What is the Difference Between FINRA and the SEC?
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As reported in InvestmentNews, three Raymond James entities have agreed to pay over $15 million to resolve an investigation by the SEC. The settlement and SEC order focused on Raymond James’s actions in improperly charging certain clients advisory fees when the...read more
The Financial Industry Regulatory Authority (FINRA) and the United States Securities and Exchange Commission (SEC) are both financial agencies that protect investors against securities fraud, also known as “investment fraud,” which is the practice of stockbrokers or financial advisors using deceptive tactics in order to defraud investors. If you are an investor who lost money because your broker or advisor acted without your permission, went against your wishes, withheld information from you, or provided you with inaccurate information, FINRA or the SEC may be able to help. However, while there is significant overlap between FINRA and the SEC, there are also some important differences that are important for fraud victims to understand. If you or your spouse suffered financial harm because your stockbroker or financial investor violated federal laws or engaged in professional misconduct, ask our FINRA arbitration lawyers about seeking compensation for your losses.
FINRA vs. the SEC: Legal Help for Investment Fraud Victims
The acronym FINRA stands for the Financial Industry Regulatory Authority, while the acronym SEC stands for the U.S. Securities and Exchange Commission. The SEC, a federal government agency which was created decades ago with the Securities Exchange Act of 1934, regulates and oversees FINRA, which was created in 2007. Unlike the SEC, FINRA is not a governmental agency, but rather a private organization. (To be more specific, FINRA is classified as a “self-regulatory organization,” or SRO.) However, FINRA has congressional authority to intervene when investors file claims or complaints concerning suspected securities fraud.
Because both agencies work to protect investors, similar to how the Federal Trade Commission (FTC) works to protect consumers from fraud and unfair business practices, confusion sometimes arises when an investor wants to file a complaint or claim. To clear up the confusion, there are two important questions that need to be answered:
- What types of matters are handled by FINRA, and what types of matters are handled by the SEC?
- What is the difference between filing a claim and filing a complaint?
To answer the first question, there is considerable overlap between the types of issues that FINRA and the SEC investigate, which is unsurprising as FINRA is regulated by the SEC. To provide a few examples, both agencies can handle the following matters:
- Insider trading
- Making misleading or inaccurate statements about the financial health or status of a company, including withholding information, a practice called “omission”
- Manipulating the price or volume of stocks or other securities
- Pension fraud
- Ponzi schemes and pyramid schemes
However, only the SEC handles issues related to transfer agents or SEC filings. Additionally, there are certain types of fraud cases that could potentially be handled by several agencies. For example, both FINRA and the U.S. Department of Labor Employee Benefits Security Administration (EBSA) can investigate 401(k) fraud, depending on the circumstances: pension fraud should be directed to FINRA only if committed by a broker or financial advisor.
Since FINRA and the SEC both handle issues concerning investment fraud, it’s not always easy for an investor to identify which group he or she should approach for help. Moreover, it’s important for investors to understand that not every broker is a FINRA member. If your broker is not FINRA-licensed, FINRA may not have jurisdiction (authority) over the issue, meaning you may need to approach another organization, such as the SEC.
If you have any concerns about securities fraud and where to report it, it’s prudent to speak with a financial negligence attorney, who can analyze your situation to determine the proper course of action. An attorney can also help to protect your legal rights, gather and analyze evidence that supports your case, and work to maximize your financial recovery.
If it is determined that you should bring your matter before FINRA, the next step is to determine whether you should file a complaint or file a claim. Though these terms are sometimes used interchangeably when discussing legal matters, they are distinct procedures where FINRA is concerned.
Filing a complaint, which can be done online in a matter of minutes, simply alerts FINRA to the fact that misconduct may have occurred. If your goal is to recover compensation for your financial losses, you will generally need to file a claim initiating a formal dispute resolution process, namely mediation or arbitration. This may be done in addition to filing a complaint. While participating in dispute resolution –or in other cases, initiating litigation – does not guarantee the recovery of compensation, it is an essential step if you wish to be reimbursed for losses you sustained due to stockbroker negligence, broker breach of contract, unauthorized trades, or other examples of prohibited conduct within the financial industry.
Our FINRA Arbitration Lawyers Can Help You File a Claim Against Your Broker
Being victimized by fraud is an overwhelming experience that can leave you feeling confused, frustrated, and unsure of where to turn. However, you do not have to handle the issue by yourself. If you or your husband or wife was defrauded by a brokerage firm, an individual stockbroker, or an investment advisor, the experienced FINRA attorneys of Epperson & Greenidge, LLP can provide you with a free legal consultation about your rights and options as an investor. To request your free consultation, simply use our online contact form, or call our law offices at (877) 445-9261.