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Recent SEC action expands money managers’ due process rights

So-called “statutory disqualification” is unquestionably a punitive and even career-killing penalty for a financial adviser so tagged by the Financial Industry Regulatory Authority.

As we have noted in prior select blog posts at the California Century Law Group (with multiple offices spanning the state), FINRA is the agency arm operating under the umbrella of the U.S. Securities and Exchange Commission that regulates most of the country’s brokerage firms and money advisers. An adverse result in a disciplinary hearing can yield stark consequences for an individual alleged to have committed fraud or other wrongdoing against a customer.

The statutory disqualification sanction was levied by FINRA upon one California financial adviser for alleged wrongful actions taken during his representation of one client. Disqualification essentially barred him from further practice by precluding his association with another FINRA member firm.

A recent article in the publication Financial Advisor notes that it has long been the case that a disqualified individual can only get an appeal before the SEC via a firm’s intervention on his or her behalf. As that piece notes, firms are rarely inclined to that.

The result: routinely denied due process rights for a sanctioned individual.

Financial Advisor now reports a new development, though, which resulted when the above adviser made a strenuous argument claiming a right to personally appeal an adverse outcome.

The SEC recently agreed with his claim, noting that the customary practice of needing a firm to intervene on behalf of a claimant too often leaves that individual “with zero avenue for due process.” The commission ruled last month that disqualified advisers will have the right to bring appeals personally.

Questions or concerns regarding disciplinary actions taken against licensed professionals in the financial industry can be directed to attorneys at a proven license defense law firm.

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