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Sutherland FINRA Focus #4: 2012 Advertising Sanctions

March 19, 2013

As reported on March 13, 2013 in Sutherland’s annual analysis of FINRA’s disciplinary actions, advertising violations generated the fourth-largest amount of fines for the regulator in 2012.1 FINRA reported $10.4 million in fines from 50 cases involving alleged advertising violations in 2012.2 Although the number of advertising cases grew in 2012, from 45 in 2011 to 50 this past year, the amount of fines assessed dropped significantly. While FINRA imposed fines of $21.1 million in cases involving advertising allegations in 2011, this number dropped to $10.4 million in 2012, a decrease of 51%. This was the first year since 2009 that advertising was not ranked first on Sutherland’s Top Enforcement Issues list. This Sutherland FINRA Focus delves into FINRA’s recent enforcement actions and highlights some of the key 2012 advertising cases.

The chart below shows the total number of advertising enforcement actions and fines that FINRA has reported during each of the past seven years.

 FINRA’s Advertising Sanctions Statistics, 2006–2012


Fines Reported

Percentage Change

Percentage of Total FINRA Fines

Cases Reported

Percentage Change


$ 362,000






$ 6.1 million






$ 1.2 million






$ 5.5 million






$ 4.75 million






$ 21.1 million






$ 10.4 million






The number of cases involving alleged advertising violations has increased nearly every year since 2006, growing from eight actions reported in 2006 to 50 in 2012 (a 525% increase). These statistics also demonstrate that advertising cases make up a noteworthy percentage of FINRA’s annual fines. It remains to be seen whether advertising fines will return to 2011’s level or if that year was simply an aberration due to the significant fines ($9.5 million) imposed in advertising cases involving auction rate securities (ARS). There were no ARS advertising cases in 2012.

In a unique case where FINRA alleged that a firm made inaccurate representations about the firm’s services, rather than improper advertisements about a particular security, FINRA imposed a $900,000 fine.3 The firm’s primary business was to provide a trading platform, software, and support services for day traders. FINRA found that one of the firm’s subsidiaries had engaged in manipulative activities such as wash trading, layering, and spoofing. In addition, FINRA found that the firm’s descriptions of its trading platform did not provide customers and potential customers with a sound basis to consider its services. For example, risk disclosures on the firm’s websites were separated from its claims of effectiveness and were not featured prominently. The firm’s websites also contained many allegedly exaggerated statements, including noting that its software was “industry leading” and that it was the only direct-access trading firm on a magazine’s list of America’s fastest-growing companies. The firm did not disclose that this list was more than 10 years old and that it had to pay a fee to be included. Even after FINRA notified the firm about these advertisements, the firm continued to use them. These alleged violations not only led to a $900,000 fine by FINRA, but the New York Stock Exchange, NASDAQ , BATS Exchange, and the Securities and Exchange Commission also ordered the payment of $5 million in additional fines and disgorgement.

A firm was fined $375,000 by FINRA in a case involving the use of allegedly misleading and outdated mutual fund sales materials.4 The firm created advertising and training materials for an income-producing mutual fund, which were given to customers and selling firms and used internally. The mutual fund invested in allegedly risky and high-yielding asset-backed and mortgage-backed securities, including sub-prime mortgages, credit card loans, and auto loans. With the onset of the sub-prime crisis in 2007, the net asset value of the fund decreased significantly and it was clear that this fund was not suitable for conservative investors who wanted to preserve capital. The firm never updated the fund’s sales materials, which described it as investing in "high-credit quality" fixed-income securities, having low risk, and being appropriate for conservative investors. For these alleged advertising violations, the firm consented to a $375,000 fine.

In another notable 2012 case, FINRA ordered a firm to pay a $2.3 million fine and $12 million in restitution for the sales of a real estate investment trust (REIT) and collateralized mortgage obligations (CMOs). The firm was the sole distributor of the REIT and it used allegedly misleading advertisements when offering it to investors, many of whom were unsophisticated and elderly. Website advertisements included performance data for prior offerings of the REIT, but did not reflect recent dividend reductions and did not indicate that those distributions were partially funded by debt. Seminar slides that the firm used to promote this offering were also found to contain misleading and exaggerated statements about the REIT’s performance. Although FINRA told the firm to stop using those slides, it continued to do so. In addition to the fine and restitution, the firm agreed to revise its advertising procedures. The firm is required to pre-file all sales literature with FINRA for the next year. The firm also agreed to videotape all sales seminars attended by 50 or more people for the next three years.

These three examples, the increasing number of advertising cases, and the consistently large amount of resulting fines demonstrate that FINRA is taking potential advertising violations very seriously. Firms may want to review the disclosures made in their advertising provided to investors, and in their internal marketing or training documents, especially those involving complex products, for accuracy and completeness. 

  1. Annual Sutherland Analysis of FINRA Sanctions Shows Number of Enforcement Actions Rises Slightly in 2012, Fines Jump by 15% Sutherland released a FINRA Focus for 2012’s suitability cases on March 14, for due diligence cases on March 15, and for research report and research analyst cases on March 18.
  2. The number of cases reported and the amount of corresponding fines come from the Disciplinary and Other FINRA Actions report that FINRA publishes each month. Many of these cases also involved other allegations, making it difficult to attribute the exact amount of any particular fine to an alleged advertising violation.
  3. FINRA Letter of Acceptance, Waiver, and Consent, Sept. 25, 2012, No. 20090177697.
  4. FINRA Letter of Acceptance, Waiver, and Consent, July 12, 2012, No. 2008013791601.

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Washington, DC
Adam C. Pollet, Associate
Washington, DC
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