The Securities and Exchange Commission settled a regulatory action case with the Financial Industry Regulatory Authority (FINRA) over allegations that FINRA had altered documents in response to a request made by the SEC's Chicago regional office back in 2008. FINRA neither admitted nor denied any wrongdoings.

The case arose from a complaint filed by a FINRA official last year, who tipped FINRA's administration to the alleged violations committed by a former FINRA director in its Kansas City office. According to the whistleblower complaint, the former director had ordered another staff member to alter three records of the staff meeting minutes, just hours before they were submitted to the SEC inspection staff, making the records inaccurate and incomplete.

According to details highlighted in the administrative proceedings issued on Oct. 27 by the SEC, the 2008 incident was not FINRA employees' first offense in document manipulation. During an eight-year period, FINRA and its predecessor, the National Association of Securities Dealers, Inc., had provided altered and misleading documents to the SEC in two other separate incidents.

The case came to light after FINRA reported the whistleblower tip to the SEC's Chicago office and the Division of Enforcement. Prior to reporting the case to the Commission, FINRA's internal audit team had conducted its own investigation, resulting in the resignation of the director involved in the case.

The SEC said in the document that it has agreed to accept FINRA's offer and to stop pursuing the case. As part of the settlement, FINRA has agreed to stop violating the rule governing recordkeeping and will ensure that all documents submitted to the SEC meet the accurate and complete standard as highlighted under Section 17(a)(1) of the Exchange Act.

In addition, FINRA has agreed to continue implementing the corrective actions it put in place, which include:

Providing training to all its employees, emphasizing the past document integrity issue and zero-tolerance documents alteration policy

Developing podcasts on document integrity to be viewed by all current and new employees

Conducting company-wide town hall meetings on the issue, annual regulatory meetings, and meetings during senior management visits to all district offices

Senior members of the Office of Liaison and Counsel to meet in-person or remotely with all business units prior to documentation production scheduled for the SEC's examination

Meanwhile, FINRA was also ordered to appoint an independent consultant on or before Nov. 27 to complete a thorough review of FINRA's policies and procedures, including training materials, to determine its efficiencies. Upon completing the full review and recommendation process with the consultant, FINRA is expected to inform the SEC of the new compliance program it has put in place to address the document integrity issue.

Following the settlement announcement, FINRA's chairman and chief executive officer, Richard Ketchum, issued a statement saying that the changes they have put in place will strengthen document handling procedures across the organization.

“I am personally committed to taking all possible steps to ensure that this type of conduct does not reoccur. We have taken prompt action to report, investigate, and discipline the behavior at issue in this matter. Under no circumstances will such conduct be tolerated at FINRA,” he said.