SEC Orders FINRA to Improve Internal Compliance Policies and Procedures; 2011-227; October 27, 2011
In 2011, the SEC ordered FINRA to improve compliance after its Kansas City director altered three meeting minutes before submitting them to regulators in 2008—the third such incident in eight years—resulting in a cease-and-desist order and mandatory consultant-led reforms without monetary penalties.
In August 2008, the director of FINRA’s Kansas City District Office altered three staff meeting minutes hours before submitting them to SEC inspectors, rendering the documents inaccurate and incomplete, in violation of Section 17(a) of the Securities Exchange Act and Rule 17a-1. This was the third documented instance in eight years involving FINRA or its predecessor, NASD, providing altered documents to the SEC. Without admitting or denying the findings, FINRA consented to a cease-and-desist order and agreed to hire an independent consultant to review and enhance its document integrity policies, procedures, and training, with the SEC accepting the settlement due to FINRA’s cooperation and prompt remedial actions.
In August 2008, the director of FINRA’s Kansas City District Office altered three staff meeting minutes just hours before submitting them to SEC inspectors during a regulatory examination, making the documents inaccurate and incomplete. This incident marked the third time in an eight-year period that FINRA or its predecessor, the National Association of Securities Dealers (NASD), had provided altered or misleading documents to the SEC. In October 2011, the SEC issued an order instituting settled administrative proceedings against FINRA for violating Section 17(a) of the Securities Exchange Act and Rule 17a-1. FINRA consented to a cease-and-desist order without admitting or denying the findings, and agreed to hire an independent consultant within 30 days to conduct a comprehensive review of its document integrity policies, procedures, and training. The consultant was tasked with assessing whether these systems were reasonably designed and implemented to ensure document accuracy during SEC inspections and to recommend necessary enhancements. The SEC accepted the settlement in part due to FINRA’s prompt remedial actions and cooperation during the investigation, which was led by Thomas Gargan. No monetary penalties were imposed, but FINRA was required to fully implement the consultant’s recommendations to prevent future misconduct and strengthen internal compliance.
Exhibits & Attached Documents (1)
Extracted insights
- person Thomas Gargan ×2
- agency by finra
- organization Financial Industry Regulatory Authority
- agency Finra
- person gerald hodgkins
- person Gerald W. Hodgkins
- organization National Association Of Securities Dealers
- agency Securities and Exchange Commission
- agency the sec staff
- Sec Orders Finra
- Sec Instituting Settled Administrative Proceedings Order
- Finra Altered Three Records Of Staff Meeting Minutes
- Finra Consented To Engage An Independent Consultant
- Finra Cease And Desist From Committing Or Causing Future Violations Of Section 17(a) Of The Securities Exchange Act Of 1934 And Exchange Act Rule 17a-1
- Sec Investigation Conducted By Thomas Gargan
- Sec Considered Remedial Acts Promptly Undertaken By Finra
- Sec Considered Cooperation Afforded The Sec Staff
SEC Orders FINRA to Improve Internal Compliance Policies and Procedures FOR IMMEDIATE RELEASE 2011-227 Washington, D.C., Oct. 27, 2011 — The Securities and Exchange Commission today ordered the Financial Industry Regulatory Authority (FINRA) to hire an independent consultant and undertake other remedial measures to improve its policies, procedures, and training for producing documents during SEC inspections. Additional Materials Order According to the SEC’s order instituting settled administrative proceedings, certain documents requested by the SEC’s Chicago Regional Office during an inspection were altered just hours before FINRA’s Kansas City District Office provided them. “The law requires FINRA to produce the documents the SEC seeks in its examinations in complete and accurate form,” said Gerald Hodgkins, Associate Director of the SEC’s Division of Enforcement. “Although FINRA has previously taken steps to improve compliance, those enhancements did not go far enough to prevent the document production failure that occurred in its Kansas City District Office. This order will help ensure that FINRA effectively addresses the weaknesses in its training as well as its policies and procedures.” The SEC’s order finds that on Aug. 7, 2008, the Director of FINRA’s Kansas City District Office caused the alteration of three records of staff meeting minutes just hours before producing them to the SEC inspection staff, making the documents inaccurate and incomplete. According to the SEC’s order, the production of the altered documents by the Kansas City District Office was the third instance during an eight-year period in which an employee of FINRA or its predecessor (National Association of Securities Dealers) provided altered or misleading documents to the SEC. FINRA has consented to engage an independent consultant within 30 days that will: Conduct a one-time comprehensive review of FINRA’s policies and procedures and training relating to document integrity. Assess whether the policies and procedures and training are reasonably designed and implemented to ensure the integrity of documents provided to the SEC. Make recommendations for the enhancement of FINRA’s policies and procedures and training as may be necessary in light of the consultant’s review and assessment. Without admitting or denying the findings, FINRA consented to the SEC’s order requiring it to cease and desist from committing or causing future violations of Section 17(a) of the Securities Exchange Act of 1934 and Exchange Act Rule 17a-1, and to comply with the undertakings described above. In determining to accept FINRA’s settlement offer, the Commission considered remedial acts promptly undertaken by FINRA and cooperation afforded the SEC staff. The SEC’s investigation was conducted by Thomas Gargan. # # # For more information about this enforcement action, contact: Gerald W. Hodgkins Associate Director, SEC’s Division of Enforcement 202-551-4719 http://www.sec.gov/news/press/2011/2011-227.htm Home | Previous Page Modified: 10/27/2011
SEC Orders FINRA to Improve Internal Compliance Policies and Procedures FOR IMMEDIATE RELEASE 2011-227 Washington, D.C., Oct. 27, 2011 — The Securities and Exchange Commission today ordered the Financial Industry Regulatory Authority (FINRA) to hire an independent consultant and undertake other remedial measures to improve its policies, procedures, and training for producing documents during SEC inspections. Additional Materials Order According to the SEC’s order instituting settled administrative proceedings, certain documents requested by the SEC’s Chicago Regional Office during an inspection were altered just hours before FINRA’s Kansas City District Office provided them. “The law requires FINRA to produce the documents the SEC seeks in its examinations in complete and accurate form,” said Gerald Hodgkins, Associate Director of the SEC’s Division of Enforcement. “Although FINRA has previously taken steps to improve compliance, those enhancements did not go far enough to prevent the document production failure that occurred in its Kansas City District Office. This order will help ensure that FINRA effectively addresses the weaknesses in its training as well as its policies and procedures.” The SEC’s order finds that on Aug. 7, 2008, the Director of FINRA’s Kansas City District Office caused the alteration of three records of staff meeting minutes just hours before producing them to the SEC inspection staff, making the documents inaccurate and incomplete. According to the SEC’s order, the production of the altered documents by the Kansas City District Office was the third instance during an eight-year period in which an employee of FINRA or its predecessor (National Association of Securities Dealers) provided altered or misleading documents to the SEC. FINRA has consented to engage an independent consultant within 30 days that will: Conduct a one-time comprehensive review of FINRA’s policies and procedures and training relating to document integrity. Assess whether the policies and procedures and training are reasonably designed and implemented to ensure the integrity of documents provided to the SEC. Make recommendations for the enhancement of FINRA’s policies and procedures and training as may be necessary in light of the consultant’s review and assessment. Without admitting or denying the findings, FINRA consented to the SEC’s order requiring it to cease and desist from committing or causing future violations of Section 17(a) of the Securities Exchange Act of 1934 and Exchange Act Rule 17a-1, and to comply with the undertakings described above. In determining to accept FINRA’s settlement offer, the Commission considered remedial acts promptly undertaken by FINRA and cooperation afforded the SEC staff. The SEC’s investigation was conducted by Thomas Gargan. # # # For more information about this enforcement action, contact: Gerald W. Hodgkins Associate Director, SEC’s Division of Enforcement 202-551-4719 http://www.sec.gov/news/press/2011/2011-227.htm Home | Previous Page Modified: 10/27/2011