Monday, September 28, 2009


Broker-Dealers, have you ever thought about what a state regulator considers when initiating an enforcement action?

There are a number of considerations that a state regulator takes into account in a regulatory action. Below are a few of them taken from the NASAA Broker-Dealer Section Report on Principal Considerations for Regulatory Actions. We urge you to contact us if you have been contacted by a regulator. Hiring counsel experienced in these matters and doing so promptly can greatly help you going through an investigation and/or an enforcement action.

• Did the firm have adequate written supervisory policies and procedures in place to identify and prevent the alleged misconduct? The regulator will consider whether the firm’s internal compliance procedures were sufficient to detect the misconduct by reviewing the firm’s WSPs. If the firm’s procedures were inadequate, has the firm adopted new and more effective internal controls and procedures designed to prevent the misconduct?

• Did the firm conduct a thorough review of the misconduct? A regulator will consider what steps the firm took to reasonably identify the extent of the misconduct and identify all the parties involved. Did the firm spend the time and resources required to find the problem and address it?

• Were there “red flags” present that the firm missed? Are the firms WSPs adequate in regards to “red flags”? Remember, adequate WSPs are supposed to prevent and detect misconduct and identifying red flags and having procedures in place to address them is a good tool in your prevention and detection efforts.

• How did the firm respond to the State’s requests in the investigation and did they cooperate? This doesn’t mean you have to jeopardize any defense. But having good counsel to help you respond to a regulator’s inquiry and advocate on your behalf is an important component when on the receiving end of an enforcement action.

These are just a few of the considerations. You can see how important it is to have knowledgeable counsel to help you respond to an audit or enforcement inquiry. If you find yourself contacted by a regulator we urge you to contact us to ensure you have experienced counsel assisting you.

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