FINRA Conduct Rules & Sales Practice Violations

The securities industry requires brokers and advisors to maintain strict adherence to established rules and regulations to protect investors and maintain market integrity. When brokers violate these standards, we’ve assembled a dedicated team of securities lawyers who are immediately available to help investors who have been harmed by brokers breaching FINRA’s conduct rules or committing sales practice violations.

Brokers are required to act in their customers’ best interests under FINRA’s Regulation Best Interest (Reg BI). This rule ensure that:

• Brokers recommend investments that align with a customer’s financial goals, risk tolerance, and investment profile.
• Conflicts of interest are disclosed and mitigated.
• Customers receive accurate and transparent information about investment risks, fees, and potential returns.

Additionally, FINRA Rule 2010 requires all FINRA members to “observe high standards of commercial honor and just and equitable principles of trade” in conducting business.

By adhering to these rules, brokers are obligated to provide advice that benefits their clients rather than prioritizing their own commissions or incentives. This standard is crucial in maintaining trust and ensuring that investors are protected against harmful financial practices.

FINRA’s Rule 2210 governs brokers’ communications with the public, requiring them to:

• Be Fair and Balanced: All communications must present a balanced view of the risks and rewards associated with an investment.
• Avoid Misleading Statements: Brokers must not use exaggerated or unsubstantiated claims to promote investments.
• Disclose Material Facts: Any information that could influence an investor’s decision must be disclosed clearly and accurately.

These rules aim to ensure that public communications are transparent and do not mislead potential investors. Brokers must also comply with internal review procedures to ensure all public communications meet these regulatory standards. Missteps in communication can lead to significant risks and damage to unwitting investors.

Sales practice violations occur when brokers engage in unethical or illegal conduct in selling products or services to clients. Common sales practice violations include:

• Unauthorized Trading: Executing trades in a client’s account without prior approval.
• Churning: Excessive trading to generate commissions without regard to the client’s best interests.
• Misrepresentation or Omission: Providing false information or failing to disclose material facts about an investment.
• Unsuitable Recommendations: Advising clients to invest in products that do not align with their financial goals, risk tolerance, or best interests.

These violations not only harm investors but also undermine confidence in the financial markets. Victims of such misconduct may face significant financial losses and emotional distress, making it essential to take immediate action if a violation is suspected.

Beyond the common violations, other examples include:

• Overconcentration: Placing a disproportionate amount of a client’s portfolio in a single asset or sector, unnecessarily increasing risk.
• Failure to Execute Trades: Not acting promptly on a client’s instructions, which can lead to missed opportunities or losses.
• Forgery: Altering or falsifying documents or client signatures to authorize transactions or account changes.

Each of these actions violates FINRA’s conduct rules and can result in disciplinary actions against the broker or firm. Investors should be vigilant in monitoring their accounts and communications with their brokers to identify any potential misconduct.

If you suspect that your broker has violated FINRA’s conduct rules or engaged in sales practice violations, take the following steps:

1. Gather Documentation: Collect account statements, trade confirmations, emails, and any other records that support your claim. These documents are essential for building a strong case.
2. Report the Misconduct: File a complaint with FINRA or the SEC to initiate an investigation. Reporting misconduct helps protect other investors and holds brokers accountable.
3. Consult an Attorney: Seek advice from a securities lawyer who can assess your case and guide you through the arbitration or litigation process. An experienced attorney can help you understand your rights and options.
4. Pursue a Claim for Compensation: With the help of your attorney, you may recover financial losses through FINRA arbitration or a court proceeding. Compensation can include reimbursement for losses, interest, and potentially punitive damages for especially egregious conduct.

Taking these steps can increase your chances of a successful resolution and help prevent further financial harm.

Malecki Law has a long-standing reputation for successfully representing investors harmed by broker misconduct. Our experienced securities attorneys are dedicated to protecting your rights and helping you recover your losses. Whether you are dealing with unauthorized trading, churning, or other sales practice violations, we are here to guide you every step of the way. Contact Malecki Law at (212) 943-1233 for a consultation and take the first step toward holding your broker accountable.