Corporate & Securities Law

Ponzi Schemes Going Green?

Posted on November 18, 2009
According to its website, the SEC has "charged four individuals and two companies involved in perpetrating a $30 million Ponzi scheme in which they persuaded more than 300 investors nationwide to participate in purported environmentally-friendly investment opportunities...

SEC To Determine Mortality Of Life Settlement Securitization?

Posted on November 13, 2009
In case you didn't know, we are in a recession. Of course, whether we are at the beginning, middle or end depends on where you get your news, your political bent, and how well your investments have weathered the storm. One thing is certain though - desperate times call for desperate measures, and this can lead to unusual albeit creative ideas...

AM I A PONZI-SCHEME VICTIM?

Posted on August 19, 2009
The numerous national and even local Ponzi-schemes that have come to light in recent months share a common thread - victims are always left wondering how they could have better protected themselves. In the wake of a turbulent global economy with no immediate end in sight, it is almost certain more schemes will be revealed in the coming months, begging the question "am I Ponzi-scheme victim?" Unfortunately, there is no sure fire answer to this question...

Am I a Ponzi scheme victim?

Posted on August 19, 2009
The numerous national and even local Ponzi-schemes that have come to light in recent months share a common thread - victims are always left wondering how they could have better protected themselves. In the wake of a turbulent global economy with no immediate end in sight, it is almost certain more schemes will be revealed in the coming months, begging the question "am I Ponzi-scheme victim?" Unfortunately, there is no sure fire answer to this question...

To access blog feed reader register for free. (You will also learn about new ways to read and access the freshest law blogs.)

Securities Fraud Aiders and Abettors Better Watch Out

Posted on August 17, 2009
Senator Arlen Specter (D-Pa.) has proposed a bill which would create a cause of action for private litigants seeking to sue individuals or businesses for aiding/abetting securities fraud. Since the Supreme Court's decision in Central Bank of Denver, N...

FINRA AND SEC GO AFTER SHORT SALES HARD

Posted on August 06, 2009
Yesterday FINRA and the SEC both issued news releases regarding separate actions against entities and individuals who allegedly consummated short sales in violation of regulatory rules. The timing of the releases and similarity in subject matter suggests there is more going on than just serendipitous timing...

A Securities Fraud Case For The Textbooks

Posted on August 05, 2009
On July 29, 2009, the Ninth Circuit United States Court of Appeals issued an opinion in the case Desai v. Deutsche Bank Securities Limited, a securities fraud class action in which the Ninth Circuit affirmed the district court's denial of plaintiffs' motion for class certification...

Another Day, Another Ponzi-Scheme...

Posted on July 30, 2009
Anyone following recent blog posts or the news in general should rightfully be shocked by the recent number of Ponzi-schemes being discovered. Every day it seems the regulators are uncovering another one and there appears to be no end in sight. The question everyone should be asking is why are so many schemes coming to light now? And a follow-up question should be how can we prevent this from happening in the future? For those of you unfamiliar with securities jargon, a Ponzi-scheme basically takes the shape of a pyramid in which the perpetrator (at the top) takes money one from one or more individuals with the promise to repay them at some point, usually at an attractive interest rate often unobtainable through traditional investments particularly in a troubled economy...

Broker Operating Ponzi-Scheme Permanently Barred From FINRA

Posted on July 28, 2009
There are probably a dozen or so sure-fire ways a person could get himself barred from FINRA; operating a Ponzi-scheme is one of them. Yesterday, FINRA announced in a news release that Kenneth George Neely, a St. Louis broker formerly employed by Stifel Nicolaus & Co...

FINRA Speaks to Small Firms (Part II)

Posted on July 24, 2009
Last week, as you may recall, I wrote about FINRA's Small Firm Conference, which took place in Chicago, IL on July 16. In this author's opinion, there were so many key points made by the regulators and attendees, I have decided to post a follow-up article to highlight a few additional issues and "best practices" that were discussed...

FINRA Speaks To Small Firms

Posted on July 17, 2009
Yesterday I had the pleasure of attending FINRA's 2009 Small Firm Conference in Chicago, IL. The event was well-attended; the speakers were excellent; and there were many good questions from the audience. As you can imagine, all of this made for a worthwhile event as current "hot button" issues were discussed and attendees were given an in depth look at what to expect when FINRA shows up at your doorstep for an examination...

Securities Fraud Plaintiffs Cannot Switch "Loss Theory" Midstream During Litigation

Posted on July 06, 2009
A Minnesota Federal District Court recently held that plaintiff-investors of a medical device company could not switch theories of loss recovery for securities fraud claims during litigation, as doing so would defeat the heightened pleading requirement and principles underlying enactment of the Private Securities Litigation Reform Act (PSLRA)...

"Tweeting" Running "Afowl" of SEC Rules?

Posted on April 27, 2009
With the rise of internet blogging and now Twitter, more and more individuals are finding an audience for their message, whatever that message may be. Even corporations have jumped on the bandwagon, with brick and mortar giants like Wal-Mart and General Motors joining the ranks of internet-based companies who have set up their own corporate blogs...

So, Who is Taking Care of Business? The Compliance Officer in Times of Economic Distress

Posted on April 22, 2009
It is not a startling revelation to observe that a principal side-effect of the current tribulations affecting the financial services industry is a marked shrinkage in revenues. Inevitably, there is a domino effect to the diminution in revenues and profits, and the financial services community, which potentially encompasses a wide array of businesses, including securities brokerage, investment advisory services, insurance, and banking, are under pressure to dramatically cut costs and reduce expenses, which often is interpreted to mean reduce headcount...

Broker-Dealer Litigation/Arbitration: Preparing for Sunami?

Posted on March 11, 2009
In an apparent effort to address perceived procedural deficiencies, to level the playing field so that customers are not disadvantaged in arbitration, and perhaps in anticipation and preparation for a virtual deluge of new filings, FINRA has revised and/or introduced a number of arbitration-related processes...

Broker-Dealer Litigation/Arbitration: Preparing for a Tsunami?

Posted on March 11, 2009
In an apparent effort to address perceived procedural deficiencies, to level the playing field so that customers are not disadvantaged in arbitration, and perhaps in anticipation and preparation for a virtual deluge of new filings, FINRA has revised and/or introduced a number of arbitration-related processes...

NEW FINRA RULE REQUIRES EXPLAINED DECISION

Posted on February 20, 2009
On February 4, 2009, the SEC approved FINRA’s proposed rule change to amend arbitrator rules relating to arbitration decisions. The new rule requires arbitrators to provide a written explanation of their decisions upon a joint request of the parties...

Treasury Blueprint for Regulatory Reform Likely to Get Longer Look

Posted on September 25, 2008
This March, the Treasury Department released its Blueprint for a Modernized Financial Regulatory Structure.  The Blueprint called for a thorough restructuring – and even deeper federalization – of the financial services regulatory system...

Reserve Fund Accused of Securities Fraud in Giant Money Market Fund.

Posted on September 24, 2008
Recent events show the breadth of the financial crisis rocking this country, with concerns of fraud impacting nearly every financial sector.  News reports today indicate that the FBI is investigating possible mortgage fraud involving collapsed financial giants Fannie Mae, Freddie Mac, Lehman Brothers and AIG...

The Federal Judiciary Skeptical of Regulators?

Posted on September 16, 2008
In today's battered economy, where venerable giants like Lehman Brothers and Merrill Lynch now face bankruptcy or sale, a more subtle but equally intriguing phenomenon has taken hold. Beginning a few years ago and continuing today, more and more federal courts across the country have been standing up to the regulators, most notably evidenced by the rising number of dismissals of enforcement actions brought by the U...

Short Sellers Leave Banks Feeling Anxious Following Unprecedented Weekend On Wall Street

Posted on September 15, 2008
According to the New York Times, the heads of several major financial institutions held an emergency meeting over the weekend to urge the SEC to reinstate a temporary rule limiting short selling, the risky but often lucrative practice of betting on a firm’s falling share price...

SEC Issues New "ComplianceAlert"

Posted on July 31, 2008
Last week, the SEC released its second “ComplianceAlert,” discussing recent exam priorities and summarizing some of the Commission’s key findings and observations. Last year, the Commission put out a similar Alert for the first time, and – observing that the first Alert was well-received – appears poised to make this a regular communication...

State Securities Administrators to Host Public Forum on Arbitration

Posted on June 03, 2008
The North American Securities Administrators Association will be holding a public forum on securities industry arbitration, on June 24 in New York City.  NASAA, which is the organization of heads of securities departments from each of the American states and territories, as well as the Canadian provinces and Mexico, has long perceived industry securities arbitration as unfair to investors...

FINRA issues proposed revisions to Rules, with substantial changes in supervision and supervisory controls rules

Posted on May 15, 2008
On May 14, FINRA released proposed Rule revisions, reflecting its efforts to merge the old NYSE and NASD rulebooks, refining and clarifying previous rules, and offering a few new wrinkles. The proposed revisions are open for comment until June 13...

New CFP Standards Effective July 1

Posted on May 13, 2008
Last month, the Certified Financial Planner Board of Standards issued updated Standards of Professional Conduct for CFP-certified financial planners. Those standards take effect on July 1, 2008.The new CFP Standards highlight the increasing convergence, from a regulatory standpoint, between the once clearly distinct worlds of broker-dealers and investment advisors...

Wearing the Bull's-eye: The Compliance Officer as Line Supervisor

Posted on April 28, 2008
It is axiomatic that smaller firms do not have available the cadres of specialized compliance personnel that larger firms do. Out of necessity, senior compliance staff at smaller firms may be called upon to handle a multitude of home office functions in addition to compliance, and to serve in multiple capacities...

Auction Rate Securities Sales In Regulators' Cross-Hairs

Posted on April 10, 2008
The recent slew of lawsuits brought against some of the nation's largest broker-dealers that sold Auction Rate Securities ("ARS") to customers has not gone unnoticed. The SEC and FINRA, on the heels of the lawsuit filings, have each launched independent investigations of their own into the sales and marketing practices employed by firms selling ARS...

SEC reveals "Top 10 Compliance Issues for 2008" at SIFMA Conference

Posted on April 02, 2008
Commissioner Lori Richards revealed the SEC’s “Top 10 Compliance Issues for 2008” during the general session at the 40th annual SIFMA national conference yesterday in Orlando, Florida.  According to Ms. Richards, the top 10 areas of scrutiny in SEC board exams in 2008 will be: Valuations...

SIFMA General Session -- Day One

Posted on March 31, 2008
Today is the opening day of the annual SIFMA conference, held this year in Orlando. This morning's general session, moderated by Gary Lynch, executive vice president and chief legal officer of Morgan Stanley, included panelists James Brigagliano of the SEC; Richard Ketchum of NYSE Regulation, Inc...

SEC proposes new rule aimed at naked short selling

Posted on March 05, 2008
The SEC voted unanimously yesterday to propose a new rule intended to enhance the SEC's ability to crack down on naked short sales and failures to deliver shares that are used in such sales, Reuters reported. Short selling involves sales of borrowed shares, in the hope of repurchasing them later at a lower price...

PLAINTIFF'S BAR'S GO-TO DAMAGES EXPERT WITNESS JAILED FOR PERJURY

Posted on March 04, 2008
John B. Torkelsen, an expert witness heavily utilized by the Plaintiffs' securities bar over the past several years to "testify on such issues as damages allegedly suffered by plaintiffs' classes and the appropriate value of settlements reached in several class action cases around the country," entered into a plea agreement before the Eastern District of Pennsylvania Federal Court, in which he plead guilty to perjury, admitting that "he lied to numerous federal judges across the county who were presiding over securities class actions...

Legislators Call For Controversial Reforms Following Lerach Sentencing

Posted on February 28, 2008
Legislators on Capital Hill reintroduced the "Securities Litigation Attorney Accountability and Transparency Act" last week. The Act, which was initially introduced in 2006, would permit courts to award successful defendants their attorneys’ fees in federal securities class actions when it is determined that the plaintiffs’ position was not “substantially justified,” require the disclosure of conflicts of interest between plaintiffs and their counsel, and allow courts to appoint lead counsel through a competitive bidding system...

More Commentary on Industry Arbitration

Posted on February 22, 2008
There’s a timely article up at Bloomberg regarding the ongoing back and forth between the securities industry and claimants’ bar regard the fairness of mandatory industry arbitration. The article cites the recent survey on claimant perceptions of arbitration fairness commissioned by the Securities Industry Conference on Arbitration ("SICA"), and conducted by the Investor Rights Clinic at Pace University Law School...

Supreme Court Rules on ERISA and 401(k) Liability

Posted on February 21, 2008
Yesterday, the U.S Supreme Court handed down an important decision regarding the liability of ERISA plans, and in particular, employer-sponsored 401(k) plans, to individual plan participants.In LaRue v. DeWolff, Boberg and Associates, Inc., the plaintiff had sued his employer-sponsored 401(k) for breach of fiduciary duty under ERISA § 502(a)(2) after, he alleged, the plan failed to implement his investment directions, resulting in a loss of about $150,000 to his account...

FINRA Fines Oppenheimer $4.5 Million for Market Timing

Posted on February 21, 2008
The latest on the market-timing settlement front: Oppenheimer agrees to pay FINRA $4.5 million for mutual-fund market timing conducted by five of its traders on behalf of hedge fund clients. Once again, a firm is stung by an apparent “head in the sand” compliance and supervisory approach to a small group of its reps acting on behalf of a small number of high-value clients...

Subprime At Top Of SEC To-Do List For 2008

Posted on February 20, 2008
On February 14, 2008, Chairman Cox testified before the U.S. Senate Committee on Banking, Housing, and Urban affairs. His remarks leave no doubt that the SEC views the subprime fallout that began in 2007 to be a prudential concern to all investors and market participants...

When Management Pushes Managed Accounts

Posted on January 23, 2008
Reposted with permission from RegisteredRep.com's Advisorland, January 1, 2008Q: I work for a major firm, which constantly pressures us to move our clients' assets into managed wrap accounts. We're being sent subtle, — and not-so-subtle — reminders about why these programs are in our clients' best interest...

SEC TARGETS SECURITIES FRAUD WITH HELP FROM FBI

Posted on December 11, 2007
Teaming up with the FBI, the SEC recently filed civil actions alleging securities fraud in five separate kickback schemes uncovered by an FBI sting operation. Officials are touting the operation as further proof that the organizations can and in fact are working together to prosecute securities fraud...

Minnesota Files Another Lawsuit Involving the Sale of Deferred Annuities to Seniors.

Posted on November 30, 2007
As predicted back in January when I reported on Minnesota’s lawsuit against Allianz, more insurance companies are becoming embroiled in lawsuits because of their annuity sales practices to senior citizens. After filing its lawsuit against Allianz, Minnesota filed a similar suit against American Equity Investment Life Insurance Company in April, again alleging that the company’s annuity sales practices violated the state’s suitability laws...

PIABA Opposes Expungement of Brokers' Customer Claims

Posted on October 02, 2007
In December 2003, the SEC approved NASD Conduct Rule 2130, ending the moratorium on expungement that had been in effect since January 19, 1999. Under Rule 2130, the Financial Industry Regulatory Authority (FINRA) will not oppose expungement relief in a court confirmation process if the arbitrator makes an affirmative finding that: The claim, allegation, or information is factually impossible or clearly erroneous; The registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds; or  The claim, allegation, or information is false...

FINRA CONTINUES REGULATORY FOCUS ON SENIOR INVESTORS

Posted on September 11, 2007
On September 10, FINRA  issued Notice 07-43 aimed at senior investors, demonstrating again that protecting older investors is a priority for regulators.   www.finra.org/RulesRegulation/NoticestoMembers/2007NoticestoMembers/P036815  The Notice highlights four main areas of concern:  unsuitable product recommendations to seniors use of misleading "senior" designations and credentials high-pressure sales tactics aimed at seniors red flags when dealing with persons with diminished capacity and suspected financial abuse of seniors With respect to suitability, the Notice focuses on several products previously noted as posing suitability risks for seniors, namely deferred variable annuities, equity indexed annuities, variable life settlements, and home mortgage investments...

Hedge Funds Target Law Firms For Alleged "Bad Advice"

Posted on August 28, 2007
While the SEC might have hedge fund "late trading" in its crosshairs (see 8/23/07 Overreg’d post), hedge fund managers have found their own targets – former counsel. With mounting pressure from the SEC and other regulators for increased transparency in operations and reporting, several failed hedge funds and their managers have been sanctioned and forced to repay millions to investors...

"Late Trading" In Mutual Funds - Still In SEC Crosshairs

Posted on August 23, 2007
Think twice before before placing an order to buy, sell or redeem mutual fund shares after the markets close to receive that day's price. This well-known practice, called "late trading," caught and continues to hold regulator attention, and carries with it significant negative repercussions...

Court Affirms $1 Million "Selling Away" Claim

Posted on August 21, 2007
Investors frequently pursue “selling away” claims against brokerage firms, alleging that the brokerage firm is somehow responsible for the actions of its registered representative, even if the firm was not aware of the broker’s activities, and did not profit from them...

Government Opposes "Scheme Liability" in Pending U.S. Supreme Court Case

Posted on August 16, 2007
            The U.S. Solicitor General has submitted an amicus curiae brief in a pending U.S. Supreme Court case, requesting that the Court narrow the scope of securities fraud claims so as not to encompass third party actors such as accountants, lawyers, and financial institutions...

New York Times Spotlights Arbitrator Conflicts-of-Interest

Posted on August 14, 2007
Check out this article from the Sunday edition of the New York Times which examines potential flaws in the process in which arbitrators disclose their conflicts in securities arbitrations. The story focuses on a couple who lost $48 million of their $60 million stock portfolio, which they had invested primarily in Level 3 Communications and WorldCom...

INVESTMENT BANKS HIDING SUBPRIME LOSSES? THE SEC WANTS TO FIND OUT.

Posted on August 10, 2007
Analysts and investors alike have wanted to know how some of Wall Street's top investment banks have been able to withstand the ongoing onslaught of subprime losses as many of the largest firms have reported few if any in recent months amidst increasing investor losses that have forced some lenders into bankruptcy...

The Broker's Dilemma: Putting the Client First or Being a Team Player

Posted on June 29, 2007
There is a long-perceived natural tension that exists between the challenging goals of revenue production, adherence to compliance and effectively serving the customer's interests. These competing forces do not necessarily have to be in conflict. Well-run organizations and dedicated sales staffs find the correct balance, identifying proper products for the appropriate customer and generating fair returns for all of the participants to the transaction—the firm, the broker and the customer...

Tellabs Lawsuit Hits End Of The Road - Supreme Court Raises "Scienter" Pleading Standard

Posted on June 22, 2007
The long wait is over. The Supreme Court's decision in Tellabs, Inc. v. Makor issues & Rights, Ltd. ends the split among the circuit courts of appeal by defining the "strong inference" scienter element that securities fraud claims must meet in order to survive a motion to dismiss...

"Seeing Gordon Gekko where others might see the Keystone Cops"

Posted on June 13, 2007
In dismissing a federal securities class action against Ceridian Corp. and three of its former officers, United District Court Judge Patrick Schiltz found that the hundreds of alleged accounting errors by numerous employees over many years, which led to repeated restatements of the company’s financials, simply did not amount to securities fraud under Rule 10b-5...

Companies Agree To Penalties For Alleged Backdating

Posted on June 06, 2007
Brocade Communications Systems ($7 million) and Mercury Interactive (a whopping $28 million) reached settlements late last week with the SEC over allegations of backdating at the two companies.    Brocade and Mercury are the first companies to pay civil penalties in the SEC’s monumental backdating investigation -- until now, the SEC had only imposed penalties against individuals...

(Almost) Everyone Loves Leverage

Posted on May 31, 2007
Danny DeVito’s character, Larry the Liquidator, in the 1991 film Other People’s Money confessed, “I love money more than the things it can buy….but what I love more than money is other people's money.” As it turns out, Larry the Liquidator was a little ahead of his time, because these days, everyone it seems loves leverage – the tool that allows investors to make large investments using other people’s money...

Cooperating with The Regulators Early: Good Strategy or Recipe for Disaster?

Posted on May 31, 2007
Imagine a world in which regulators and members firms always got along - where member firms proactively brought problems to regulator attention and sanctions were obsolete (or significantly reduced). Can such a utopia ever exist? Maybe.Comments from senior SRO personnel attending this year's Annual Forum On Responding To Broker-Dealer Litigation & Regulatory Enforcement held last week in NYC may surprise you...

Equity Indexed Annuities - Securities Or Not?

Posted on May 30, 2007
Confused about whether equity indexed annuities are securities? You are not alone. Comments made during the 4th Annual Forum On Responding To Broker-Dealer Litigation & Regulatory Enforcement suggest that state regulators are equally unable to categorize these hybrid products...

Small Companies Get a Break With Sarbanes-Oxley Amendment

Posted on May 24, 2007
Yesterday the SEC unanimously approved new guidelines for small companies to comply with Section 404 of the Sarbanes-Oxley Act of 2002. The internal controls required by Section 404 are designed to address fraud and financial manipulation, but have been highly criticized for the excessive costs to small companies...

Tyco Agrees to Pay Monumental $3 Billion to Settle Investor Class Actions

Posted on May 17, 2007
Ouch.  On Tuesday, Tyco International announced that it will pay nearly $3 billion in cash payments to settle 32 securities class action lawsuits involving Tyco stock. This is reportedly the largest securities class action settlement by a single corporate defendant, and the fourth largest single payout to investors...

A Step Towards Uniform Suitability Protection For Annuity Investors

Posted on May 11, 2007
In the purchase, sale or exchange of an annuity, the suitability requirements of a seller and the protections offered to the customer, vary greatly depending on the product and the state in which the transaction occurs. The reason, of course, is that the sale of fixed annuities is regulated solely by state insurance commissioners, whereas the sale of variable annuities is regulated by the state insurance commissioners, along with the SEC, NASD, and state securities regulators...