FINRA Rule 2010 – the “catch all” provision for broker misconduct
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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
What is FINRA Rule 2010?
FINRA Rule 2010 is a broad, sweeping rule that is utilized to address misconduct that is not directly addressed by another FINRA rule. The rule is centered around the use of ethical business practices by brokers and financial institutions. While the rule itself is short, it has wide repercussions in the financial industry. If you or a family member was a victim of dishonest practices by a financial institution, you should consult with an experienced FINRA arbitration lawyer today. At Epperson & Greenidge, LLP our investment lawyers are dedicated to assisting you with all your investment-related issues. Our lawyers are here to explain how FINRA Rule 2010 operates.
How FINRA Rule 2010 Works
The Financial Industry Regulatory Authority (FINRA) is an organization that allows investors to resolve issues with financial advisers and brokerage firms by using FINRA arbitration proceedings. To protect investors from financial negligence and other unethical practices committed by financial firms, FINRA Rule 2010 was passed.
FINRA Rule 2010 is titled “Standards of Commercial Honor and Principles of Trade.” The rule states that a firm “in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.” FINRA purposely omitted an exact description of high standards of honor and equitable principles in order to apply this rule to a wide range of circumstances.
While FINRA has many other rules to address several types of misconduct, Rule 2010 is tailored to catch all forms of misconduct that FINRA has not yet addressed. Rule 2010 also shows that it would be infeasible for FINRA to create a rule for every possible type of misconduct. It is important to note that Rule 2010 is usually triggered after looking at the totality of the circumstances for each offense. This means that a FINRA arbitration panel and other judiciary panels will have to apply Rule 2010 on a case-by-case basis to determine whether a firm or individual engaged in dishonest practices.
Rule 2010 is also part of a group of rules that regulate conflicts of interests that affect financial firms. For example, the Securities Exchange Act of 1934 is used to prevent firms from providing misleading or fraudulent information for the purpose of selling securities. Rule 2010 was drafted by using principles from the Securities Exchange Act of 1934.
Examples of Rule 2010 Violations
The following is a list of conduct that can trigger FINRA Rule 2010:
- Downloading confidential customer information like account numbers and net worth and providing it to a third party without their consent
- The misappropriation of client or firm funds
- Attempting to receive an unearned commission as a FINRA-associated individual or firm
- Violating fiduciary duties by misappropriating funds
- Attaching customer signatures to documents without their authorization
- Forging a customer’s signature to a check to misappropriate the funds
- Soliciting donations for personal benefit or other improper uses
- Providing a customer with misleading information or omitting financial information
- Fraudulently receiving reimbursement for club initiation fees from an employer
- Initiating litigation against a customer and then neglecting to pay attorneys’ fees and other expenses after the customer prevailed
This is not an exhaustive list of conduct that may cause an individual or firm to violate Rule 2010. There are several other forms of conduct that may trigger the rule. Additionally, as time passes more actions will fall under this rule as inappropriate conduct. If your broker or financial adviser committed any of the above conduct, you should contact a lawyer immediately. If you believe some form of conduct was violative of this rule, but you are unsure, you should still contact an attorney.
Work with Our FINRA Arbitration Attorneys Today
At Epperson & Greenidge, our FINRA arbitration attorneys are prepared to help you handle unethical practices committed by your broker or financial adviser. If you have suffered losses because you hired the wrong financial adviser who mishandled your funds, we are here for you. To schedule a free legal consultation, contact us at (877) 445-9261.