Fighting The Regulators Pays Off For A Shocking Number Of Firms Accused Of Misconduct

Thursday, March 17, 2011 21:05
Fighting The Regulators Pays Off For A Shocking Number Of Firms Accused Of Misconduct

Tags: FINRA | fraud | sec

It's easy to forget, but a lot of firms -- large and small, and presumably innocent and guilty as well -- fight FINRA and SEC enforcers and win. 

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Law firm Sutherland Asbill & Brennan crunched the numbers and discovered that while most accused parties simply settle in order to save time and money, 13% of all securities disputes that go to litigation or a hearing end up dismissed.


Last year alone, the SEC failed to prove 57% of the fraud charges its enforcers filed, and even when the regulators win, 33% of the time the penalties are argued down.


FINRA appears to be marginally more successful in getting its charges to stick and its fines to hold up in court when challenged.


For those who believe the regulators are always right, these figures are probably troubling.


But for those looking for proof that due process is alive and well as an antidote for the occasional mistake, it's probably encouraging to see that weak regulator cases can and do get thrown out when the evidence just doesn't support the charges.


And in any event, settlement isn't always a way for an obviously guilty firm to cut its losses and even come out ahead of the game.


It turns out that the "settlement discount" may be a bit of a myth -- the regulators only ask for higher penalties than discussed in settlement talks 44% of the time, and it's an even money bet whether the arbitrator will assign a steeper or lighter penalty if the case ends up in a courtroom.






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