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Difficulty: MediumSelf-Regulatory Organizations (SROs) and FINRA

An investor discovers that a registered representative engaged in fraudulent conduct while recommending corporate bonds and requests that FINRA criminally prosecute the representative and sentence them to prison. Which of the following statements accurately describes FINRA's legal authority in this situation?

  1. FINRA can impose administrative sanctions such as fines, censures, or barring the representative from the industry, but criminal prosecution must be brought by government law enforcement authorities.Answer
  2. B
    FINRA has statutory federal authority to indict and criminally prosecute registered representatives for criminal violations of securities statutes.
  3. C
    FINRA lacks any disciplinary jurisdiction over registered representatives once fraud is alleged, transferring all regulatory oversight exclusively to commercial banking regulators.
  4. D
    FINRA can discipline the broker-dealer firm as an agent in securities transactions, but has no legal authority to penalize individual associated persons.

Answer

FINRA can impose administrative sanctions such as fines, censures, or barring the representative from the industry, but criminal prosecution must be brought by government law enforcement authorities.
FINRA is a self-regulatory organization (SRO) authorized by federal law to enforce rules governing the ethical conduct and compliance of member broker-dealers and registered representatives. While FINRA can levy significant administrative penalties—including monetary fines, public censures, suspensions, and permanent industry bars—it is not a government agency and cannot bring criminal charges or imprison individuals. Criminal prosecution remains under the jurisdiction of federal authorities (such as the Department of Justice) or state prosecutors.

Step-by-Step Solution

1
Identify FINRA's status as a Self-Regulatory Organization (SRO).
Recognize that FINRA is an independent non-governmental SRO operating under SEC oversight, not a government agency.
SRO status defines the legal boundaries of FINRA's regulatory powers.
2
Differentiate between SRO administrative disciplinary powers and federal/state criminal authority.
Establish that FINRA can fine, censure, suspend, or bar members, but criminal prosecution (imprisonment) is reserved for government bodies like the Department of Justice (DOJ) or state attorneys general.
Only governmental law enforcement agencies hold statutory power to prosecute criminal charges.

Key Concept

FINRA SRO Disciplinary Authority vs. Criminal Prosecution
Estimated Time:1m 0s
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Topics

Self-Regulatory Organizations (SROs) and FINRA

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