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's Featured Articles, Books and Related Sites:
Featured
Books - Securities
Law in a Nutshell and Broker-Dealer
Regulation in a Nutshell are excellent introductions to the law that
affects your business. If
you are an Investment Advisor, you might be interested in Investment
Adviser Regulation: A Step-by-Step Guide to Compliance and The Law
Registration
of Investment Advisors - what you need to know to start an advisory
firm
Guide
to Broker-Dealer Registration - an updated
version of the SEC's original guide is now online.
FINRA Investor Alert - Auction Rate
Securities
FINRA's latest Investor Alert, and an attempt to clarify the auction rate
securities issue
Commentary
Wealthy Investors Favor Private Equity
Well-known high
net worth individuals have benefited from putting their surpluses into private equity/venture capital
funds early, reports Sify.com.
Chief Risk Officer - RR's Get
a New Title?
Get ready for your new job description!With retirement shaping up as the
New Frontier, advisors are being forced to rethink client risk - and mitigate that risk as never before.
It’s uncharted territory that has industry thought leaders challenging long-held assumptions and
searching, basically, for a map.
One certain outcome: a new and expanded role for the advisor.
Citi Hedge Fund Blow Up Hurts Clients - And Sends Advisors
Packing
While Smith Barney tries its darnedest to hold on to the money of wealthy clients
that were invested in two of the firms’ failing hedge funds, it’s also having a hard time keeping
some of its best brokers. With all the uncertainties and troubles facing Citi, the firm’s prized retail
brokerage operation has become a favored target of recruiters, say recruiters. More at On Wall
Street
Reacting to the Paulson Redesign
As
Treasury unveils its regulatory blueprint, has the time come for a massive consolidation of
securities regulators? That is the question that is being asked as the industry moves through the
proposals. I am a big fan of the concept that bigger is not always better, but we do have an
overabundance of regulators. OTOH, it is going to take FINRA years to get its act together in the
merger of the NASD and the NYSE. Can you imagine how long it will take to merge the CFTC and
the SEC?
Bear Brokers in Limbo
With all of Bear's
problems, its brokers are out looking for new positions. According to On Wall Street, recruiters say
they are seeing movement throughout the industry, due both to the Bear demise and changes
occurring at UBS, Goldman Sachs and Merrill Lynch. However, no firm would comment on whether
they are making overtures to Bear brokers. But do make sure to have an experienced securities employment
attorney review those new agreements!
Wal-Mart Sued Over 401(k) Fees
Like many
of the other suits that have been filed since 2006 against big employers such as Boeing, Deere
and General Dynamics, the suit against Wal-Mart—filed last month and currently seeking class-
action status—claims that the company breached its duties as a fiduciary by allowing its 401(k)
plan participants to be charged “unreasonably expensive” fees.
The suit alleges the fees were too high because Wal-Mart’s $9.5 billion 401(k) plan offered
participants retail mutual funds, as opposed to less expensive institutional funds, despite the
ready availability of reasonably priced options, the claim stated, particularly for a massive plan like
Wal-Mart’s with tremendous potential to leverage economies of scale.
Bear Market Fat Lady Has Not
Sung
It's very easy to be a bear right now--nothing much is going right. The markets have
had one of the worst quarters in recent memory and there isn't much room for a positive mental
attitude.
Comment Period For Motion To Dismiss Ban Is April
10
As everyone now knows, FINRA has a rule proposal pending to eliminate motions to
dismiss in arbitrations. The comment period ends on Thursday, and very few comments have
been submitted. The ones that have been made are almost uniformly in favor of the rule.
FINRA's proposal will effectively eliminate motions to dismiss in arbitrations prior to the
presentation of Claimant's case. While those motions are rarely granted, some are granted, and
motions made during the course of discovery are also granted. Such motions are a valid part of the
arbitration process, and serve to limit the scope of a proceeding, or the length of a hearing.
J.P. Morgan Offers Retention Deal To Bear
Reps
JP Morgan would certainly like to hold on to the Bear Stearns reps - or at least their
assets...or does it?
First, reps who gross less than $250,000 a year can apparently take a hike. No retention bonus for
them, or at least not one that has been announced.
For reps in the $250,000 to $500,000 range, the offer is 25% up front in cash, 25% in stock. For
those over $500,000, the offer is 75% cash, 25% stock, up front, plus and additional 50% stock,
50% cash in three years, of the average production over those three years.
Enforcement
Actions
FINRA's National Adjudicatory Council Affirms $5 Million
Fine Against American Funds Distributors for Violating FINRA's Anti-Reciprocal Rule
A $5
million fine imposed against American Fund Distributors for directed brokerage in 2006 will stand,
according to a ruling of the National Adjudicatory Council
Information and
Lists
FINRA Podcast - Preparing for a FINRA Cycle
Examination
This podcast, the audio version of a webcast developed for the "What to
Expect" series, focuses on what firms should expect during the cycle examination process and
how they can prepare.
FINRA Podcast - April 2008 Monthly Recap
A
review of the latest FINRA notices, compliance resources and news for April
FINRA Podcast - Principal Approval of Sales
Material
A review of a new exception to the principal approval requirements for some
sales material that firms file.
NASDR Notices to
Members
08-20 FINRA Requests Comments on Proposed
Changes to Forms U4 and U5
FINRA requests comment on proposed changes to Forms
U4 and U5. The proposed changes, which were developed by a working group composed of
regulators and industry participants (the Working Group), are intended to benefit regulators,
investors and the industry. Proposed revisions, among other things, would require firms to report,
as customer complaints, allegations of sales practice violations made in arbitration claims and
civil lawsuits against registered persons who are not named as parties in those proceedings. The
proposals also include revisions to Forms U4 and U5 designed to ease, clarify or facilitate
reporting requirements and other technical and/or conforming changes
08-18 Sound Practices for Preventing and Detecting
Unauthorized Proprietary Trading
FINRA requests comment on proposed changes to
Forms U4 and U5. The proposed changes, which were developed by a working group composed
of regulators and industry participants (the Working Group), are intended to benefit regulators,
investors and the industry. Proposed revisions, among other things, would require firms to report,
as customer complaints, allegations of sales practice violations made in arbitration claims and
civil lawsuits against registered persons who are not named as parties in those proceedings. The
proposals also include revisions to Forms U4 and U5 designed to ease, clarify or facilitate
reporting requirements and other technical and/or conforming changes.
08-17 Reporting of Customer Complaints Relating to
Auction Rate Securities
FINRA has added three new product categories for use by
member firms in reporting customer complaints relating to auction rate securities. NASD Rule
3070(c) and incorporated NYSE Rule 351(d) require all members and member organizations to
report, on a quarterly basis, statistical information regarding customer complaints. This
information is required to be filed by the fifteenth calendar day of the month following the end of the
quarter.
08-16 Member Firm Disclosure and Supervisory Review
Obligations
Effective April 7, 2008, an amendment to revise NASD Rule 2711(h)(13) and
Incorporated NYSE Rule 472(k)(4) modifies a member’s disclosure and supervisory review
obligations when it distributes or makes available third-party research reports. The rule change
creates a category of "independent third-party research" and eliminates certain supervisory review
requirements when a member distributes or makes available such research.
08-15 Foreign Research Analyst Exemption from the
Research Analyst Qualification Examination
Effective April 7, 2008, certain research
analysts employed by a member firm’s foreign affiliate who contribute to the preparation of a
member firm’s research reports are exempt from the Research Analyst Qualification Examination
per NASD Rule 1050 and Incorporated NYSE Rule 344. The rule change supersedes an existing
exemption that applies only to research analysts who are employed by foreign affiliates in certain
FINRA-approved jurisdictions
News
Items
SEC Stops Multi-Million Dollar Fictitious Currency Trading Program
The SEC
has announced that it has obtained a court order to stop a $27 million Ponzi scheme involving
investors in the United States, Canada, and other countries. The SEC charged Las Vegas-based
Gold-Quest International and its three principals for the alleged misuse of investor funds in a
scheme that promised incentives to investors who recruited "friends and family" into the system.
The SEC alleged that Gold-Quest and its owners misrepresented that investor funds would be
pooled and invested in foreign currency exchange trading and would generate annual profits of
87.5 percent. No investor money was actually invested in foreign currency exchange trading.
SEC Staff Recommends Commission Action to Facilitate Investment in Small
Business
The SEC's Division of Investment Management has prepared a
recommendation for consideration by the Commission to increase the availability of capital to
certain smaller companies that do not have ready access to the public capital markets or other
forms of conventional financing. The Division has recommended that the Commission adopt an
amendment to a rule that defines the types of companies in which business development
companies (BDCs) may invest most of their assets. Congress in 1980 established BDCs, which
are publicly traded investment companies, to help make capital more readily available to small
developing and financially troubled businesses.
SEC Charges Two Former Monster Worldwide Executives for Backdating
Options
The SEC has charged two former senior executives at Monster Worldwide, Inc.,
for their alleged participation in a multi-year scheme to secretly backdate stock options granted to
thousands of Monster officers, directors and employees.
SEC Charges Birmingham Mayor and Friends for Undisclosed Payment Scheme in
Municipal Bond Deals
The SEC has charged Birmingham Mayor Larry Langford and two
of his friends in connection with undisclosed payments to Langford related to municipal bond
offerings and swap agreement transactions Langford directed on behalf of Jefferson County, Ala.
Also charged was the Alabama broker-dealer firm that reaped millions of dollars in fees from the
deals.
Bear Loses Top
Chicago Team
On Wall Street is reporting that Bear Stearn's Chicago office has lost its
top producing team to Morgan Stanley's Chicago-based high-net-worth office. The team, headed by
35-year Bear Stearns' veteran Steve Nakovich and Art Pancoe, oversaw $1.2 billion in assets and
generated almost $5.8 million in production.
FINRA Hearing Panel Dismisses 2004 Sales Practices
Complaint Against H&R Block Financial Advisors
In a decision that is surely causing
concern at FINRA, a FINRA Hearing Panel dismissed a complaint against H&R Block Financial
Advisors alleging sales practices and supervisory violations relating to sales of Enron Corporation
bonds during the one-month period immediately preceding Enron's filing for bankruptcy protection
on Dec. 2, 2001.
The panel ruled that FINRA's Department of Enforcement failed to show by a preponderance of
evidence that H&R Block registered representatives misrepresented or omitted material facts in
connection with sales of Enron bonds, or that the firm failed to implement adequate supervisory
systems and procedures. Specifically, the Panel "found no evidence" that the firm "engaged in
other wrongful conduct."
A FINRA hearing panel finds "no evidence" to support FINRA charges against a BD? While this
raises a number of concerns regarding the quality of the investigative process at FINRA and its
decision making process in commencing litigation, the proceeding was undoubtedly a significant
expense for the respondents, as the hearings consumed 24 days of testimony.
We are seeing an increasing number of hearing panels dismissing all or parts of enforcement
cases. FINRA needs to examine the quality of its investigative procedures, and to re-examine its
perception of brokers and brokerage firms, which may be clouding its collective judgment in
commencing cases where there is no evidence of any wrongdoing.
The panel issued a detailed, 54-
page decision.
Nuveen struggles to cash out its ARS
holders
Fund giant looking to liquefy $15 billion in preferred auction-rate securities;
investors may have to wait months
SEC Announces $30 Million Fair Fund Distribution to Investors Affected by Undisclosed
Market Timing in RS Investments Mutual Funds
The SEC announced the distribution of
approximately $30.6 million to more than 250,000 investors who were affected by undisclosed
market timing in certain RS Investments mutual funds.
The Fair Fund distribution includes $25 million in disgorgement and penalties paid by RS
Investment Management, Inc. and RS Investment Management, L.P. (RS Investments) in an SEC
enforcement action, approximately $3.3 million in disgorgement and penalties from Banc of
America Capital Management LLC, BACAP Distributors LLC, and Banc of America Securities LLC
related to a separate unlawful market timing matter that affected RS Investments investors, and
accumulated interest.
Congressmen question fund companies’
treatment of ARS holders
Letter to SEC's Cox labels resistance to cashing out closed-
end ARS funds an 'apparent conflict'
SEC Charges Wall Street Short-Seller With Spreading False Rumors
The SEC
has charged Paul S. Berliner, a Wall Street trader formerly associated with Schottenfeld Group
LLC, with securities fraud and market manipulation for intentionally spreading false rumors about
The Blackstone Group's acquisition of Alliance Data Systems while selling ADS short.The SEC
alleges that five months ago, Berliner disseminated the false rumor through instant messages to
numerous individuals, including traders at brokerage firms and hedge funds. The false rumor also
was picked up by the media.
Heavy trading in ADS stock ensued, and within 30 minutes the false rumor had caused the price of
ADS stock, trading at approximately $77 per share, to plummet to an intraday low of $63.65 per
share - a 17 percent decline. In response to the unusual trading activity, the New York Stock
Exchange temporarily halted trading in ADS stock. Later in the day, ADS issued a press release
announcing that the rumor was false. By the close of trading, the price of ADS stock recovered to its
pre-rumor price of approximately $77 per share. Berliner profited by short selling ADS stock during
its precipitous decline
SEC settles with Wall Streeter accused of
spreading rumors about Alliance Data
Trader allegedly profited from text messaging lies
about LBO offer; 'info' was soon picked up by media outlets
Merrill files claim against Nat City over First
Franklin
Claim arises from i-bank’s purchase of subprime mortgage originator from Nat
City in 2006
UBS puts its investment banking unit on a tight
leash
Private bank will no longer fund i-bank; capital 'must be generated under its own
steam'
BlackRock bails out its auction-rate
holders
Second-largest closed-end fund manager considers adding a put to $1.9 billion
worth of frozen securities to make them more salable
SEC and PAUSE help to warn investors
of securities fraud
The SEC is stepping in to protect investors against fraudulent sales
pitches and other investment related scams. Their new initiative, "PAUSE," which stands for Public
Alert: Unregistered Soliciting Entities, aims to educate investors about current company
complaints, questionable activities, boiler room fraud, phone solicitations, and other shady
practices being used by money hungry scam artists.
PAUSE currently lists 56 unregistered soliciting entities and phone agencies that investors should
avoid. The SEC plans to update the list regularly, and hopes that individuals will visit the site
before making any investment decisions.
Ex-Brookstreet brokers file $36M
claim
According to InvestmentNews, five brokers at the center of the collapse of
Brookstreet Securities Corp. have filed a $36 million arbitration complaint against Brookstreet’s
former clearing firm, National Financial Services LLC, alleging that hundreds of millions of dollars
that clients lost in highly leveraged collateralized mortgage obligations were directly attributable to
National Financial Services’wrongful conduct.
Bear Stearns, Deloitte Sued Over Hedge
Fund
The problems for Bear Stearns seem to keep on coming. After its fire sale to JP
Morgan, today's news is that the liquidators of two of its hedge funds that collapsed last year, have
filed suit against the company and its auditor, Deloitte & Touche seeking to recover over $1 billion
in losses.
Related
Sites
Subprime-related lawsuits clogging
courts
Cases mounting quickly, may eventually surpass number of suits filed in S&L
scandal; on average, two suits filed every day
Securities
Law Blogs
Securities
Industry News
Introductory
Materials
Introduction
to the Federal Securities Laws
Introduction
to the Blue Sky Laws (State Securities Laws)
Introduction
to Securities Arbitration
Introduction
to the Initial Public Offering Process
Introduction
to Private Placements
Introduction
to Insider Trading
Amazon.com
makes it easy to order books online, and we have compiled what we believe
to be the most useful books for the brokerage legal and compliance officer
in the Compliance and Law Department
at the SECLaw.com Bookstore.
The
Law of Securities Regulation - from West Publishing, an excellent
introduction and overview of the securities laws. This is a "hornbook",
books written for law students to introduce a new subject. Excellent reference
material for layman, compliance officer or an attorney seeking an introduction
to the subject. With full citations, attorneys can quickly locate the
major cases on a particular topic and obtain additional information.
Securities
Regulation in a Nutshell (6th ED) - This book summarizes the essential
background and current status of each major area, while keeping details
and citations to a minimum. It includes references to the relevant statutes,
SEC rules and releases, and other governmental materials, as well as to
"leading cases."
Statutes
and Rules
Investment
Advisor's Act
Join
the National Association
of Investment Professionals - The NAIP is the trade association and
membership organization for financial professionals. We are an organization
of investment professionals who hold Series 7, 63 or 65 licenses in the
financial services industry
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