FINRA is Taking Action

What is FINRA?

FINRA stands for Financial Industry Regulatory Authority, a not-for-profit organization that works under the supervision of the U.S. Securities Exchange Commission that is “dedicated to protecting investors and safeguarding market integrity in a manner that facilitates vibrant capital markets.”  Playing a critical role in the integrity of America’s financial system, FINRA writes and enforces rules governing the ethical activities of registered brokers in the U.S., examines firms for compliance with those rules, fosters market transparency, and educates shareholders.

Last month, FINRA announced plans to implement regulatory sweeps (formerly known as “targeted examination letters”) to address recent incidents involving special purpose acquisition companies and social media “finfluencers” – online personalities who are giving financial advice.  While FINRA has not hinted at the timing of the sweeps, its CEO Robert Cook noted, “Innovation is great, but compliance with the rules is not optional, and it can’t be sacrified for the sake of innovation.”

FINRA’s interest in SPACs and conflicts of interests were sparked in part by the SEC’s recent enforcement action that included a fine in excess of $8 million against various parties involved in the acquisition of Momentus by SPAC Stable Road Acquisition.  The SEC determined that investors were misled into believing a propulsion system developed by Momentus had been successfully tested in space when the test had actually failed.  FINRA’s interest in finfluencers results from the market volatility that surrounded GameStop and other meme stocks, which was exacerbated by a plethora of online retail investors who bought up the stocks after short-selling hedge funds bet against them.  The sweep will focus on “how firms supervise activities and communications related to paid social media influencers,” according to Cook. 

FINRA also intends to look into “options account opening compliance” and the “due diligence that’s being conducted in that space.”  Some argue that online trading platforms are offering sophisticated trading to unsophisticated traders.  Coming under such scrutiny is Robinhood Financial LLC, which settled with FINRA for a record-setting $57 million, plus $12.6 million in restitution, on claims that included alleged misrepresentations about the risks associated with options transactions, among other things.

There are many resources out there to assist investors.  If you have questions about your investments, feel free to reach out to the attorneys at Robbins LLP.  We can evaluate your investments from a legal perspective to ensure the corporation and its executives are managing them honestly.

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