If you run afoul of FINRA rules and regulations, FINRA has the authority to fine, suspend or bar brokers and firms from the industry. Depending on the violation, when it was discovered, and by whom, you may be faced with two choices:
- A formal enforcement hearing, resulting from a formal FINRA complaint against you; or
- Signing an Acceptance, Waiver and Consent ("AWC")
An enforcement hearing is fairly self-explanatory, but what, exactly, is an AWC?
An AWC is a settlement that you reach with FINRA's Enforcement Division. The AWC itself generally provides background on facts and circumstances of what leads up to FINRA's findings and cites the FINRA rules which the self-regulatory organization believes the individual and/or firm violated. It also provides details relating to the agreed upon penalties that are being imposed as part of the settlement. Penalties vary from cease and desist of the alleged wrongdoing and typically includes a fine, a suspension, a bar or a combination of thereof.
In practice, this means is that if you sign the AWC you are:
- Accepting the recitation of violation(s);
- Waiving your right to a hearing and to any appeal to the National Adjudicatory Council ("NAC"); and
- Consenting to the penalty described.
Prior to determining whether entering into an AWC is in your best interest, it is imperative to engage counsel. Counsel will work the FINRA enforcement counsel to help negotiate not only the settlement terms, but also to ensure that the verbiage used in the AWC are reflective of the facts and circumstances. Importantly, any negotiated settlement must be approved first by FINRA's senior enforcement staff and then by the NAC.
At any of those stages your settlement could be refused by FINRA. If that occurs, you will have to renegotiate the AWC within the guidelines set forth by the NAC. You can also refuse the AWC, but that would mean participating as a respondent in an enforcement hearing. If you refuse both the AWC and the hearing, you will most likely be permanently barred from the industry for failure to cooperate.
A hearing is a trial that is conducted by FINRA. FINRA assigns one of their staff hearing officers (from FINRA's Office of Hearing Officers or "OHO") and two industry panelists who hear the testimony, review the evidence and make a judgement that will possibly (probably) affect your future in the financial industry.
The hearing is run very much like a court trial, but the rules of evidence are a bit looser. The panel can make the decision to hear testimony or review evidence that might not be allowed in a court of law. In this sense it is very much like an arbitration.
As part of the AWC, you are not admitting or denying guilt. The AWC states that you are only accepting this AWC for the purpose of settling this dispute. Notably, because a summary of the material provisions from the AWC goes on an individual's Form U-4, the wording of the AWC is very important as it will be made available to the public and future employers. -And an AWC cannot be expunged from your record.
Once you have signed an AWC, you may not take any action, make or permit to be made any public statement, including in regulatory filings or otherwise, denying, directly or indirectly, any allegation in the AWC or creating the impression that the AWC is without factual basis.
FINRA, as part of the AWC, states that it will not bring any future actions against you alleging violations based on the same factual findings. This must be read very carefully. "The same factual findings" means that if one fact is changed, FINRA can commence start a new action, so make sure that you can live with the descriptions and facts.
For more information about AWCs and factors to consider when analyzing whether it is prudent to enter into an AWC, request time with our FINRA expert. To speak with any of our experienced attorneys, please click here.
Add a comment
- SEC Charges Morgan Stanley Smith Barney with Providing Misleading Information to Retail Clients
- FINRA’s Senior Help Line: Celebrating 5 Years of Providing Protection
- How To Start: Are You Evaluating Your Firm’s Whistleblower Policies?
- Three Firms’ Failure to Disclose Conflicts of Interest Lead to Almost $1 Million in Disgorgement, Interest
- OCIE Risk Alert—Examinations Focused on Initial Compliance With Regulation Best Interest
- Lone Star Value Management Firm and Founder Pay to Settle SEC Disclosure Charges
- SEC Grants Regulatory Relief for Firms Affected by COVID-19
- SEC Updates its Public Alert Website, Adding Entities and Enhancing Capabilities
- SEC Examination Focus: Four Considerations for Vendor Relationships Within Your Business Continuity Plans (BCP)
- Old, Familiar Fraud Found in New, Innovative Investments
- Securities and Exchange Commission (SEC)
- Investment Advisers
- Policies and Procedures
- Dodd-Frank Act
- Due Diligence
- Advisers Act
- Securities Law
- Office of Compliance Inspections and Examinations (OCIE)
- Ponzi Scheme
- Aging Clients
- Form U5
- California Consumer Privacy Act (CCPA)
- Virtual Currency
- Private Equity
- Private Funds
- Regulation Best Interest
- Hedge Funds
- Regulatory Examinations
- Transition Services
- Personally Identifiable Information (PII)
- Government Shutdown
- Risk Alert
- Social Media Marketing
- Exchange-Traded Funds (ETFs)
- Investment Company Act
- Rule 6c
- Broker Protocol
- Wells Fargo