Internal Investigations - Transcript

Internal investigations are a routine but critical aspect of the securities industry, often arising from regulatory audits or specific customer complaints. These investigations can involve scrutiny from regulators like the SEC or FINRA , as well as inquiries initiated by the firm itself. At Malecki Law, we understand how daunting these investigations can be and are here to provide the legal guidance needed to navigate these challenging situations.

Internal investigations in the securities industry generally fall into two categories:

1. Regulatory Audits: Regulators such as FINRA and the SEC regularly conduct audits to ensure firms comply with their rules and standards. These audits may focus on firm-wide practices, including supervision, record-keeping, and adherence to financial regulations. Regulators might select certain accounts or individuals to scrutinize closely, seeking evidence of rule violations.
2. Individual Investigations: These arise when a specific broker or adviser is under scrutiny. Often triggered by a customer complaint, these investigations may initially seem minor—such as a client disputing a 10% account loss—but can quickly escalate if regulators uncover additional issues. Common areas of inquiry include time and price discretion, incomplete or missing forms, and adherence to Regulation Best Interest requirements.

Many individuals mistakenly believe they can handle internal investigations on their own, especially if they feel the complaint is baseless. However, attempting to navigate an investigation without legal counsel can lead to unintended consequences. Regulators and firms have their own legal teams, and their inquiries are often structured to uncover broader issues beyond the initial complaint.

One common pitfall is providing overly detailed or poorly constructed responses. While it may seem logical to "tell everything," such disclosures can inadvertently expose additional areas of concern. For example, a response to a complaint might reveal lapses in compliance unrelated to the initial issue, broadening the scope of the investigation.

Engaging a securities lawyer at the earliest stage of an internal investigation is essential to protect your rights and interests. A skilled attorney can:

• Draft Responses: Ensure that your written responses to inquiries are succinct, adhere to legal standards, and avoid language that could be misconstrued.
• Identify Risks: Anticipate potential issues that may arise during the investigation and address them proactively.
• Mitigate Escalation: Work to prevent the investigation from expanding into unrelated areas, minimizing the risk of additional scrutiny or penalties.

Having legal representation not only levels the playing field but also demonstrates your commitment to resolving the matter responsibly and professionally.

Internal investigations can arise from a variety of scenarios, including:

• Customer Complaints: Even minor grievances, such as dissatisfaction with account performance, can trigger a deeper review of your practices.
• Regulatory Audits: Routine audits may uncover discrepancies or irregularities that warrant further investigation.
• Alleged Misconduct: Accusations of unauthorized trading, possible violations of Reg BI, or other violations often lead to individual scrutiny.

Understanding these triggers can help you recognize potential vulnerabilities in your practice and take proactive steps to address them.

At Malecki Law, we have extensive experience representing securities professionals during internal investigations. Our team works closely with clients to craft precise compliant responses to inquiries, and to address underlying issues that may arise. We also provide strategic advice on mitigating risks and resolving matters efficiently.

If you are, or may be facing an internal investigation, contact Malecki Law at (212) 943-1233 or reach out online to schedule a consultation. Protecting your reputation and career is our priority, and we are here to guide you every step of the way.

Transcript:

In the securities industry you will find that from time to time there are internal investigations. Sometimes there’s an internal investigation by a regulator the SEC or FINRA who have regular audits and those the firm generally is concerned with its own conduct, its own supervision, but the regulators are going to dig deep into your files at times or they’re going to pick select people and dig in to see if there’s been any breach of the FINRA rules or the SEC rules.

Other times there’s investigations of you directly, so when there’s an investigation of you directly a customer makes a complaint and it could be frivolous like for example oh my my account went down 10% but once they start looking into that account other things might surface, time and price discretion, failure to get all the appropriate forms filled out, and so one must get a lawyer before they actually write usually they have to write a letter to the firm what happened with this customer.

They should be doing that with a lawyer you’re too close to it to write something that is succinct, follows all the rules, and make sure that it doesn’t get you embroiled in something larger.

A lot of people think oh if I just tell them everything everything’s going to be fine but really, again, they’re going to have a lawyer that represents them. You need a lawyer that represents you to make sure that you don’t set off any landmines.