SEC Grants Wide Latitude to FINRA when Requesting Information
The SEC refused to stay the FINRA suspension of an associated person for failing to deliver documents requested as part of an investigation. The appellant refused to respond to document requests by arguing that they related to information about an unrelated third party i.e. the unregistered entity that ultimately controlled the member firm. The SEC opined that the information is not sought from a third party but from an associated person. Because the documents belonged to the appellant, they were in his “possession, custody and control.” The SEC dismissed his privacy and confidentiality concerns because a person that becomes an associated person consents to FINRA’s ability to request business records and share them with other regulators. The SEC also dismissed his due process argument because FINRA is not a state actor.
OUR TAKE: FINRA has wide latitude when requesting information and documents as part of an investigation, even when the documents relate to unregistered entities and activities. The SEC position in this case appears to be that if you want to keep documents from FINRA, don’t associate with a broker-dealer.