February 25, 2026

What is a FINRA Inquiry and How Can Public Biotechs Best Prepare for One?

If you work at a public biotech long enough, you will eventually get a forwarded email that makes your stomach drop. It will be short, formal, and unnervingly vague. It may come to your General Counsel, your CFO, your outside counsel, or even your IR lead. The original sender will be FINRA (the Financial Industry Regulatory Authority).

FINRA’s mandate is to identify suspicious stock trading patterns, collect information from cooperative parties, and escalate matters to the SEC when further investigation may be warranted. FINRA does not regulate the entire financial industry but specifically focuses on broker-dealers in order to protect investors and ensure the integrity of the securities industry.

For newly public biotech companies – many of whose C-suite might be experiencing life as a regulated issuer for the first time – this scrutiny can feel alarming. It shouldn’t. Because biotech stocks are highly sensitive to discrete events and news flow, FINRA inquiries are a normal feature of the sector rather than a signal that something has gone wrong.

Most FINRA inquiries are routine, although some are not. Either way, how you respond – and, more importantly, prepare – matters.

Below is a practical map of the types and stages of FINRA inquiries you may encounter at a public biotech – and how to best handle them.

Why FINRA gets involved

FINRA’s surveillance systems look for patterns: sharp share price or volume movements, repeated intraday spikes, abnormal short activity, questionable promotional behavior, or trading ahead of news.

Importantly, “large” stock movements are not defined by a fixed percentage threshold. Context matters here, and FINRA is focused on whether a move appears tied to company-specific information.

Types of FINRA inquiries (and what they usually mean):

1) Market surveillance “unusual activity” inquiries

This is the classic note: “We have observed unusual trading activity in your company’s securities. Are you aware of any material information not yet publicly disclosed?”

In practice, FINRA is testing whether:

• You’re sitting on material non-public information (MNPI)
• There was a leak
• Something external (rumor, promotion) is driving trading

The inquiry typically goes to a single point of contact (often the General Counsel) requesting: 1) context around the triggering disclosure; 2) who had access to the information before it was public; and 3) any supporting documentation.

Your response is usually straightforward: 1) you are not aware of undisclosed material information; 2) you have reviewed recent disclosures; and 3) you are monitoring the situation.

If you are aware of undisclosed material information, the issue shifts from surveillance to securities law. At that point, the question becomes whether confidentiality can be maintained, consistent with Regulation FD, or whether disclosure is required.

2) Requests tied to corporate actions or filings

FINRA also interfaces with companies on corporate actions: reverse stock splits, name or symbol changes, dividends, rights offerings, spins, and certain distributions.

For biotechs, reverse stock splits are the most common, particularly when managing Nasdaq’s listing compliance. Treat these as operational exercises: align counsel, the transfer agent, and the exchange; ensure your disclosures are precise; and expect questions on mechanics and timing.

3) Questions triggered by promotional activity

Biotechs get promoted – sometimes by unsolicited third parties you have never heard of. FINRA may ask about your relationships with IR vendors, paid newsletters, sponsored “research,” influencer accounts, or suspiciously timed marketing campaigns.

This is where companies often (and unintentionally) create risk. You need to know:

• Who is being paid to communicate about your stock (directly or indirectly)
• What contractual relationships exist
• Whether content could be misleading
• Whether required compensation disclosures were made

If you truly have no relationship with the promoter, say so – but verify your facts before responding.

4) Trading ahead of news / potential information leakage

FINRA may request context when trading or options activity appears to anticipate a press release, 8-K, financing, or clinical update. This is not an accusation. FINRA is asking for help ruling things in or out.

This is the moment to tighten internal discipline:

• Confirm who had access to the information and when
• Review insider trading policies and blackout periods
• Document disclosure controls (and employee training for handling MNPI)
• Preserve communications

If there is even a hint of leakage, outside counsel should take the lead.

5) Short-sale, borrow, and market-structure questions

Less common, but not unheard of: questions touching on settlement issues, fails-to-deliver, or concentrated short activity. FINRA’s focus here is broker-dealer conduct, but issuers can be pulled in when public narratives gain traction.

Your role is limited. You generally cannot adjudicate short activity. The appropriate posture is factual, narrow, and non-inflammatory. Turning this into a public crusade without verified facts and a legal strategy almost always backfires.

6) Halt-related communications

If a stock is halted due to volatility or pending news, FINRA may engage to confirm whether a company intends to issue a release and whether information is circulating.

For biotechs, halts often coincide with:

• Data releases
• FDA actions
• Financings
• Strategic updates

The stages of a FINRA inquiry

Stage 1 – The Initial Ping: Usually an email or a phone call. Often time-sensitive. Acknowledge quickly. Respond deliberately. Silence is not an option.

Stage 2 – Internal Fact-Finding: Form a tight working group: GC, CFO, IR, outside counsel. Collect drafts, calendars, relevant emails, board materials, and vendor communications.

Stage 3 – The Formal Response: Short. Factual. Carefully worded. Avoid speculation. Do not volunteer theories. Do not create new narratives.

Stage 4 – Follow-Ups or Escalation: Many inquiries end quickly. Some don’t. If it escalates, treat it as a regulatory matter: preserve records, centralize communications, and route everything through counsel.

Stage 5 – Resolution and Lessons Learned: Even benign inquiries are stress tests. After closure, biotechs should ask themselves:

• Did we document materiality decisions clearly?
• Did we understand our vendor ecosystem?
• Did IR messaging drift into hype?
• Were insiders properly blacked out?
• Were promotion channels monitored?

How should biotechs best prepare for a potential FINRA inquiry

• Document management decisions: who decided what, when, and why?
• Document the dissemination of MNPI prior to disclosure (who knew what and when – including both employees and third-party consultants).
• Route all FINRA communications through counsel and a small team.
• Monitor both your stock price and external news sources diligently, so you are always aware of what is being said about you by others.
• Regularly train your employees on the dangers and penalties (both to them and the company) of both insider trading and inadvertent disclosure of MNPI to others.