SEC Cites Reg BI in Civil Regulatory Action Filed Against Brokerage Firm for Sales of Complex Securities to Retail Investors

Recently, Reg BI was cited in a news release regarding a civil regulatory action filed by the SEC against a brokerage firm for sales of complex securities to retail investors (“SEC Complaint”). This represents the first time that a Regulatory Enforcement Complaint specifically referenced Reg BI. In turn, a private action was recently filed on the same security with reference to the SEC action.  Reg BI was also recently included in FINRA’s regularly published “Top 15 Controversy Types in Customer Arbitrations”.

Of the four Reg BI Obligations, the SEC Complaint only cited the Care and Compliance Obligations; they did not cite Disclosure or Conflict. There are many potential valid defenses to civil actions and arbitrations, including those inferred from the language of the Reg BI proposing and adopting releases.

We are glad to help answer any questions and are regularly engaged to assist firms in developing Reg BI policies, controls, and procedures, and explain how the Obligations are both based on – and different from – existing rules and industry practices on suitability (now Reg BI Care Obligation), conflict, disclosure, and compliance procedures.