Sometimes I have a client or prospective client that is astounded to learn the breadth and scope of FINRA’s jurisdiction over them while they are registered or associated with a broker-dealer. These persons are often surprised that FINRA can investigate, and take disciplinary action against them for a matter that is wholly unrelated to the financial markets, to their firm, and to a client. Here’s a case in point involving a financial advisor, a competitor of his and internet sex ads. (Note: none of those persons involved were clients of ours).
According to the Letter of Acceptance, Waiver and Consent in this case (Case No. 2016051672301), a financial advisor posted ads for sex online on three occasions, “soliciting men for sexual encounters”. He did this by impersonating a competing financial advisor, and posted that other advisor’s business cell phone number in the ads, causing the other financial advisor to receive phone calls and texts in response to the ads. FINRA conducted an examination, and in the AWC charged the financial advisor with a violation of FINRA Rule 2010. The financial advisor was suspended for three months and fined $7,500. This appears to have nothing to do with the financial markets, nor any harm to a client, or to the financial advisor’s business with his firm. Nonetheless, FINRA investigated and pursued charges against this advisor.
It is important for financial advisors registered with a FINRA member firm, to understand that FINRA’s jurisdiction over them extends beyond what might be considered the traditional norms of protecting the financial markets. There are certainly other examples of this, though maybe not others with this exact fact pattern! You may disagree with the concept that FINRA should be involved in situations like this, and you may have some valid points. Nonetheless, until rules and practices are changed, perhaps, being forewarned is forearmed.