint, especially when the misconduct is local or involves smaller firms.
FINRA publishes monthly disciplinary actions at FINRA Disciplinary Actions. These public records can support investor claims by documenting patterns of misconduct at a firm.
How regulatory actions help private claims
A FINRA or SEC enforcement action can be a powerful tool in an investor’s arbitration case. Disciplinary records may show that the firm or broker had a history of similar violations. They may also reveal internal supervisory failures that support a failure-to-supervise claim.
We use these records carefully. They are not dispositive, but they can corroborate your story and undermine the firm’s credibility. In some cases, a regulatory action can lead directly to a settlement because the firm wants to avoid further public attention.
How we build a regulation-violation case
We start by identifying the specific rule or standard that applies. That may be a FINRA suitability rule, a supervisory rule, a federal antifraud provision, or a state fiduciary duty. We then connect the violation to your losses.
- Document the standard. We identify the rule, regulation, or legal duty the broker or firm violated.
- Prove the violation. We use account statements, emails, firm policies, and regulatory records to show what happened.
- Calculate damages. We work with experts to determine your out-of-pocket losses and other harm.
- File the claim. We pursue recovery through FINRA arbitration or another appropriate forum.
- Negotiate or litigate. We push for a settlement that reflects your losses or present your case at hearing.
What you can recover
When a broker or firm violates industry regulations, you may be entitled to recover net out-of-pocket losses, interest, and rescission. In egregious cases, you may also recover attorneys’ fees and punitive damages. The amount depends on the strength of the evidence and the damages proven.
Our firm works with forensic accountants to trace losses and with industry experts to explain how the rule violation caused the harm. We present this evidence clearly to arbitrators so they understand the full financial impact.
Why regulatory knowledge matters
Brokerage firms defend cases by arguing that the investment was suitable. They may claim the investor understood the risks, or that the losses were caused by market forces. A thorough understanding of FINRA and SEC rules allows us to counter those arguments with specific regulatory requirements.
Our partners spent decades defending firms against these claims. We know the internal policies firms are supposed to enforce and the records they are required to keep. That insider knowledge helps us prove what really happened.
Recent trends in broker regulation
Regulation Best Interest, effective in 2020, raised the standard for broker recommendations to retail customers. It requires broker-dealers to act in the customer’s best interest, mitigate conflicts of interest, and provide disclosure at the time of the recommendation. This standard complements FINRA Rule 2111 and gives investors another basis for claims.
FINRA has also increased its focus on complex products, leveraged ETFs, and private placements. Firms are expected to supervise these products closely and ensure that registered representatives understand the risks before recommending them to customers.
Related practice areas
- FINRA arbitration
- Breach of fiduciary duty
- Failure to supervise
- Unsuitable investments
- Overconcentration
Frequently asked questions
Can I sue my brokerage firm for violating FINRA rules?
You generally cannot sue directly for a FINRA rule violation, but the violation can form the basis of a private claim in FINRA arbitration. Arbitrators can award damages for negligence, unsuitability, breach of fiduciary duty, and related claims.
Does a FINRA fine mean I will get my money back?
Not necessarily. FINRA disciplinary actions may include restitution, but many do not. A private arbitration claim is usually the best way to seek recovery of your own losses.
What is the difference between a FINRA rule and a federal securities law?
FINRA rules are enforced by FINRA through its disciplinary process. Federal securities laws, such as the Securities Exchange Act of 1934 and SEC Rule 10b-5, are enforced by the SEC. They can also support private investor claims.
How do I know if my losses were caused by a rule violation?
Contact an experienced securities attorney for a free review. We analyze your account statements and trading history to identify specific rule violations and estimate damages.
How much does it cost to pursue a claim?
We handle claims on a contingency fee basis. You pay nothing upfront and nothing unless we recover money for you.
This page is for informational purposes only and does not constitute legal advice. Past results do not guarantee future outcomes.