FINRA Rule 4111: Is your Brokerage Firm on the Naughty List? 

What is FINRA Rule 4111? 

FINRA Rule 4111 (Restricted Firm Obligations) focuses on broker-dealer firms with a history of misconduct or those employing brokers with regulatory violations.  
 
As part of its comprehensive strategy to better regulate broker-dealers with a reputation for misconduct, including those with a considerable number of high-risk brokers, the Financial Industry Regulatory Authority (FINRA) has introduced a new feature in its BrokerCheck system. This feature will indicate if a firm has received a “restricted” designation. 

FINRA BrokerCheck is an online tool and database provided by FINRA that offers investors access to information about broker-dealer firms, individual brokers, and investment professionals. With the implementation of FINRA Rule 4111, BrokerCheck will display whether a current or former member firm has been classified as a “restricted” firm. 

Protecting Investors from Misconduct – FINRA Rule 4111 

For you as an investor, understanding FINRA Rule 4111, also known as the “Restricted Firm Obligations,” is important as it directly impacts your investment decisions and protections. Here’s how this rule relates to you: 

When you’re researching a broker-dealer firm using resources like FINRA’s BrokerCheck, the “restricted” designation under Rule 4111 is a critical piece of information. It signals whether the firm has a history of misconduct, helping you decide if you want to proceed with that particular firm. 

Rule 4111 ensures that firms labeled as “restricted” have extra obligations to safeguard your interests. These obligations could include increased supervision, stricter reporting, and enhanced compliance measures. Ultimately, this reduces the likelihood of future issues that could harm your investments. 

By making restricted firms implement more stringent oversight and compliance measures, the rule aims to lower the risks associated with dealing with broker-dealers that have a history of misconduct. This way, you can avoid potential financial losses or fraudulent activities that might arise from engaging with unreliable firms. 

List of Expelled Firms – Rule 4111 Compliance Tool 

Every year, FINRA will go through a process to decide if a firm needs to be a “Restricted Firm”. They’ll look at different factors to figure this out. They will compare different firms to see which ones have more issues related to risk. If a firm has a lot more problems compared to other firms of similar size, it might be labeled as a Restricted Firm. According to FINRA, “Restricted Firms” must set aside money or certain types of investments in a separate account. This is like a safety net to make sure that if there are any problems, there’s money available to help fix them. 

They also have to follow certain conditions or rules. These rules are designed to make sure they’re doing things the right way and not putting investors at risk. 

One of the things they look at is a measure called the “Expelled Firm Association Metric.” This looks at how many people from a firm that got kicked out of the industry are now working at this firm. If there are a lot, it could raise concerns. They check this over a period of five years before the evaluation date. This is to make sure they’re looking at recent history. 

Firms expelled within the prior five years from the 6/1/2024 Rule 4111 Evaluation Date (last updated 8/24/2023) 

 ACANTHUS (CRD# 296836)
ACCELERATED CAPITAL GROUP (CRD# 41270)
AVALON INVESTMENT & SECURITIES GROUP, INC. (CRD# 6281)
BROKERBANK SECURITIES, INC. (CRD# 130116)
CLINGER & CO., INC. (CRD# 1471)
CV BROKERAGE, INC (CRD# 462)
ESSEX RADEZ LLC (CRD# 34649)
FINANCIAL WEST GROUP (CRD# 16668)
ICV GROUP, INC. (CRD# 294024)
KJM SECURITIES, INC. (CRD# 20277)
LAM SECURITIES INVESTMENTS, INC. (CRD# 17037)
M. ZUCKER, INC. (CRD# 5467)
MIDTOWN PARTNERS (CRD# 104223)
MONMOUTH CAPITAL MANAGEMENT LLC (CRD# 290248)
PALADIN MARKET ADVISORS, LLC (CRD# 13281)
PAS CAPITAL, LLC (CRD# 41498)
PENSION FUND EVALUATIONS, INC. (CRD# 10985)
POTOMAC CAPITAL MARKETS, LLC (CRD# 39800)
PTX SECURITIES, LLC (CRD# 7735)
RICHFIELD ORION INTERNATIONAL, INC. (CRD# 24433)
SANDLAPPER SECURITIES, LLC (CRD# 137906)
SPENCER EDWARDS, INC. (CRD# 22067)
STORMHARBOUR SECURITIES LP (CRD# 35997)
STRATFORD PARTNERS (CRD# 164954)
SW FINANCIAL (CRD# 145012)
THE TRANSPORTATION GROUP (SECURITIES) LIMITED (CRD# 286288)
TITUS ROCKEFELLER, LLC (CRD# 43608)
USTOCKTRADE SECURITIES, INC. (CRD# 16208)
WORDEN CAPITAL MANAGEMENT LLC (CRD# 148366)
WYNSTON HILL CAPITAL, LLC (CRD# 103811) 

FINRA Rule 4111 is all about making sure certain financial firms with more risk-related issues take extra steps to keep investors safe. They need to put money aside, follow special rules, and each year, FINRA checks if they’re doing these things right. One thing they look at is how many people from troubled firms are now working at these firms. This helps make sure that investors’ money and interests are better protected. 

It also allows FINRA to take proactive action against firms before more problems arise since without Rule 4111, the regulator can only bring enforcement actions and seek restitution after the customer harm has occurred. Investor advocates have apparently raised concerns for years about the issue of arbitration awards that go unpaid to harmed investors when a firm goes out of business. 

FINRA Attorneys 

All broker-dealers have a responsibility to adequately supervise their advisors. They must ensure they have procedures and systems in place to detect broker misconduct.  Brokerage firms that fail to monitor the business activities of their employees may be liable for investment losses due to negligent supervision for the misconduct of their employees.   

When brokers violate securities laws the brokerage firm they are working with may be liable for investment losses through FINRA Arbitration.   

The Financial Industry Regulatory Authority (FINRA) operates the largest dispute resolution forum in the securities industry.  In fact, FINRA Dispute Resolution is the forum for almost all disputes between investors, brokerage firms and individual brokers.  This is mainly because the vast majority of brokerage firms have mandatory arbitration clauses in their account agreements that require investors to file their disputes through FINRA.    

The White Law Group represents investors in FINRA claims against their broker dealers. If you have suffered losses due to broker negligence or broker fraud, we can help. Our firm can evaluate the strength of your case, draft a well-structured statement of claim that accurately presents your allegations of fraud and desired damages, and provide representation during the arbitration hearing by presenting evidence and making compelling arguments on your behalf. Additionally, an attorney can engage in negotiation efforts for a potential settlement before the arbitration process begins. Opting for our securities attorneys will ensure that your rights are safeguarded throughout the arbitration process, maximizing your likelihood of achieving a favorable resolution. 

Free Consultation with a FINRA Attorney 

If you are concerned about your investments with your broker or financial advisor, please call the securities fraud attorneys of The White Law Group at (888) 637-5510 for a free, no risk consultation.  

FINRA provides an arbitration forum for investors to resolve disputes. The White Law Group represents investors in FINRA arbitration claims throughout the country. Visit the firm’s homepage to learn more about the firm’s representation of investors.  

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington.