New York, NY securities attorney Jenice L. Malecki talks about what triggers a FINRA or SEC investigation, and how are investigations typically initiated. She mentions that there are several triggers for a FINRA or SEC investigation, with the most common being a customer complaint or arbitration. When a customer complaint is filed, it is recorded on an individual’s Form U5. Regulators review U5s for any negative marks, and a complaint can prompt an investigation that may extend beyond the single client involved.

Similarly, whenever an arbitration is filed through FINRA Dispute Resolution, the regulatory arm of FINRA reviews the case to determine whether there is cause for further investigation, including the possibility that other clients may have been harmed. The SEC also receives tips through its whistleblower program, and these can initiate investigations; if the issue appears to involve securities rather than broader misconduct, the SEC may refer it to FINRA.

Additionally, marks on a U5 due to employment termination can trigger federal or SEC investigations. Industry-wide sweeps also occur when regulators suspect widespread misconduct across multiple firms. A recent example involved the use of WhatsApp by brokers, as messages that disappeared could not be retained by broker-dealers, constituting a books-and-records violation. This sweep affected numerous firms and investment professionals, illustrating the broad scope of regulatory oversight.