Securities Law Related Blogs

Darryl Matthew Cohen, ex-Morgan Stanley Advisor Allegedly Defrauded NBA Players According to a press release, the Securities and Exchange Commission today filed charges against Darryl Matthew Cohen, a former investment adviser with Morgan Stanley, with allegedly misappropriating more than $1 million from three current and former NBA players over a period of two and a half years. This follows Morgan Stanley lawsuits reportedly filed last year by two of the players looking to recoup their losses. From October 2017 through April 2020, Cohen allegedly used client funds, without their knowing, for personal expenses including to support his son’s amateur basketball program, for a home gym, and to pay back another client whose funds Cohen had misappropriated. Cohen also allegedly sold life insurance settlements to the clients for kickbacks to fund his home improvements. FINRA Bars Darryl Matthew Cohen from Securities Industry In December 2021, FINRA reportedly barred Cohen…

A recent Stanford report on shareholder activism highlights some of the ways in shareholder activism and companies’ responses to it continue to evolve.  In recent years, companies have frequently been admonished to “think like an activist” and identify & address potential weaknesses before activists leverage them into a successful campaign.  This excerpt from the report […]

Earlier this week, the SEC announced charges against a “crypto asset entrepreneur” and three of his wholly-owned companies for what the SEC is saying were unregistered offers & sales of crypto asset securities, as well as market manipulation allegations based on purported “wash trades.” What’s interesting even if you’re not generally following the ins & outs of crypto is that in its 50-page (!) complaint – the SEC has taken an expansive view of the type of activity that violates Sections 5(a) and 5(c) of the Securities Act, which require issuers to register offerings of securities through an effective registration statement before the securities are offered and sold to the public (or to have a valid exemption from registration). The Commission has taken issue not just with sales for cash, but also “giveaways.” For example, in regard to an “emoji contest” in which participants could win a combined 31,000…

At the risk of the boomers telling me to “get off their lawn” and millennials asking, “what about us?” – I’d like to flag a study from three assistant/associate professors at the University of New Hampshire that says Gen Xers have left their “slacker” stereotype behind in the boardroom and are associated with significantly better company performance. Here’s more detail: Using data on all S&P 1500 firms from 1996 to 2014, we find that the percentage of Generation X directors on the board is positively and significantly related to firm performance. This effect is not driven by other director attributes, such as sex, tenure, professional expertise or CEO experience, and is robust to endogeneity checks using instrumental variables. The effect is also independent from the effect of director age, which although related to director’s generational identity captures something fundamentally different, and is controlled for…

Almost everyone seems to be talking about ChatGPT. This new AI-enabled chatbot, which can swiftly produce answers that feel as if a human wrote them, promises to revolutionize how we generate text. Although ChatGPT emerged just a few months ago, it is already causing turmoil across various fields. Microsoft embedded it into their Bing search engine. Google declared a “code red” and tried to introduce a competing bot. Universities are rethinking how to evaluate student performance, as ChatGPT can apparently pass exams in law, business, and medicine. Despite the hype, ChatGPT is not perfect. It is prone to inaccuracies and a phenomenon colloquially known as “hallucinations,” where the output deviates from the expected. For instance, shortly after ChatGPT was released, Dr. Hadar Jabotinsky and I tried asking ChatGPT to provide academic references in support of its answers. Surprisingly, some of the citations were not only inaccurate but non-existent,…

Look, I’m sorry if this makes me a downer as we head into the weekend, but this headline from ISS Corporate Solutions shows that capitalism will outlive cockroaches: “The Looming Antimicrobial Resistance (AMR) Pandemic: Opportunities for Investors.” Maybe you find this inspiring. “Now I can hedge against a painful encounter with MRSA!” you say as you trade stocks on your way to the hospital. If that’s the case, good on you, please do not let me rain on your parade. ICS makes a compelling case for this being a measurable “ESG” issue – with these types of data points: – Share of net sales of antibiotics dedicated to intensive animal farming – Hygiene management methods at healthcare facilities – Reducing pharmaceutical ingredients, including antimicrobials, in wastewater at production sites This all makes sense, but the headline without that context is the type of thing that gives ESG a reputation for being…

The rationale behind a number of recent EU legislation changes focusing on corporate governance has been to prioritise a long-term focus on governance through various transparency measures as well as some concrete requirements for action, and on allowing shareholders and other stakeholders to be well informed. This is evident in the revised Shareholder Rights Directive adopted in 2017, and also in the most recent legislative initiatives discussed in this review. The Corporate Sustainability Reporting Directive and the proposed directive on Corporate Sustainability Due Diligence revise current obligations and introduce new ones under EU law regarding company disclosure and corporate governance practices. Additionally, the new November 2022 Directive on gender balance on company boards seeks to harmonise and improve Member State practices regarding gender representation on company boards. This review takes a look at the recent legislative initiatives noted and discusses their…

What is FINRA Rule 2111 Suitability?   FINRA Rule 2111 Suitability is a regulation established by the Financial Industry Regulatory Authority (FINRA), which governs the suitability of recommendations made by broker-dealers to their clients. FINRA Rule 2111 requires brokers and firms to have a reasonable basis to believe that a recommended transaction or investment strategy is suitable for the customer based on facts obtained through reasonable diligence.    Rule 2111 requires that any recommendations made by a broker-dealer must be suitable for the client based on the client’s investment profile, which includes their investment objectives, risk tolerance, financial situation, and other relevant factors.   In other words, your broker-dealer must ensure that any investment recommendations they make are suitable for you, considering your individual needs and circumstances.   Suitability Obligations   There are three…

Delaware’s courts traditionally have said that breach of the duty of oversight claims (sometimes referred to as Caremark claims) are “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” However, in series of cases following the Delaware Supreme Court’s 2019 decision in Marchand v. Barnhill, Delaware courts have sustained a number of breach of the duty of oversight claims. More recently, Vice Chancellor Laster, in a pair of decisions in the McDonald’s case, elaborated significantly on the reach of duty of oversight. Among other things, Laster made it clear that the duty extends to corporate officers as well as to directors. Some commentators (including me) were concerned that Laster’s elaborations could lead to further lawsuits alleging breach of the duty of oversight. Now, in what is the first high-profile post-McDonald’s Caremark claim of which I am aware, a group of four…

On 23 March 2023, the FCA updated their webpage on the Climate Financial risk Forum (CFRF). The webpage has been updated to include further Session 3 guides. Written by industry, for industry, these guides build on the CFRF’s previous publications and aim to continue to contribute to the development of effective practice. The guides focus on the transition to net zero, scenario analysis, and climate disclosure, data and metrics: Disclosure, Data and Metrics – CFRF Climate Disclosures Dashboard Disclosure, Data and Metrics – Webinar 1 – The limitations of portfolio climate data Disclosure, Data and Metrics – Webinar 2 – Forward-looking portfolio climate metrics Disclosure, Data and Metrics – Webinar 2 – Climate data coverage Disclosure, Data and Metrics –Supporting content for Webinars Scenario Analysis – Online climate scenario analysis narrative tool Scenario Analysis – Asset Management Guide Scenario Analysis…

On 23 March 2023, the Basel Committee on Banking Supervision (Basel Committee) announced a range of policy and supervisory initiatives, following a meeting on 14 March and 22-23 March to take stock of recent market developments and risks to the global banking system. Following the meeting, the Basel Committee announced the following: The Basel Committee will continue to closely monitor bank and market developments and assess the financial stability risks of higher interest rates to the global banking system. In addition, the Basel Committee has agreed to take stock of the regulatory and supervisory implications stemming from recent events, with a view to learn lessons. The Basel Committee will issue a consultation paper on the proposed Pillar 3 disclosure framework for climate-related financial risks. The purpose of the framework is to provide additional bank disclosures about the prudential risks. The Basel Committee is reviewing its Core principles for effective banking…

On 23 March 2023, the following Decisions were published in the Official Journal of the European Union (OJ): Decision (EU) 2023/672 of the European Central Bank of 10 March 2023 on delegation of the power to adopt decisions relating to on-site inspections and internal model investigations (ECB/2023/5) – The Decision specifies the criteria for the delegation of decision-making powers to the heads of work units of the European Central Bank for the adoption of decisions on on-site inspections and decisions on internal model investigations. The Decision comes into force on the twentieth day following its publication in the OJ. Decision (EU) 2023/673 of the European Central Bank of 14 March 2023 nominating heads of work units to adopt delegated decisions relating to on-site inspections and internal model investigations (ECB/2023/6) – The Decision enters into force on the twentieth day following its publication in the OJ.

The Securities and Exchange Commission today charged Scott Hollender, Gabriel Migliano, Jr., and Frank Vecchio for selling interests in shares of pre-IPO companies on behalf of StraightPath Venture Partners LLC, despite not being registered broker-…Read the Full Press ReleaseHave a securities law question? Call New York Securities Lawyers at 212-509-6544.

The Securities and Exchange Commission today charged Darryl Matthew Cohen, a former investment adviser at a large financial institution, with misappropriating more than $1 million from three current and former NBA players over a period of two and a half…Read the Full Press ReleaseHave a securities law question? Call New York Securities Lawyers at 212-509-6544.

What is FINRA Rule 3270 Outside Business Activities? The Financial Industry Regulatory Authority (FINRA), the regulator that oversees financial advisors and brokerage firms, requires registered representatives to disclose any outside business activities (OBAs) to their member firm, which is the firm that employs them. FINRA Rule 3270 requires registered representatives to provide prompt written notice to their member firm before engaging in any outside business activity.   FINRA sets and enforces rules that govern the activities of its members, which include most of the broker-dealers doing business in the US. FINRA also provides education and training to industry professionals, administers licensing exams, and conducts market surveillance to detect and prevent fraudulent and manipulative activities.  An OBA is defined as any business activity that a registered representative engages in that is not conducted on behalf of their member firm. Examples of OBAs can…

The Financial Services and Markets Bill, which was laid in front of Parliament in July 2022 and is expected to be finalised in the coming months, includes the introduction of a new designated activities regime (DAR). The DAR’s initial aim is to bring activities that are currently regulated under retained EU law into the Financial Services and Markets Act 2000 (FSMA) model in a proportionate way, with the potential to add more activities in future. Some further detail on the intended use of the DAR was published in December 2022 as part of the Edinburgh Reforms. We have published a new briefing note looking at the proposed DAR, its likely impact and some practical considerations for firms.

Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) as a direct response to the 2008 Financial Crisis when millions of Americans lost homes due to foreclosure. (SEC). Among myriad findings, a final report on the 2008 Financial Crisis stated that investment transactions with conflicts of interest contributed to the crisis. (Financial Crisis Inquiry Commission). For example, the commission found that financial firms marketed an investment and profited off that investment product’s decline. Id. Dodd-Frank mandated that the Securities and Exchange Commission (“SEC”) create rules within 270 days of the Act’s passage to prohibit transactions with “certain material conflicts of interest” for asset-backed securities (“ABS”). (SEC). Over a decade and one failed attempt later, the SEC re-proposed Rule 192 to address Dodd-Frank’s conflict of interest requirement. (Jessica Corso,…

Daniel Beech (Daniel Keith Beech CRD# 6169844) is a registered broker and investment advisor currently employed with Innovation Partners LLC (CRD# 146344) of Charlotte, NC. His previous employers were Western International Securities (CRD# 39262) of Westlake Village, CA, Independent Financial Group, LLC (CRD# 7717) of Sherman Oaks, CA, and Royal Alliance Associates, Inc. (CRD# 23131) of Los Angeles, CA. He has been in the industry since 2013. Beech’s CRD includes 13 customer disputes, two of which have been settled. The other 11 were filed between 4/29/2022 and 1/11/2023 and are currently listed as “pending.” Several disclosures list clients seeking reimbursement for their investments, while others have allegations of unsuitability and negligence. The collective damages for these 11 customer disputes total $2,558,150.00. The two earlier disputes both requested $5,000 in damages, and were settled for $72,500, collectively. What Does Unsuitability Mean? In a…

After spending seven years as a proposal in limbo, the Securities and Exchange Commission ("SEC") adopted a "Pay Versus Performance" rule in August of 2022, finally meeting the statutory mandate set forth in the Dodd-Frank Act. (Candance Quinn, et. al., Bloomberg Law). As the rule’s name implies, SEC registrants must now disclose the interplay between their executive compensation actually paid and the company's financial performance. (PricewaterhouseCoopers). An additional requirement under the new rule has drawn scrutiny as it opens the door for Environmental Social Governance ("ESG") disclosures to be made. (SEC). This requirement mandates registrants to list three to seven financial performance measures, which the registrant deems most important to its executive’s performance-based compensation. Id.The mandatory financial performance measures may be substituted for non-financial performance measures, such as ESG measures, if the…

In February 2016, Congress passed the bipartisan SEC Small Business Advocate Act of 2016 (the “Act”). The Act amended the Securities Exchange Act of 1934 to establish an independent Office of the Advocate for Small Business Capital Formation (the “Office”) within the Securities and Exchange Commission (“SEC”). (H.R. 3784). Officially established in 2019, the Office aims to assist and advance the interests of small businesses and their investors in securing access to capital and complying with SEC regulations. (SEC). Recently, the Office pushed for regulators to consider how current costs and regulatory regimes restrict small businesses’ ability to access and raise capital, arguing that small businesses face significant disadvantages when fundraising compared to larger companies. (Tom Zanki, Law 360). However, questions arise as to how the Office’s proposed policy adjustments to current capital raising rules will affect existing…