Securities Litigation

FINRA has submitted a proposal to the SEC to adopt FINRA Rule 2243 (Disclosure and Reporting Obligations Related to Recruitment Practices). In FINRA's words, Rule 2243 would require, in some cases, "specific disclosure by the recruiting member firm of the financial incentives a representative receives as part of his or her relationship with the new firm. The recruiting member firm would be required to provide the disclosure before a former retail customer of the representative makes a final determination to transfer an account to the new firm." Specifically, disclosure would be required if a recruitment bonus (in whatever form) for a broker exceeded $100,000. There would also be a required disclosure to FINRA if the recruiting firm believed that there would be an "expected increase of 25% or $100,000 over the prior year's compensation." When FINRA provided a regulatory notice and sought comment on the proposed rule, the reaction was mixed. While many support the idea of making information available to brokers' customers, particularly so that the customers can consider the costs of moving from one firm to another, others have raised concerns that the rule could chill the movement of registered representatives and have argued that any costs to customers related to moving from one firm to the other is already disclosed to customers. The SEC could put the proposed rule out for further comment or could approve it. In the previous opportunity for comment, there were a substantial number of comments, and any future comment period would be expected to elicit a similar response. For more information on securities litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.