The U.S. Securities and Exchange Commission has settled allegations that the industry self-regulatory organization, the Financial Industry Regulatory Authority, improperly altered documents before providing them to the SEC.
According to the SEC’s order instituting settled administrative proceedings, certain documents requested by the SEC’s Chicago office during an inspection were altered just hours before FINRA’s Kansas City office provided them. The SEC’s order finds that on Aug. 7, 2008, the director of FINRA’s Kansas City office caused the alteration of three records of staff meeting minutes just hours before producing them to the SEC inspection staff, making the documents inaccurate and incomplete.
The SEC’s order notes this was the third instance during an eight-year period in which an employee of FINRA, or its predecessor (the National Association of Securities Dealers), provided altered or misleading documents to the SEC.
Without admitting or denying the findings, FINRA consented to the SEC’s order which requires it to engage an independent consultant within 30 days that will: conduct a comprehensive review of FINRA’s policies and procedures and training relating to document integrity; assess whether the policies and procedures and training are designed to ensure the integrity of documents provided to the SEC; and, make recommendations for the enhancement of FINRA’s policies and procedures and training in light of the review.
“The law requires FINRA to produce the documents the SEC seeks in its examinations in complete and accurate form,” said Gerald Hodgkins, associate director of the SEC’s Division of Enforcement. “Although FINRA has previously taken steps to improve compliance, those enhancements did not go far enough to prevent the document production failure that occurred in its Kansas City district office. This order will help ensure that FINRA effectively addresses the weaknesses in its training as well as its policies and procedures.”
Richard Ketchum, FINRA’s chairman and CEO, said, “As a regulator, FINRA must always hold itself to the highest standards. When we discover shortcomings, it is our obligation to take appropriate corrective action and make it clear that we have zero tolerance for actions that could compromise the integrity of our organization.”
Ketchum notes that it self-reported the Kansas City matter to the SEC and fully cooperated with the SEC’s review. And, following an internal review, it appointed new leadership in the Kansas City office, and instituted a number of changes that aim to strengthen document-handling procedures across the organization.
“I am personally committed to taking all possible steps to ensure that this type of conduct does not reoccur. We have taken prompt action to report, investigate and discipline the behavior at issue in this matter. Under no circumstances will such conduct be tolerated at FINRA,” he added.