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FINRA’S CEO Speaks on Financial Fraud at 2011 Conference

The following are excerpts from Richard G. Ketchum, Chairman and CEO of FINRA, the Financial Industry Regulatory Authority, and Chairman and Chief Executive Officer Research Center on the Prevention of Financial Fraud in Washington, DC, Thursday, November 3, 2011.

We bring together policymakers, researchers, practitioners, law enforcement and others to discuss how we can better share research to support our fight against financial fraud.

Unfortunately, most of us here in this room are all too familiar with the damaging effects of financial fraud. From Ponzi schemes to online phishing scams to schemes that capitalize on the news or people’s social circles—fraud criminals are using a number of ever-changing tactics to swindle Americans out of billions of dollars each year.

For those of us who are regulators or in law enforcement, our job is to keep up with these fraudsters—stopping them before they harm investors, or if that’s not possible, catching and punishing them when they do. But in order to do that well, we need to make sure we’re working together and, most importantly, sharing information that can help us all in our respective efforts.

That’s where this Research Center comes in. The goal of the FINRA Foundation’s partnership with Stanford is to deliver practical, cutting-edge research that can be used in the day-to-day business of preventing and detecting fraud.

This conference is an important first step to bringing together the academics who produce that research and those of us who need it in our fight against fraud.

Those on the frontlines of fighting fraud will learn how lessons from the lab can be applied on the streets. And those engaged in research will hear first-hand accounts from law enforcement officials and victim advocates. By sharing and learning from one another, this conference will be a catalyst for improving fraud prevention programs and policies.”

“The ultimate goal of the Center—and all of us here—is to better understand how and why financial fraud happens, to give consumers the tools they need to prevent fraud and to enhance fraud detection and protection programs. This conference marks the beginning of a unique and ongoing conversation to help achieve that goal.

After the frauds that came to light in 2009, FINRA had to refocus on fraud and enhance our procedures to detect it.

In October 2009, we established FINRA’s Office of Fraud Detection and Market Intelligence. This unit provides a heightened review of incoming allegations of serious frauds, offers a centralized point of contact internally and externally on fraud issues, and consolidates recognized staff expertise in expedited fraud detection and investigation. The office combined several departments, including the Office of the Whistleblower—established in March 2009 and departments investigating insider trading and manipulation.

Last year, and through October of this year the Office of Fraud Detection and Market Intelligence referred more than 1,100 matters involving potential insider trading or other types of fraudulent conduct by individuals and entities outside FINRA’s jurisdiction to the SEC. These matters covered a wide range of issues, including insider trading, microcap fraud and Ponzi schemes.”

“We’ve also enhanced our examination programs and procedures in a variety of ways intended to help us better detect conduct that could be indicative of fraud. It is our goal that exam teams focus most on those areas at firms that pose a real risk to investors. In late 2010, we created a new Office of Risk to begin the process of strengthening our ability to identify high-risk firms, branch offices, brokers, activities and products through broader data collection and more comprehensive analysis. We are asking the firms we oversee for more information to help us better understand their business models, including information about business activities, the types of products they sell and their customer base. This information will be used to better understand the risks that exist for individual firms and to tailor our regulatory responses to those risks.

Another critical element in our approach to fraud prevention is education. Through the FINRA Foundation, and FINRA’s Office of Investor Education, we have reached hundreds of thousands of consumers through investor alerts, interactive tools, live events and editorial content all designed to help them make wise financial decisions—and at the very least to avoid falling victim to a fraud. For example, a range of investor alerts issued just this past year warned investors about:

  • gold stock scams that mine your pocketbook;
  • fraudulent schemes exploiting the tsunami and nuclear crises in Japan; and
  • pre-IPO scams purporting to offer access to shares of Facebook and other popular, well known private companies.

In addition, two years ago, we produced an hour-long documentary—”Tricks of the Trade: Outsmarting Investment Fraud,” to teach the tactics commonly used by fraudsters and the simple steps every investor can take to reduce their risk of being defrauded. It has aired on PBS stations nationwide.

FINRA also provides investors—online or through a toll-free call—with a service called BrokerCheck. BrokerCheck allows investors to quickly access information about the disciplinary history, professional background, business practices and conduct of the brokerage firms and individual brokers with whom they invest. While dealing with a licensed professional and a registered investment firm isn’t a guarantee against fraud, the reality is most investment scams tend to involve unlicensed professionals touting unregistered securities.

We also offer an increasingly important resource—the Professional Designation Database. It’s the only tool available that helps investors to decode professional designations and better understand what education and experience requirements are necessary for any given designation, including those that suggest special expertise in the needs of senior citizens.

And at heart of the FINRA Foundation’s investor protection campaign is a three-part curriculum designed to help investors recognize their own vulnerabilities, identify the red flags of fraud and know where to go to verify information before they hand over any money.”

“These are just a few examples of what the FINRA Foundation is doing to help investors protect themselves—and I’ve focused on investors because the securities business is the area FINRA regulates. But we all know that not all financial fraud involves securities or investments.

While impressive progress has been made, especially in these tough economic times, we’ve got to do more.

From here, the goal is to take what we learn from each other out into the real world. First, and most importantly, we should make sure we all keep talking. Second, we need to actively ensure that the research coming out of the Center gets into the hands of the people that need and use it most—effective distribution is key. Third, we need to engage law enforcement and other practitioners to see what new research needs funding based on trends and tactics they’re seeing. Ultimately, we want to use all this work to continue to enhance the way we go after fraud criminals and educate consumers to protect themselves.

These were excerpts from a speech given by Richard Ketchum, CEO of FINRA, 11-3-11.


Securities Attorney, Lars Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have sustained a loss through financial fraud, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses. To speak with an attorney, call 888-760-6552, or visit

 Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.



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