New York Securities Fraud Lawyers Blog
When you are placed on administrative leave, it can seem like the world is collapsing around you. It might be, but how you respond and hiring counsel could change the outcome. Before making any rash decisions, it is important to understand just what has happened, what is likely to happen next, and what you should do about it.
What is “Administrative Leave”?
Administrative Leave is a form of suspension from the workplace, often pending the outcome of some form of investigation. In the securities world, this can be the case if there is an investigation into a suspected compliance infraction, a customer complaint, a regulatory or self-regulatory investigation or inquiry, an arrest, charge, indictment, or complaint made against a broker or its firm (a FINRA “Member” firm). Each firm may have its own policies and procedures for how to determine whether administrative leave is necessary, what specifically constitutes administrative leave, or at what point it is imposed.
What does this mean for you?
You might be asking yourself, “Does this mean I am going to be fired?” The best answer to that is: it depends. In the brokerage community, it is often not good news. In others, it might just mean your employer is “playing it by the book,” or following the procedures it has put in place, but it is serious and should be treated as such.
Some instances that might result in administrative leave, and can ultimately result in termination, may include:
- Disclosure of material, non-public, confidential information, intentionally or inadvertently – such as accidentally posting an internal company memo on Facebook;
- Falsifying expense reports and/or other documents – such as changing dates or names on receipts or emails;
- Improper use of, or conversion of, firm or customer funds – such as abusing the company reimbursement policy by returning purchases that were reimbursed;
- Breach of fiduciary duties/responsibilities – such as misleading clients as to the pending success of a particular investment for personal gain;
- Failure to disclose and/or self-report misconduct – such as not informing the firm of accepting an improper gift from a client or broker-dealer;
- Violation of internal company policies and/or external laws, rules or regulations, including the Securities and Exchange Act of 1934 and FINRA Rules and Regulations.
Ultimately, however, it depends on what the company is investigating and whether it finds sufficient information pursuant to its own policies and procedures to justify termination.
Why do companies place someone on “Administrative Leave”?
As a member of the financial services industry, you are subject to the rules and regulations put in place by FINRA – the Financial Industry Regulatory Authority – and so is your employer. In short, the period of leave may be the time the firm needs to conduct an internal investigation after discovering information of possible improprieties.
FINRA Rules 3110 and 3120 establish guidelines for firms’ supervision of its brokers (Associated Persons). Rule 3110(a) states “[e]ach member shall establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations . . . . Final responsibility for proper supervision shall rest with the member.” This indicates that by placing you on administrative leave, the firm is placing its own interests ahead of yours.
Further, FINRA Rules 3110(c) and (d) require Member firms to internally inspect or investigate the business – both annually for internal compliance as well as to identify trades that may violate securities laws and regulations. Additionally, each inspection or investigation must have procedures designed to prevent that investigation’s effectiveness from being compromised due to conflicts of interest at the location of the investigation. This portion of the rule leaves firms little room for error; as a result, it is not uncommon for those companies to utilize administrative leave as a tool to prevent a potential conflict between the investigator and you – the investigated person.
What should you do?
The first thing to do is to contact an attorney – specifically, make sure it isn’t one who works for your employer. The attorneys at Malecki Law are experienced in handling all matters relating to securities law – including representing brokers in incidents against their firms.
Also be sure to review the firm’s code of conduct policy and any related policies (e.g. outside counsel policies). These documents often offer key insights into what your company’s policies are regarding administrative leave, investigations, and termination.
If you are afraid because you have been placed on administrative leave, don’t panic. The attorneys at Malecki Law are here to help.