Securities Enforcement Roundup – October 2025

In this issue of our monthly Securities Enforcement Roundup, we highlight top securities enforcement developments from October 2025.

In October 2025:

• The federal government shutdown substantially impacted the US Securities and Exchange Commission (SEC or Commission).
• SEC Chairman Paul S. Atkins delivered an important policy speech in which he emphasized the critical role of the Wells process and reiterated his recent statement on settlement offers and related waiver requests.
• The Financial Industry Regulatory Authority (FINRA) reorganized several core functions, creating a new Regulatory Operations Group.
• Several recent FINRA enforcement actions involved firms’ self-reports of misconduct, and one case included the second-highest fine imposed this year.
• FINRA issued a targeted exam letter on small-cap offerings involving foreign issuers.
• FINRA President and CEO Robert Cook published a blog post on FINRA’s use of artificial intelligence (AI).

IMPACT OF THE FEDERAL SHUTDOWN ON THE SEC

Predictably, the shutdown of the federal government had a substantial impact on the SEC, with much of its staff furloughed pursuant to the agency’s August 7, 2025 “Operations Plan.”[1] In accordance with this plan, only a “limited number” of enforcement staff were available to manage “emergency enforcement matters,” such as temporary restraining orders and actions essential to safeguard public and private property.[2] The SEC has also stayed all pending administrative proceedings pursuant to an October 1, 2025 order.[3] As this roundup went to publication, US President Donald Trump signed legislation ending the shutdown.

CHAIRMAN ATKINS DELIVERS ADDRESS ON THE WELLS PROCESS AND WAIVERS

On October 7, 2025, Chairman Atkins delivered the 25th annual A. A. Sommer, Jr. Lecture on Corporate, Securities, and Financial Law at Fordham Law School,[4] in which he emphasized the importance of the Wells process. As Chairman Atkins stated, “Wells submissions provide in most cases a last opportunity for potential respondents or defendants to persuade the staff that an enforcement action, either in whole or in part as the staff intends to recommend it, is not warranted. They also provide the Commission with a different, and potentially convincing, view of the facts and law concerning the matter.”[5]

In his remarks, Chairman Atkins indicated that he believes that the Wells process “should be viewed as an extension of due process and fundamental constitutional rights” with “an integral role in protecting citizens from a powerful government agency that could become policeman, prosecutor, judge, jury, and executioner all in one,” and reiterated his recent statement on settlement offers and related requests for waivers from collateral consequences, which we addressed in the September 2025 edition of our Securities Enforcement Roundup.[6] According to Chairman Atkins, the previously announced reform of simultaneous consideration of a settlement offer and waiver request is “a close cousin to the Wells Process.”[7]

Chairman Atkins stressed the necessity of a “fair and transparent” Wells process focused on “accuracy,” in which both parties act in good faith, and clarified his expectation that enforcement staff provide potential respondents and defendants “sufficient information . . . to understand the potential charges and the evidentiary basis for those charges, such as testimony transcripts and key documents.”[8] Chairman Atkins further emphasized “early engagement” between enforcement staff and potential respondents and defendants and stated that staff will provide a “realistic time period” for submissions consisting of a minimum of four weeks.[9] Chairman Atkins also noted that commissioners receive “every Wells submission in settled and contested cases” regardless of whether the recommendation in the matter has changed.[10]

Given the importance that Chairman Atkins placed on the Wells process, potential defendants and respondents would be well-served to devote substantial time, effort, and resources to creating powerful Wells submissions aimed at convincing the staff or the Commission to forego an enforcement action or changing the staff’s proposed charges.

FINRA’S NEW REGULATORY OPERATIONS GROUP

FINRA recently undertook a significant reorganization, consolidating several core regulatory functions under a single senior executive. Greg Ruppert is now the Chief Regulatory Operations Officer overseeing the newly formed Regulatory Operations group (Reg Ops), which brings together Enforcement, Member Supervision, and Market Oversight.[11] Ruppert’s direct reports include Bill St. Louis (Enforcement), Ornella Bergeron (Member Supervision), Feral Talib (Market Oversight), and Sarah Wallis (Regulatory Operations Transformation). The creation of the new Reg Ops team is intended to increase coordination across FINRA’s regulatory program, improve and expand information sharing, and streamline decision-making.

Additionally, as part of FINRA’s organizational changes, Stephanie Dumont, previously head of Market Regulation and Transparency Services, was named chief market services officer, leading a new group that includes “Transparency Services; Credentialing, Registration, Education and Disclosure; Regulatory Services Management; and Strategic Regulatory Engagement.”[12] According to FINRA, in her new role, Dumont “oversees several departments that deliver critical market and regulatory services to member firms, fellow regulators, investors and market participants.”[13]

FINRA ENFORCEMENT ACTIONS

In October, FINRA resolved several significant cases, including three matters that originated from the firms’ Rule 4530(b) self-reports and a case that imposed the second highest fine of the year.

Customer Data Protection

FINRA issued a letter of acceptance, waiver, and consent (AWC) in which it alleged that the firm failed to safeguard customer information.[14] FINRA found that between October 2019 and March 2022, the firm did not establish and maintain a supervisory system reasonably designed to protect nonpublic personal customer information. FINRA further found that the firm failed to terminate a former employee’s system access to a trade reconciliation database, thus enabling the individual to download reports containing nonpublic personal customer information.

FINRA found that the firm violated Rule 30(a) of Regulation S-P of the Securities Exchange Act of 1934, as well as FINRA Rules 3110 and 2010. In determining its sanction, FINRA noted that the firm “promptly self-reported the unauthorized access of customer data to FINRA and other regulators and proactively enhanced the firm's supervisory systems, including migrating the trade reconciliation database to within the firm's primary data security perimeter.”[15] The firm was censured and fined $375,000.

Forged and Falsified Electronic Signatures

In this matter, FINRA issued an AWC relating to forged and falsified electronic signatures.[16] Specifically, FINRA found that from January 2022 through September 2025 the firm did not establish, maintain, and enforce an effective supervisory system, including written supervisory procedures, that would reasonably detect the falsification of customer and registered representative signatures.

According to FINRA, this matter originated from the firm’s filing Form U5s and Rule 4530(b) filings related to four of its former associated persons. FINRA found that associated persons at one branch office collectively forged or falsified more than 100 customers’ signatures on more than 150 documents, and that firm personnel also forged or falsified registered representatives’ signatures on over 500 documents.

These actions resulted in the firm maintaining hundreds of inaccurate books and records and violations of FINRA Rules 3110, 4511, and 2010, as well as Section 17(a) of the Exchange Act and Rule 17a-3. After discovering the alleged misconduct, the firm took several remedial steps, including contacting affected customers and enhancing the firm’s procedures. The firm was censured and fined $315,000.

Electronic Communication Record Retention and Review

Following a firm’s self-report, FINRA brought a case against the firm regarding electronic communications retention and review. [17] FINRA found that from September 2016 through November 2022, the firm failed to preserve at least 22.6 million electronic communications with its customers regarding such things as trades, money transfers, and other account activity. The firm also failed to maintain an unknown number of internal and external messages from about 90 group mailboxes. As a result, FINRA found that the firm was not able to fully respond to 39 FINRA and SEC inquiries.

FINRA also found that the firm failed to establish, maintain, and enforce a reasonable system of supervision, including written supervisory procedures, regarding its obligation to timely review at least 521,000 messages from 30 group mailboxes and a software platform, plus an undetermined number of messages from 90 group mailboxes. The AWC notes that FINRA had previously warned the firm about a different failure to review its electronic communications.

FINRA found that the firm violated Securities Exchange Act Section 17(a) and Rule 17a-4, as well as FINRA Rules 4511, 3110, and 2010. In resolving the matter, FINRA recognized the firm’s extraordinary cooperation, stating that it: “Identified and self-reported each of the issues identified in this AWC before detection by FINRA or any other regulator. [The firm] promptly corrected each of the systems failures that caused the issues. [The firm] also voluntarily took steps, both on its own and by using external resources, to evaluate its recordkeeping procedures and systems broadly for the purpose of identifying other recordkeeping issues. Finally, [the firm] substantially assisted FINRA’s investigation by proactively identifying the cause, scope, and impact of each issue and by providing detailed factual summaries.” [18] The firm was censured and fined $850,000.

Non‑Cash Compensation

This AWC involving a wholesale distributor alleges that the firm provided excessive non-cash compensation to broker-dealer representatives in connection with the distribution of affiliate investment company securities and related misconduct.[19]

FINRA found that from at least 2018 to 2024, the firm provided gifts, meals, and entertainment to broker-dealer representatives that sold its products in amounts that exceeded regulatory limits. Some of the gifts flagged included high‑value tickets to sporting events and a Broadway show, along with costly entertainment provided to a single broker‑dealer representative over an extended period. FINRA also found instances where gifts, entertainment or payments were improperly preconditioned on representatives achieving sales targets with respect to their customers’ purchases of the firm’s products, including one instance where hockey game tickets were preconditioned on the representative selling $1 million in the firm’s unit investment trusts to his customers.

FINRA also found that certain firm wholesalers submitted inaccurate internal expense reports, and that the firm provided its clients with materially misleading information about the value, nature, and frequency of its non-cash compensation. FINRA concluded that the firm failed to establish, maintain, and enforce a system of supervision reasonably designed to comply with the non-cash compensation and expense recordkeeping rules. FINRA found that the firm violated FINRA Rules 2010, 2341, 3110, and 4511, as well as Section 17(a) of the Securities Exchange Act of 1934 and Exchange Act Rule 17a-3.

Without indicating whether FINRA credited the firm for any actions it took, the AWC states:

[The Firm] has taken numerous actions to remediate the misconduct described in this AWC, including by committing to create a new compliance audit function that reports to executive management, and that is dedicated to testing and monitoring compliance with the rules and procedures applicable to the provision of non-cash compensation to Client Firm representatives and other sales practice issues. The Firm has also modified its supervisory systems and procedures with respect to the provision of non-cash compensation, including by implementing a system to track event tickets that is designed to ensure the accurate recording of ticket recipients. In addition, the Firm has taken disciplinary action against dozens of employees concerning the conduct at issue in this AWC, including suspending individuals without pay and imposing monetary fines and heightened supervision.[20]

The firm was censured, fined $10 million, and ordered to comply with an undertaking that requires it to provide annual certifications to FINRA for three years regarding the firm’s implementation of a supervisory system and written supervisory procedures reasonably designed to comply with the rules cited in the AWC.

FINRA’S TARGETED EXAM ON SMALL-CAP OFFERINGS INVOLVING FOREIGN ISSUERS

FINRA issued a new targeted exam letter focused on firm practices concerning public and private offerings of small-capitalized exchange-listed issuers with business operations in foreign jurisdictions, including China.[21] In particular, the exam focuses on certain firms that have been involved in multiple small-cap offerings in a variety of roles such as an underwriter, bookrunner, syndicate member, selling group member and/or placement agent. It also focuses on firms that have participated in initial and/or secondary market trading related to small-cap offerings, including firms with omnibus accounts trading in these securities.

The exam covers initial public offerings of $25 million or less that priced between $4 and $8 per share, and follow-on and private placements of those issuers. FINRA requested detailed information relating to small-cap offerings from select firms covering the period from January 1, 2023 to September 30, 2025, including written supervisory procedures and compliance policies relating to due diligence processes and the review, approval, and oversight of such offerings, as well as a list of small-cap offerings that fit the sweep criteria.

FINRA’S USE OF AI

On October 28, 2025, FINRA President and CEO Robert Cook published a blog post[22] on FINRA’s use of AI to facilitate its regulatory operations. According to Cook, FINRA is actively “identifying and implementing opportunities to use GenAI to strengthen [its] regulatory program” by, for example, “more quickly generating valuable insights from data, performing or streamlining certain work processes, and freeing up employees’ time . . . .”[23]

For instance, FINRA staff have made use of an internal Large Language Model-based chat capability “to assist in a variety of regulatory tasks” including “conducting member firm risk reviews and analyzing data on mutual funds and ETFs to facilitate examinations of related sales activities.”[24] Additionally, FINRA has used “GenAI-enabled tools” to analyze and summarize investor complaints, firm disclosures, and eFOCUS reports.[25]

In his post, Cook stated that, “[l]ike FINRA, member firms are exploring the new opportunities and risks presented by recent advancements in GenAI,” and emphasized FINRA’s commitment to the “constructive feedback loop” between FINRA and member firms regarding AI’s challenges and benefits.[26]