The Financial Industry Regulatory Authority (FINRA) works to keep the markets safe for investors and has the power to sanction investor-brokers who violate its rules. Some of these rules have a very broad reach, such as Rule 2010.
What is Rule 2010?
Rule 2010 provides that all members “shall observe high standards of commercial honor and just and equitable principles of trade.” The organization notes that this rule is broad, a catch-all provision that allows FINRA a good deal of flexibility when building cases against broker-dealers for alleged wrongdoing.
Because of this flexibility, FINRA often includes the rule in disciplinary proceedings.
How does FINRA use this rule against broker-dealers?
In order to build a successful claim against a broker-dealer, the organization generally needs to show a connection between the questionable activity and business dealings. If this connection is not there, the claim should fail.
In an example, FINRA investigated a broker for allegedly submitting fraudulent student loan applications for one of his children. In one part of the case, the broker used customer information to co-sign a loan. That was a violation. However, in another part, the broker altered his daughter’s driver’s license. That was not a violation because it was not connected to his business. As such, FINRA’s disciplinary panel dismissed this portion of the case.
How can this help my case?
The example above highlights how even if the business activity requirement is not true for the entire set of allegations, it can still apply to a portion of the case. This can reduce FINRA’s claim and give you a better chance to fight back against the other, remaining claims.