Corporate & Securities Law

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...

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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...

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