Impact of COVID-19 on Regulatory Investigations

As a FINRA Associated Person (“Broker”) or an Investment Advisor Representative (“IAR”), you know about COVID-19 and the impact it has had in the world. COVID-19 has impacted almost every sector of the finance world, from your most aggressive trading to a conservative bond fund. However, how will COVID-19 impact regulatory investigations?

The number of Regulatory Investigations will likely increase dramatically considering COVID-19.

            If history is any indicator of what is to come after the dust of COVID-19 settles, all we must do is look back to the recent large collapses in the market. A review of the historic crashes in the market that resulted in 1987, 2001, and 2008, show us two things: dramatic increase in litigation by investors, which in turn, increases regulatory scrutiny.

Third Parties, other financial professionals, Investment funds, Fixed Funds, and Alternative Products can be implicated by one person doing the wrong thing.

            Some may argue the longest bull market has come to an end considering COVID-19. Similar to 2008 and other big crashes, profits and growing money hide unsavory practices by the corrupt few. However, when the money and profits stop, the problems are exposed. Ponzi schemes are exposed. Auditing practices of balance sheets turn out to be skewed. When it comes to FINRA, SEC, State Regulators, or any other regulator, anyone involved will be investigated.

Likely, you are one of the individuals that had no knowledge of bad conduct, but if you are not careful, you will be hit with a regulatory investigation.

            As we begin to see which products and practices are exposed after COVID-19, you need to be prepared if you receive the 8210 Letter by FINRA. You need to be prepared if you see the letter by a State Regulator opening an investigation. If you know that you truly did nothing wrong, you can still be hit with a regulatory disclosure, if you are not careful. Never speak with a regulator about an ongoing investigation without legal representation.

What do I do if I am being investigated?

1.     Seek outside legal counsel, do not use an in-house lawyer. Remember, your firm has their own interest to protect.

2.     Do not panic. Most investigations come with a deadline, you can always reach out to the regulator for an extension because you are seeking outside counsel.

3.     Do not ignore the investigation.

4.     Inform your employer in compliance with your employer’s policy on reporting investigations. Most firms require you disclose the investigation the second you are aware of it.

Call (720) 845-1251, if you are under investigation for a free consultation.