Financial Adviser Legal Information Center

Ed: This section of SECLaw.com brings together commentary, news and links of interest to financial advisers. 

Featured Books

Securities Litigation and Enforcement in a Nutshell – The 2nd edition of the Securities Litigation and Enforcement Nutshell focuses on an area of law that burgeoned nearly two decades ago after the accounting and corporate governance scandals at Enron, WorldCom, and other large publicly traded companies. It is an area of law that has only continued to expand with the 2008 financial crisis and subsequent legislation, including the Dodd-Frank Act of 2010 and the JOBS Act of 2012, and with several recent rulings by the U.S. Supreme Court. The Nutshell examines private, SEC, and criminal enforcement of the federal securities laws, with an emphasis on the elements that establish securities fraud, and the doctrinal and practical issues that typically emerge in prosecuting or defending such claims.

Broker-Dealer Regulation in a Nutshell  is a similar introduction, and while the laws regulating broker-dealers are complex, this book provides an overview of the concepts and regulations.

Investment Adviser Regulation: A Step-by-Step Guide to Compliance and The Law  is an excellent starting point for understanding the regulation of investment advisers.


Recent Blog Posts

New Private Fund Reporting Rules Proposed

The Securities and Exchange Commission today voted to propose amendments to Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds. The amendments, which the Commodity Futures Trading Commission (CFTC) is concurrently considering to propose jointly with the SEC, are designed to enhance the Financial Stability Oversight Council’s (FSOC) ability to ...

OTC Markets

The over-the-counter market is where securities which do not trade on an exchange are traded. Securities traded on the this market are typically from smaller companies that do not meet the listing requirements from the exchanges. The OTC market is the default exchange for some securities, like corporate bonds. Alternatively, some companies may opt to remain ...

UBS Pays $14.1 Million Defamation Award to Compliance Officer

After years of appealing the arbitrators’ decision, UBS finally pays. The appeals of the original arbitration award increased the amount UBS had to pay by a reported $3 million. According to AdvisorHub, in his arbitration complaint filed in June 2018, the compliance officer alleged UBS defamed him on his U5 termination filing, which accused him of ...

Morgan Stanley Deferred Comp Claims

Morgan Stanley may have violated ERISA rules when it cancelled certain deferred compensation assets for brokers who left the firm. We are investigating claims for Morgan Stanley advisors who were denied their deferred compensaton payments when they left the firm. There is a proposed class action pending, but individual advisors may be better served by bringing ...

Duties When Processing Transactions for Russian Elites

AdvisorHub is reporting that FINRA issued an alert on Friday warning about the compliance obligations triggered due to sanctions the U.S. government has imposed on individuals and entities in response to Russia’s invasion of Ukraine.   The FINRA alert noted that following a White House Executive Order, the Department of Treasury’s Office of Foreign Assets Control (OFAC) ...

Cybersecurity Risk Management Rules and Amendments Proposed for Registered Investment Advisers and Funds

The SEC has proposed cybersecurity risk management rules for registered investment advisers, and registered investment companies and business development companies (funds), as well as amendments to certain rules that govern investment adviser and fund disclosures. “Cyber risk relates to each part of the SEC’s three-part mission, and in particular to our goals of protecting investors and ...

Securities Enforcement Investigations

SEC enforcement investigations cover a wide range of targets and witnesses, from the big investment banks and their employees, to public companies to private companies who are soliciting investments, small companies. The SEC conducts its investigations privately, and does so by requesting voluntary cooperation or issuing subpoenas for documents and testimony. The SEC has the power ...

Robo-Adviser Settles SEC Charges of Misleading Investors

A robo-adviser is an automated investment tool that uses mathematical algorithms to evaluate the prospects of various investment options and, in theory, choose the best one. Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor collects information from clients about their financial situation and future ...

Private Fund Reporting Requirements to be Amended

The SEC is proposing to amend Form PF for certain SEC-registered advisors to private funds. The amendments will affect the disclosure of the fees and other compensation that are paid to a registered representative of an adviser of a private fund. In this Notice, we refer to the “proposed amendments” unless otherwise specified. The Commission is ...

SEC Issues Awards Totaling More Than $40 Million to Four Whistleblowers

The Securities and Exchange Commission today announced three awards totaling more than $40 million to four whistleblowers who provided information and assistance in three separate covered actions. In the first order, the SEC issued an award of… Read the Full Press Release Have a securities law question? Call New York Securities Lawyers at 212-509-6544. Visit The Securities Law ...

Customer Claims in Arbitration

I have been representing customers and brokers in securities arbitration matters since 1982. In those 35 years I have handled over 700 securities arbitration cases. Since securities arbitration is such a large part of my practice, I also survey all of the arbitration awards that are entered in matters across the country, write columns for investors and brokers on the topic, and stay well informed on developments in this unique area of law. Today, FINRA administers virtually all of the securities arbitration disputes in this country, with the AAA and JAMS handing the remainder. From my work, and my review of the statistical summaries published by FINRA it is clear that investment disputes fall into very well-defined categories. Naturally, the type of cases that are filed is a function of the market. Not only are there fewer arbitrations when the markets are doing well, economic factors create different types of claims. For example, when Internet stocks fell in April 2000, the arbitration forums saw a significant increase in arbitration filings, and the emergence of a new category of claim, for over-concentration, or failure to diversify. As the markets improved in 2003, through 2007, we saw a sharp decrease in the number of arbitration ...

Expungement of Customer Complaints

You can remove derogatory reports from your CRD Report. Call 212-509-6544 to discuss the process with a securities law attorney. The problems associated with FINRA‘s CRD Disclosure System are well known to visitors to SECLaw.com, as we have written about the issue a number of times. The concept of disclosing every allegation, justified or not, against a registered person, to anyone who cared to ask, is unheard of in our system of justice. The addition of BrokerCheck, where the information is available to anyone with an Internet connection has made the situation intolerable. For that reason, we are often asked to file an expungement request with FINRA, to remove unwarranted items from the CRD system The interests of investor protection overrode the concepts of fundamental fairness and due process for brokers, and today there is full disclosure of every wart, pimple and untrue allegation made against a broker. Not fair to the broker, but of a theoretical benefit to the investing public. Part of the problem are customer arbitrations. Customers can file an arbitration against a broker for anything, at virtually no cost to the customer. They can say anything they want, it doesn’t cost them anything, and there is no penalty for ...

Insider Trading – The Legal and Illegal

  Insider trading laws have significant impact on the stock market, and the conduct of investors. I have been representing investors and financial professionals in insider trading investigations for over 30 years. In the mid-1980’s when my then-partner and I represented a financial printer in an SEC federal court proceeding. Since that time, I have represented registered representatives and investors from all walks of life, in dozens of investigations. The insider trading laws and court decisions have changed dramatically over those decades, with the SEC and the courts expanding the scope of the theory of insider trading beyond all reasonable bounds. However, it is this concept that we need to deal with, and we have had a great deal of success in defending potential defendants – because the investigation gets closed before an case is filed. Illegal insider trading is a serious securities law violation which carries potential civil and criminal penalties. Civilly, the penalties can be as large as three times the gross profit on the trading. An insider trading investigation by the SEC requires experienced securities counsel, as the initial investigation often dictates the final outcome. If you have questions regarding an SEC subpoena or an investigation, call Mark Astarita, Esq. ...

Introduction to State Securities (Blue Sky) Laws

Mark Astarita, Esq. is a nationally recognized securities attorney who represents investors, financial professionals, issuers and financial firms in a wide variety of matters involving federal and state securities laws. He can be reached at mja@sallahlaw.com. The state securities laws and the regulatory scheme has not changed much since 2001 when I published the first version of this Blue Sky Law introduction. While the SEC directly, and through its oversight of the FINRA and the various Exchanges, is the main enforcer of the nation’s securities laws, each individual state has its own securities laws and rules. These state rules are known as “Blue Sky Laws”. What Are Blue Sky Laws? Blue sky laws are state regulations established as safeguards for investors against securities fraud. The laws, which may vary by state, typically require sellers of new issues to register their offerings and provide financial details of the deal and the entities involved. As a result, investors have a wealth of verifiable information on which to base their judgment and investment decisions. Why “Blue Sky” laws The origin of the term is a bit unclear, but the first use of the term that we are aware of is in an opinion of Justice McKenna of the United States ...

Federal Securities Law, a Securities Lawyer Guide

The SEC, FINRA, the States, and much more Mark J. Astarita is a nationally known securities attorney with over 30 years of experience representing investors and financial professionals across the country in regulatory investigations, arbitration and litigation. If you have a securities law question, call 212-509-6544 Introduction The history of the securities regulation and federal securities law are well beyond the scope of this work, and the reader is commended to any one of a number of books in the area. One of the best known, and often cited treatise on the topic is Loss and Seligman, Securities Regulation, a multi-volume treatise on the subject, published by Little Brown & Co in New York City. A single volume version is also available, and can be ordered online. For purposes of this work, it is sufficient to note that the federal securities laws are in reality a myriad of rules and regulations of 55 different regulatory agencies, including the Securities Commission in each of the fifty States, the District of Columbia, Puerto Rico and Guam, as well as the Securities and Exchange Commission, the Financial Industry Regulatory Authority, and any of the regional exchanges of which he or his firm is a member. While this morass is in reality a series of similar, and overlapping regulations, ...

What is a Security?

A security is a form of ownership in an entity. While some believe that in order to be a security the instrument must be traded on a market, the legal definition of a security is much broader. The definition is important, because if the instrument is a security, then the federal and state securities laws apply to the purchase and sale of that instrument. We define and explain the different types of securities

Finders Explained – Be Careful

A question I am often asked is what is the definition of a finder, or questions that lead to that question. The issue arises when an unregistered person or entity introduces investors to an issuer and seeks to obtain payment based on the investment made by the investor. The problem is, that in many instances, the introducing party is acting in a manner that requires registration as a broker or a dealer, and thus must be registered in order to accept compensation for the introduction to the investor. The issues of finders and compensation are currently a “hot” topic for securities regulators, and the issue is in great flux today. It is therefore difficult to describe finders in a general way that is helpful because the answer in a particular case will turn on the particular facts. One small factual change, and the answer changes. Therefore, addressing the issue GENERALLY, if the finder is only a finder, he does not have to register. Being a finder means that he only introduces, he does not discuss, negotiate, or get involved in the transaction. However, the SEC may take a different view of “discuss” or “get involved” than you do. The rules which apply are ...

Cold Calling Rules

Compliance with securities regulations is only the beginning By Mark J. Astarita, Esq. Introduction Cold calling is a method of marketing a service or product by calling prospective clients “cold” – that is, without an introduction, to determine if the potential client has a need for, or interest in, the caller’s product. Cold calling has a long history in the brokerage community, and while having a poor reputation, is a legitimate and valuable marketing tool for brokerage firms, and provides a legitimate source of information for customers, provided the tool is not abused. However, there have been abuses, inside and outside the brokerage industry, of the cold calling procedure. Most of the complaints regarding the procedure have arisen outside the industry, and relate to the time of day that the calls are made, the use of automated dialers and similar technological “advances” in the telecommunications industry, as well as outright fraud. While these complaints have focused on non-brokerage industry firms and practices, the regulations regarding same effect the brokerage industry. The Basic Regulations and Rules In accordance with the Telephone Consumer Protection Act of 1991, the Federal Communications Commission (FCC) issued a cold-calling rule. The rule establishes procedures to eliminate unwanted telephone solicitations to residences ...

Churned or Traded?

Churning claims dominated the securities arbitration landscape in the 2000’s, but have declined over the years, as the trading mania waned. As the markets improved, we have begun to see a resurgence of churning claims again. The common perception among the general public is that a customer who trades his or her account on a regular basis is a broker’s dream. While the commissions generated by such activity might very well enhance a broker’s payout, the activity could very easily turn into a broker’s nightmare if not carefully monitored. Churning Churning is excessive trading in a customer’s account by a broker taken in the context of the customer’s financial situation and investment objectives. While no one test is available to determine if an account has been churned, churning requires three elements, first, excessive trading, and second, control of the account by the Registered Representative, and three, intent to defraud the customer. The intent element is difficult to prove, but will typically be proven by establishment of the first two elements. The problem with customers who trade heavily with a retail broker is that the broker may later be subjected to a claim for churning, if the trading does not turn out to be profitable. ...

Responding to a FINRA Rule 8210 Request

By Mark J. Astarita, Esq. FINRA Rule 8210 FINRA Rule 8210 (Provision of Information and Testimony and Inspection and Copying of Books) is the starting point of virtually every FINRA Wells Notice and enforcement proceeding, as it gives FINRA the authority to request documents and testimony from firms, registered persons and, in FINRA’s view, other persons and entities related to a registered person or entity. The relevant portion of Rule 8210 is as follows: For the purpose of an investigation, complaint, examination, or proceeding authorized by the FINRA By-Laws or rules, an Adjudicator or FINRA staff shall have the right to: (1) require a member, person associated with a member, or any other person subject to FINRA’s jurisdiction to provide information orally, in writing, or electronically (if the requested information is, or is required to be, maintained in electronic form) and to testify at a location specified by FINRA staff, under oath or affirmation administered by a court reporter or a notary public if requested, with respect to any matter involved in the investigation, complaint, examination, or proceeding; and (2) inspect and copy the books, records, and accounts of such member or person with respect to any matter involved in the investigation, complaint, examination, or proceeding that is in ...

Introductory Materials

Introduction to the Federal Securities Laws – written by securities lawyer Mark Astarita, an overview of the federal regulatory scheme for the financial markets. Written for the non-lawyer, with links to more detailed information

Introduction to the Blue Sky Laws (State Securities Laws) – In addition to the Federal Securities Laws, each state has its own securities laws. Those laws vary from state to state, and require registration or notification of securities offerings, and registration of brokers and brokerage firms. Each state has a regulatory agency which administers the law, typically known as the state Securities Commissioner. This introduction provides an overview of the regulatory scheme. A list of state securities commissioners and their addresses is available in our Guide to State Securities Regulators.

Introduction to Securities Arbitration – In general, and in the securities industry, a party cannot be compelled to arbitrate a dispute unless he has contractually bound himself to do so. Registered representatives and their firms are contractually bound to arbitrate their disputes with their customers, even in the absence of a written contract with the customer. The contractual obligation arises, not from a customer agreement, but their registration with FINRA. For customers and financial professionals, an introduction to the process, from start to finish.

Introduction to the Initial Public Offering Process – in the Corporate Finance section, an introduction to the public offering process

Introduction to Private Placements – in addition to public offerings, many companies raise money by selling securities in a private offering. There are many restrictions and caveats to the process.

Introduction to Insider Trading – there is legal insider trading and illegal insider trading. When investors, regardless of their relationship to the company, trade on material, non-public information, there is a risk that the trading is illegal.

Registration of Investment Advisors – one of our featured articles, an introduction to becoming an investment adviser and 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.