What to Do If You Receive a FINRA 8210 OTR Letter - Medicare RAC Audits & Appeals Services
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What to Do If You Receive a FINRA 8210 OTR Letter

notification letter

Securities professionals who are being scrutinized by FINRA will likely first learn of an investigation when they receive an 8210 Letter, also known as an On-the-Record (OTR) Notice. The letter will describe the information being requested, and the recipient has to supply it or face repercussions.

Financial advisors and registered brokers who receive a FINRA 8210 request form should hire a FINRA defense attorney and then take the necessary steps to comply with the document requests laid out in the letter. The costs of ignoring the letter or not complying with its demands are steep, and can even lead to a permanent ban from the industry. However, fulfilling the document requests without legal representation can be extremely difficult to do within the allotted timeframe, and can put registered securities professionals into legal hot water.

The FINRA defense lawyers at Oberheiden P.C. can help securities professionals navigate this critical first step in the FINRA investigation process. In doing so, our lawyers can protect your livelihood and your future.

What is a FINRA 8210 Letter?

The Financial Industry Regulatory Authority, or FINRA, is the private company with Congressional authorization to regulate the securities industry. That authority is extremely broad, as exemplified by FINRA Rule 2010, which gives FINRA the authority to investigate members who deviate from its “high standards of commercial honor and just and equitable principles of trade.”

A core component of FINRA’s enforcement mechanism comes from FINRA Rule 8210, which lets the agency request documents from anyone associated with a securities professional, and levies significant penalties on those who fail to comply with the request.

That request comes in the form of a FINRA 8210 letter.

The FINRA 8210 letter is simply a demand for documentation or information related to a FINRA investigation. The letter will set a deadline for the receipt of the documents and other information. The letter can be sent to anyone that FINRA has jurisdiction over, including:

  • Broker-dealers
  • Registered securities professionals
  • Anyone associated with a broker-dealer or securities professional
  • Brokerage firms

Importantly, people who receive a FINRA 8210 letter may or may not be under investigation. FINRA may be demanding information from one securities professional that will be pertinent in the investigation of another professional’s conduct. However, FINRA may also be demanding documents from a person of interest in an ongoing or a potential investigation.

OTR Notices: The Basics

For the Financial Industry Regulatory Authority, or FINRA, the OTR Notice or 8210 Letter is a fundamental component of the agency’s enforcement mechanisms.

In some ways, the Notice is similar to a subpoena: It is a formal demand for information or documents, and it carries penalties if the recipient of the Notice does not comply. Unlike a subpoena, though, these penalties are limited to FINRA’s authority over the securities industry. While you cannot be thrown in jail for not complying with an 8210 Letter, FINRA can discipline you or can even bar you from the securities profession.

The OTR Notice can demand several types of information, including:

  • Documents
  • Testimony
  • Files

Because FINRA’s authority over the securities industry is complete and absolute, there is little information that the agency cannot demand through an OTR Notice, so long as it is relevant to the profession.

If FINRA is unsatisfied with the information that was provided or has follow-up questions, it will send another OTR Notice or 8210 Letter. Follow-up Notices are more likely to demand sworn oral testimony, rather than documentation. To avoid this inconvenience and escalation in the investigation, it is important to fully respond to the initial Notice.

Understanding the Nature of the FINRA Investigation

One of the biggest questions that securities professionals should have after being served an OTR Notice is whether they are under investigation by FINRA or not. The OTR Notice or 8210 Letter often will not say. Especially if this is the first Notice you have received from the agency, it will usually say something to the effect that the Notice is demanding information as a part of a “preliminary inquiry” into potential securities fraud or misconduct.

Whether you are the target of a FINRA investigation or just a source of information in an investigation of someone else is extremely important, as it should influence how you respond to the request for information. If you are not the person who is under investigation for wrongdoing, it can be in your interests to provide a full disclosure. Even then, though, over-disclosing information can backfire as it can alert FINRA to potential misconduct that it was unaware of, before.

If you are the person under investigation, then the need to be careful with your response increases exponentially. While refusing to provide information or ignoring the Notice can lead to penalties, there may be ways to satisfactorily disclose the information being demanded without handing over anything that is incriminating or that can escalate the investigation. However, it is important to know that FINRA has likely issued OTR Notices to other professionals, as well. Comparing your responses to the responses of other people can uncover any misleading statements that you made, which can increase the level of scrutiny you are under.

Requesting Extensions

A common complaint about OTR Notices and 8210 Letters is that they demand lots of information and provide very little time to get it. This is especially a problem when the documentation that is being demanded is not physically in the broker’s possession, like when a broker has moved to a new firm and the old one has the documents that are being requested.

In these cases, Notice recipients can request an extension to gather the information or documentation. FINRA generally grants the first extension, though it is often less forgiving if a subsequent extension is requested without good cause shown.

What Can Happen Next

The 8210 Letter or OTR Notice is the first step in what can be a long investigation and enforcement process. As the Notice generally says, it is often just a “preliminary inquiry” for information.

In the best case scenario, securities professionals who receive an OTR Notice disclose the information being requested in a way that satisfies FINRA and never hear about the issue again. This can happen if the information provided convinces FINRA that the conduct that had caught its attention was fine and innocent, or if the recipient of the Notice was only a collateral source of information in an investigation into someone else.

However, if the recipient is the target of the investigation or if FINRA is unhappy with the disclosure, the investigation can escalate.

FINRA can send another OTR Notice, demanding sworn testimony from the recipient. Similar to a deposition, this can put the recipient in a stressful position where they have to answer numerous questions about potential wrongdoing, with the potential for legal liability hanging in the balance.

FINRA can also call the broker or brokerage firm and tell them that the agency’s Department of Enforcement is about to initiate a formal disciplinary action. Called “Wells calls,” these mark an important change in the case: It is no longer just an investigation, it is now an allegation of wrongdoing.

After the Wells call, FINRA will send a Wells notice, or settlement document, that proposes a set of penalties that would end the case. If the recipient refuses to settle, FINRA will send another notice of the charges that it intends to file. At this point, the recipient has to update their Form U4 to disclose the fact that they are under FINRA investigation.

What are the Best Ways to Respond to One?

The best way to respond to a FINRA 8210 letter is in the attitude of someone who may be under investigation. Take the time to fully understand what documentation the letter is asking for, what may have triggered the letter, and who may be the target of the investigation.

In many brokerage firms, there is a process for reporting FINRA 8210 letters up the chain of command, usually to a manager or a compliance department. Following this process is important. In many cases, the compliance director or an executive at the brokerage firm will have also received a copy of the letter. They will know if you have not reported it.

Hiring your own lawyer at this point is essential. It is often difficult for the recipient of the letter to tell if they are the one who is under investigation or not. This can make it difficult to know whether disclosing certain information will lead to future legal action, which can make it difficult to know whether to disclose information that may not be covered by the request.

To add to the complexity of the response, if the brokerage firm is being investigated rather than the recipient of the letter, there is a very real possibility that the firm will try to deflect blame and liability onto one or more of its employees – including the recipient. These situations become very tricky, as the firm’s in-house attorneys will have conflicting interests and cannot be trusted to provide effective legal representation to potential scapegoats. By hiring an outside lawyer, rather than relying on the firm’s in-house attorneys, FINRA letter recipients can rest assured that they have effective legal counsel that will actually have their best interests in mind.

Getting a lawyer on hand can also help the recipient gather, organize, and submit the requested documents on time. In many cases, the deadline specified in the FINRA 8210 letter is unreasonably tight, especially when there are lots of documents that are being requested but that are not easy to access. A FINRA defense lawyer may be able to negotiate with the FINRA staff attorney and either get an extension to return the documents, or to reduce the scope of what is being requested.

The outcome of these negotiations can also help the recipient understand the nature of the request and whether they are the target of the investigation.

Taking these steps to lighten the workload or extend the timeframe can be incredibly important. If FINRA does not get the documents it demanded within the timeframe it allowed, it can take action against the recipient for failure to respond. Defending against the penalties by pointing to the onerous demand and the unreasonably small window of time to provide them may require the recipient to appeal the penalties to the Securities and Exchange Commission (SEC) – itself a costly and time-consuming project.

Do I Have to Update My Form U4?

If the FINRA 8210 letter specifically states that you are the person who is under investigation, then you will have to update your Form U4. If the letter is not explicitly telling you that you are the investigation’s target, then disclosing the investigation is not necessary at this point.

What are the Worst Ways to Respond to One?

The worst thing that you can do if you have received a FINRA 8210 letter is to ignore it. Not complying with the letter can subject the recipient to a suspension or even a bar from the securities industry.

While intentionally ignoring an 8210 letter may end up being worse, FINRA may still levy penalties against recipients who only negligently fail to reply. FINRA Rule 8210(c) states, “No member or person shall fail to provide information or testimony.” There is no mention of intent in this prohibition.

FINRA Defense Lawyers at Oberheiden P.C.

A FINRA 8210 letter could be the first indication that you are under investigation for a securities violation. It could also mean that you are merely a collateral player in an investigation targeting someone else. Poorly responding to a FINRA 8210 letter can have lasting repercussions, even if you were not under investigation.

Hiring a FINRA defense lawyer who is independent of your firm can make sure that your interests and your future are protected. The FINRA defense attorneys at Oberheiden P.C. can help. Call us at 888-680-1745 or contact us online.

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