FINRA Sales Practice Violations - Transcript

Sales practice violations are among the most common issues faced by investors in the securities industry. These violations occur when brokers or financial advisers fail to adhere to the rules and ethical standards set forth by FINRA. At Malecki Law, we have extensive experience helping investors who have been harmed by these practices to recover their losses and hold wrongdoers accountable.

FINRA sales practice violations cover a wide range of misconduct. Common examples include:

• High-Pressure Sales Tactics: Often associated with the infamous "Boiler Room" days, these tactics involve brokers pressuring investors to make immediate decisions, often using urgency as a manipulative tool.
• Unauthorized Trading: Brokers must obtain your consent on the same day they execute a trade. Any trade conducted without your express approval violates FINRA’s rules.
• Churning: Excessive trading in an account to generate commissions for the broker, rather than to benefit the investor, is a clear violation. FINRA rules stipulate that brokers should not earn more from an account than the investor.
• Reg BI Violations: Brokers must ensure that investments align with an investor’s best interest, including their financial goals, risk tolerance, and overall profile.
• Overconcentration: Diversification is key to mitigating risk. Brokers must avoid placing too much of an investor’s portfolio in a single sector, such as oil and gas or technology, which can lead to high volatility and increased risk, especially if it is against the investor’s best interest.

These violations not only harm investors financially, but also erode trust in the securities industry.

Sales practice violations can have far-reaching consequences for investors. Financially, these practices often result in significant losses, whether through unsuitable investments, unauthorized trades, or excessive fees. Beyond the monetary impact, investors may also experience emotional distress and a loss of confidence in financial professionals.

For instance, unauthorized trading may lock an investor into a position they did not want, while overconcentration can leave a portfolio overly exposed to market fluctuations. Churning, meanwhile, siphons off value through excessive commissions, leaving the investor worse off even if the market performs well.

FINRA’s rules are designed to uphold ethical standards and ensure fair treatment of investors. These include specific guidelines addressing sales practices, such as:

• Regulation Best Interest, which requires brokers to act in their clients’ best interests, including their financial needs, risk tolerance, age, long-term and short-term goals.
• Rules against unauthorized trading, safeguarding investors from trades made without their knowledge or approval.
• Anti-churning regulations, preventing brokers from prioritizing their commissions over the investor’s returns.

When brokers or firms violate these rules, they can be held accountable through FINRA arbitration or litigation. However, understanding and applying these rules to build a strong case often requires experienced legal counsel.

At Malecki Law, we are dedicated to representing investors who have been harmed by FINRA sales practice violations. Our team has a deep understanding of FINRA’s rules and a track record of holding brokers and firms accountable for their misconduct.

We begin by thoroughly reviewing your case to identify violations and gather evidence. This may include examining account statements, correspondence with your broker, and other relevant documentation. We then develop a strategy tailored to your situation, whether pursuing FINRA arbitration, settlement negotiations, or litigation.

Our goal is to recover your losses and restore your trust in the financial system. We are committed to fighting for your rights and ensuring that brokers and firms are held to the high standards investors deserve.

If you believe you have been affected by FINRA sales practice violations, contact Malecki Law at (212) 943-1233 or reach out online for a consultation. Let us help you navigate this complex process and work toward achieving the justice and compensation you deserve.

Transcript:

So there are many many sales practice violations ranging from high pressure sales tactics we used to see that a lot in the Boiler Room days uh where the Wolf of Wall Street used to really put pressure on investors that they had to get in urgently quickly and all of that unauthorized trading you know a broker has to ask you on the same day as the trade whether you want to make the investment on that day at that price and of course prices prices vary but but they need to be on the same day churning meaning over trading the account there are rules that cover you know the broker shouldn’t be making more in the account than you are um there’s also rules on suitability which has been now revamped through regulation best interest there’s over concentration rules you shouldn’t be in more than a certain amount of one sector of investment meaning for example oil and gas you don’t want a portfolio that’s overweighted in oil and gas or overweighted in technology sectors that tend to move a lot because then you don’t have a well-diversified portfolio in your portfolio is going to be highly volatile so those are examples of sales issues in the FINRA conduct rules.