On a Friday afternoon (always Friday!), you open a letter to discover an “invitation” to a local FINRA district office. FINRA is demanding you to provide on the record testimony in an investigation. The dreaded FINRA OTR. Take heart, there is a good chance that you are not the subject of the investigation, just a person with knowledge of the facts and circumstances. After informing your supervisor and Chief Compliance Officer, what should you do next?
Consult with Counsel
First, it is time to locate legal counsel and get him or her briefed on the situation. Your firm may offer their corporate counsel (at no cost) but strong consideration should be given to obtaining your own counsel. You and the firm may not be aware of the precise nature of the investigation which will make it very difficult to anticipate any conflicts of interest that may be present. It is important to have an experienced counsel that has only your best interests in mind. Look for someone with ample experience representing clients in OTRs and all other stages of the regulatory enforcement process — “Wells” Notices, negotiating Acceptance, Waiver and Consents (AWCs), and defending parties in enforcement proceedings.
Your counsel will contact your firm and FINRA to coordinate your appearance and work out any logistical details required. FINRA is usually amenable to short delays but requests should be limited to good faith reasons. The people taking your FINRA OTR will be the same people recommending a disposition of your case to FINRA headquarters.
Review Relevant Documents
Next you and your counsel should review any documents at issue in the case and discuss any foreseeable lines of questioning. Although this won’t change the facts or your answers, it is good to avoid surprise whenever possible. For instance, be sure to review the prospectus and/or disclosure documents of any investments sold to the client. Avoid discussing your testimony with anyone except your counsel. FINRA may very well ask for a list of persons you consulted with in preparation for your FINRA OTR. Let that be your shortest answer of the day.
What to Expect
Upon arrival for your FINRA OTR there will usually be any number of persons present. At a minimum expect to find a contract court reporter, the lead FINRA investigator, and a FINRA enforcement attorney. You might bring a FINRA compliant business card to assist the court reporter in getting your name and address correct.
FINRA will start by introducing the parties present and going over the rules of the interview. You are required to answer questions truthfully and will be providing sworn testimony. You are not compelled to answer any question but your failure to do so can be used to bar you from FINRA. Be sure to seek advice from counsel before answering if there is any jeopardy of self-incrimination. Open questions must be answered before any break in the proceeding will be permitted.
They will usually spend an hour or more asking about every item on your CRD to include detailed biographical information and any customer complaints. Thoroughly review this information prior to the OTR and make sure that it is accurate. Expect to be asked for the reason for every job change, even for jobs prior to joining the financial services industry. Don’t be fooled by their casual and friendly demeanor at this point, more difficult and pointed questions are forthcoming.
The investigators will present many documents, emails and other matters to you for review. Be sure to read each item very carefully before answering questions about it. FINRA knows exactly what is on each exhibit but it may be new to you. Close attention to detail can help you avoid uncomfortable follow-up questions.
Your counsel cannot object to questions. However, counsel can suggest that confusing or misleading question to be reworded or rephrased. After FINRA completes its questioning, the person providing testimony can clarify issues and/or provide more information for consideration. Be certain to keep any questions or comments very professional. Again, disrespect to FINRA or its personnel will do no good. Suggesting a short break before deciding whether to clarify issues is usually a good idea.
You will not be provided a copy of the transcript unless you purchase one from the contract court reporter. Discuss with counsel whether that is a good idea in your case. Reading the transcript can help to correct any errors in the record but possession of it can also lead to discovery obligations in future or current litigation.
You will likely hear nothing more from FINRA unless they decide to request additional documents or notify you of their intent to bring an enforcement action against you. In some cases, this unhappy call came over 12-14 months after the OTR. Before agreeing to any level of sanction from FINRA, be sure to discuss this matter with your counsel. Plaintiff lawyers will sometimes seize upon a reported violation to solicit new claims against you. This, in turn, can put you right back in the witness chair at another OTR.
In summary, treat any notice of OTR as a significant career event that an experienced regulatory defense counsel should manage carefully. These are general recommendations, and not personal legal advice. If facing a FINRA OTR, you should consult with personal legal counsel. You may contact Jon Stanfield at firstname.lastname@example.org with any further questions you may have about FINRA OTRs.
Jon M. Stanfield