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FINRA Rule 2010

FINRA Rule 2010 is among the shortest rules that regulated securities professionals have to comply with. It is also among the broadest regulations that FINRA has implemented, potentially covering any type of wrongdoing, whatsoever.

The securities litigation and FINRA defense attorneys at the national law firm of Oberheiden P.C. have helped numerous securities professionals comply with the vague and exceptionally broad FINRA Rule 2010, and have protected their rights, interests, and futures if they have been accused of violating it.

Experienced FINRA Defense Lawyers

John W. Sellers
John Sellers
FINRA Rule 2010 Team Lead
Former DOJ Trial Attorney
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Dante Tosetti
Dante Tosetti
FINRA Rule 2010 Team Consultant
Former Bank Examiner

FINRA Rule 2010: An Overview

FINRA Rule 2010, in its entirety, states that, “A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.”

That is it.

It is not inaccurate to say that Rule 2010 says very little more than that “members” shall commit misconduct, with “members” being defined by FINRA Rule 0160(b)(10) as “any individual, partnership, corporation or other legal entity admitted to membership in FINRA,” and “misconduct” not being defined at all.

For this reason, FINRA Rule 2010 is often called the agency’s “catch-all” rule. When securities professionals do something that does not violate any of FINRA’s other regulations or even any securities laws, but their conduct nonetheless seems wrongful in some way, FINRA can point to Rule 2010 and initiate an enforcement action against the alleged offenders.

A Broad Prohibition of Bad Conduct

The vague language of FINRA Rule 2010 has been used to justify enforcement actions against securities professionals who appear to have committed misconduct or shady business dealings, but who have not violated any of the other rules. This means that FINRA can use Rule 2010 to pursue nearly any type of business dealings that it does not find to be honest and proper. However, FINRA enforcement actions that have utilized Rule 2010 show that certain types of misconduct are more common than others.

For example, FINRA frequently uses Rule 2010 to pursue allegations of dishonesty and fraud that fall in between the confines and prohibitions of the agency’s other, more specific, rules. In this sense, FINRA Rule 2010 acts as a kind of fall back option for the agency when it is faced with a novel form of deceit or deception in securities transactions. Just a few of the enforcement actions that can rely on Rule 2010 are those that target:

  • Submitting false invoices or expense reports
  • Stealing client funds
  • Overbilling
  • Cheating on exams
  • Forgery
  • Refusing to pay attorneys’ fees from securities litigation

It is not uncommon for alleged violations of Rule 2010 to be filed alongside allegations that other FINRA rules were violated, as well. By including Rule 2010 in the enforcement action, FINRA can use the vagueness of the Rule to save their disciplinary action if the claims under the other rules do not come to fruition.

Put our highly experienced team on your side

Dr. Nick Oberheiden
Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd
Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester
Brian J. Kuester

Former U.S. Attorney

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney

Local Counsel

John W. Sellers
John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara
Linda Julin McNamara

Federal Appeals Attorney

Aaron L. Wiley
Aaron L. Wiley

Former DOJ attorney

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (DOJ)

Chris Quick
Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow
Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Misconduct Does Not Have to Be Intentional

However, FINRA has also made it clear that a bad motive or a culpable state of mind is not necessary for a regulated securities professional to run afoul of Rule 2010. Mere negligence suffices for the unprofessional conduct that is prohibited by the Rule. Securities professionals can find themselves being accused of violating Rule 2010 if they:

  • Accidentally lose client funds
  • Forget to complete a trade
  • Behave unprofessionally while on the job
  • Share a customer’s confidential information
  • Fail to uphold their legal obligations under other laws, such as federal anti-money laundering statutes

Even when the alleged misconduct happens in the heat of a moment or purely by accident, FINRA can use Rule 2010 to punish regulated professionals for conduct that falls below “the high standards of commercial honor.”

Illegal Conduct Automatically Violates Rule 2010

Conduct that is actually illegal is a per se violation of FINRA Rule 2010, as complying with U.S. securities laws is a fundamental component of the professionalism that is required by the Rule. Convictions for any of the following types of white collar crimes will lead to a FINRA enforcement action under Rule 2010, and likely under other FINRA rules, as well:

While criminal convictions carry their own penalties, the FINRA violation will likely make it impossible to return to your former occupation once your sentence is complete.

Rule 2010’s Tie to Job Performance is Weak

Perhaps the only limitation to FINRA Rule 2010’s reach is that the FINRA member’s behavior that it regulates has to be “in the conduct of its business.” Rule 2010 cannot regulate what you do on your own time or in your personal life.

However, FINRA disciplinary actions related to Rule 2010 show that even this limitation is weaker than it would first appear.

In one FINRA enforcement action from 2019, a regulated securities professional at a major bank used his debit card to withdraw cash for personal purposes, only to report the transaction as fraudulent and receive a reimbursement. When informed of the allegations of bank fraud, he denied defrauding the bank, only to confess when confronted with the evidence. Even though he correctly pointed out that the debit card fraud did not involve his status as a broker or even any securities transactions, the FINRA Hearing Panel focused on “the ethical implications of his misconduct,” stressing that “the relationship between an associated person’s unethical actions and the conduct of his securities business need not be close.”

Penalties of Violating Rule 2010

When FINRA determines that you have violated Rule 2010, it can impose financial penalties and can take action against your license to engage in the securities industry. Particularly when the Rule 2010 violation involves illegal conduct or a brokerage firm’s systemic failure to uphold its legal obligations under state or federal law, the monetary penalties can be extremely high, often running well into the millions of dollars.

Frequently Asked Questions About FINRA Rule 2010 and Oberheiden P.C.

Can I Be Disciplined Under Rule 2010 if I Did Not Break the Law?

 

Yes. FINRA has repeatedly relied on Rule 2010 to punish regulated securities professionals who have engaged in apparent misconduct, even if that misconduct did not amount to a violation of the law.

How Does FINRA Investigate Alleged Violations of Rule 2010?

 

Generally, Rule 2010 investigations begin when a customer or client makes a complaint or if FINRA learns of a legal proceeding against you. Once FINRA investigators learn of a potential violation, they will conduct a confidential investigation to gather the facts surrounding the issue. This includes conducting interviews with relevant people and gathering tangible evidence – typically in the form of documents – and computer files.

Other FINRA rules require regulated professional to cooperate with this investigation.

If there is reason to believe that Rule 2010 was violated, FINRA will formally charge you and issue a sanction. These are both made public. Even if the monetary sanctions and license suspension are relatively light, the stain that the enforcement action can leave on your professional reputation can be difficult to overcome.

Why Should I Hire Oberheiden P.C.’s FINRA Defense Team?

 

Because Oberheiden P.C. is a unique law firm in that we only employ senior lawyers with extensive experience in the securities field. This sets us apart from other law firms that have a structured hierarchy of senior partners, associates, junior associates, paralegals, and legal secretaries. When you hire these other firms, you are often drawn to the experience of the partners, who frequently have spent decades in the field. However, almost none of the legal work that you will receive will come from them. Instead, they will delegate your case down to an associate, who will frequently delegate it again to a junior associate who has only just started to practice the law.

That is not how Oberheiden P.C. does things. We think that all of the legal work that you receive should be performed by the same lawyers who drew you to our firm.

That is why we only employ senior-level lawyers. We do not have junior associates on our staff, or even any paralegals or legal secretaries. When you call Oberheiden P.C., a lawyer with extensive experience in securities litigation will answer the phone. When you get legal advice from our firm, it will come from an attorney who has handled hundreds of cases like your own. When you receive our work product, you know that it was done by a lawyer who knows what he or she is doing.

Why Doesn’t Oberheiden P.C. Call Itself the Best FINRA Defense Firm?

 

We prefer to let our prior clients say things like that about our law firm, rather than saying them on our own. We find that it means far more when our prior clients leave testimonials about the stellar legal services that we have provided for them.


Contact Oberheiden P.C. for FINRA Defense Today

If you or your brokerage firm has been accused of violating FINRA Rule 2010, you need to take aggressive steps to protect your interests, your future, and your professional reputation.

Call the FINRA defense team at the national law firm Oberheiden P.C. at (888) 680-1745 or contact them online for the legal guidance and representation that you need at this important time in your professional life.

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