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Articles - Statutes - Rules - Decisions - News

Featured Books:

Capital Markets Handbook considered by some to be the definitive desk reference for capital market professionals and a complete resource for anyone working in the financial markets field. Written by seasoned professionals in association with the SIA, Capital Markets Handbook covers the latest developments in major securities legislation, and all aspects of documentation, underwriting, pricing, distribution, settlement, immediate aftermarket trading of new issues, compliance issues, a glossary, a bibliography, and appendices containing the full text of the primary statutes and regulations.

21st Century Complete Guide to the SEC with Forms, Regs, Answers, Bulletins, Orders and more - This electronic book on CD-ROM presents the complete story of the Securities and Exchange Commission (SEC) with an enormous library of SEC documents: Public Forms and Regulations, Fast Answers from A to Z, Staff Legal Bulletins, Publications for Investors, Rulemaking, Commission Opinions and Orders, Policy Statements, Proceedings, and Reports.

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.

Introductory Materials

Guide to Broker-Dealer Registration - an updated version of the SEC's original guide is now online.

Introduction to the Federal Securities Laws - an introduction to the laws which govern the purchase and sale of securities in the United States, including the Securities Act of 1933 and the Securities Exchange Act of 1934

Introduction to the Blue Sky Laws (State Securities Laws)- in addition to the federal securities laws, each state has its own securities laws, rules and regulations. This article provides an overview to the function and purpose of those state laws, known as "blue sky laws."

Introduction to Securities Arbitration - today, nearly all disputes between customers and firms, and between brokerage firms, are resolved in binding arbitration. An overview of the process, from Mark Astarita.

Introduction to the Initial Public Offering Process -any offer to sell securities must be registered with the federal and/or state securities regulators, or exempt from registration. A description of the law, and the registration process.

Introduction to Private Placements - stock offerings which are not made to the general public are called private placements, and are exempt from registration with the securities regulators. A description of the exemption, and the private placement process.

Introduction to Insider Trading - insider trading refers to two types of trading, one that is legal, and the other that is not.

Commentary

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.

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.

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.

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 - 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.

08-16 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.

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.

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 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.

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

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

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'

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

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.

Past Articles and Commentary
Every month The Securities Law Home Page brings together commentary and updates from securities law practitioners and regulators. Past articles are collected here in chronological order, or simply search for the topic you are interested in.

Statutes and Rules

Investment Adviser's Act

Questions? Contact

Mark Astarita

SECLaw.com was created by Mark J. Astarita, Esq., a securities attorney and partner in the law firm of Beam & Astarita, LLC, who represents financial professionals in a wide variety of matters. Mr. Astarita can be contacted by email at astarita@beamlaw.com.

Copyright 2008. All Rights Reserved.

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