A new study by Sutherland Asbill & Brennan analyzing litigated disciplinary proceedings brought by the SEC and FINRA against broker-dealer firms and registered representatives shows that it often pays for defendants to litigate, rather than settle. The authors of the study, Brian L. Rubin and Christian J. Cannon, analyzed cases from October 2007 through September 2008 where firms and individuals were charged with violating SEC and NASD rules and statutes.
According to Rubin and Cannon,
of the 86 charges that were litigated by the SEC and FINRA during the year ended September 30, 2008 (the SEC’s fiscal year), firms and representatives succeeded in getting charges dismissed 16% of the time. SEC respondents had slightly more success (approximately 19%-5 of 26) than FINRA respondents (15%-9 of 60). The success that FINRA respondents had marked an improvement compared with prior years going back to January 2000. Historically, the average dismissal rate for FINRA charges has hovered around 11%.
The study further found that broker-dealer firms, which presumably have more resources than individuals and often retain counsel, were far more likely to succeed than individuals: approximately 45% of FINRA charges against firms were dismissed, while only approximately 8% of the charges against individuals were dismissed.
Notably, only two broker-dealer firms opted to litigate against the SEC in the past three fiscal years; one lost on liability, and the other did not contest liability.