CSG Law Alert: Does a Recent Settlement Signal a Change in FINRA’s Approach to Restitution?
Between January 1, 2021 and December 1, 2024, FINRA ordered restitution in 146 settlements. In 145 of the 146 settlements, FINRA ordered the respondents to pay a specific dollar amount—often down to the penny—to specified harmed investors. In a recent settlement, however, FINRA took a markedly different approach.
In a Letter of Acceptance, Waiver, and Consent (AWC) issued in Independent Financial Group, LLC, FINRA charged respondent IFG with violating Reg BI’s Care and Compliance obligations for failing to reasonably supervise representatives’ recommendations to customers to rollover 529 plan investments from one state plan to another. FINRA alleged that the firm’s violation resulted in “at least 18 customers” paying sales charges and fees that they should not have been charged.
FINRA did not, however, order IFG to pay a specific amount of restitution to the 18 harmed customers. Instead, FINRA directed IFG to retain a third-party consultant to calculate the amount of restitution owed to each “Eligible Customer.” The AWC requires the third-party consultant to submit an “initial written report” to FINRA within 120 days of the AWC setting forth the proposed restitution payments; the AWC requires IFG to thereafter pay the proposed restitution amounts.
This change in approach to restitution may be a good development for firms and individuals who find themselves in FINRA’s crosshairs. For many respondents, the most painful part of paying restitution is not the payment itself but the lengthy process of negotiating a restitution methodology with FINRA, which may involve numerous, voluminous requests for data and a litany of clarifying 8210 requests that can stretch for a year or more. Though hiring a third-party consultant can be a costly option, it is, at least, an alternative to lengthy restitution negotiations with FINRA.