In this month's Neutral Corner, FINRA issues a reminder that arbitrators can make disciplinary referrals during, or at the conclusion of, arbitration proceedings. The matter or conduct can be from the record or from the material or communications related to the arbitration, which the arbitrator has reason to believe may constitute a violation of FINRA rules, federal securities laws or other applicable rules or laws. In general, arbitrators should refer matters that are of regulatory interest.

A disciplinary referral is not a recommendation that discipline be imposed, but a recommendation that FINRA conduct an investigation to determine whether disciplinary action is appropriate. After final evidentiary hearings, arbitrators may indicate in the Award Information Sheet if they wish to make a disciplinary referral and should use the Disciplinary Referral Form. The referral should be specific and identify documents, exhibits or testimony that gives rise to the referral. Information about the referral will not be part of the award.

In 2014, FINRA amended Rules 12104 and 13104 to allow arbitrators to make a referral, in an open case, of any matter or conduct that the arbitrator has reason to believe poses a serious threat, whether ongoing or imminent, that is likely to harm investors unless immediate action is taken - e.g., evidence of a Ponzi scheme. If arbitrators believe that such a threat exists but the case is about to conclude, it may be preferable to wait until the case concludes to make a post-case referral as long as doing so would not materially compromise investor protection. Arbitrators who want to make a referral should complete a Disciplinary Referral Form, detailing the nature of the potential violation(s) or conduct. 

[Click link below for more information on the referral process.]