Sunday, November 30, 2014

What Will be on the SEC’s 2015 Exam Priorities for Investment Advisers?

Each January, The SEC’s National Exam Program (“NEP”) issues examination priorities for the year ahead.  The priorities are based upon the SEC’s evaluation of those areas in the financial markets that it believes will be presenting a risk of harm to investors, the markets, or capital formation.

The NEP has four program areas: 1) Investments advisers, 2) broker-dealers, 3) exchanges and SRO’s, and 4) clearing and transfer agents.  Recall that the SEC and State regulators split the regulatory oversight for investment advisers with the SEC retaining jurisdiction over the “larger AUM” RIA’s.

The 2014 NEP priorities for investment adviser agents and registered investment advisers included safety of assets and custody and conflicts of interest and marketing claims related to investment objective and performance.  In the opinion of this author, one would think Fisher Investments endured a substantial SEC exam in 2014 in light of these priorities. The SEC is already foreshadowing what will be included in the list for 2015.

Hearsay and rumors in our corner of the market indicate that the SEC is currently concerned about investment adviser sales practices related to 401(k) to IRA rollovers.  If it is indeed a 2015 priority, there will certainly be several large RIA’s under the microscope.  Of no surprise, word on the street is that the priority list will include cyber security and dual registrations.  As for the broker-dealer area: it looks like costly mutual funds and “bad brokers” will be an SEC priority for 2015.   But enough speculation – we should have the list in a matter of weeks.  In the meantime, let us know if we can help you with your compliance or litigation needs.  Food for thought.

Business Torts in the Financial Industry Arena

The attorneys at Cosgrove Law Group, LLC frequently handle business disputes on a contingent fee basis in arbitrations and the courts.  We are typically litigating in the financial industry arena where slashing, cross-checking and full-body blows are routine. Although they may be routine, they may also cross a generous line and sow the seeds for a future arbitration award or court judgment.

When an investor, broker-dealer agent or investment adviser representative comes to us for help, our first task is to gather all of the facts. This is, of course, a critical task. But the next step is just as critical – identifying the most applicable and powerful causes of action. The cause of action is your gateway from facts to recovery, and the evidentiary elements of and recovery available under different causes of action vary greatly. Luckily, you don’t have to choose just one. For example, an investor may have a claim for breach of fiduciary duty that does not provide for punitive damages in an arbitration forum, but he or she may also have a claim for a violation of a state’s model security act. That act explicitly provides for punitive damages, costs and/or attorney fees under certain provisions. As such, an arbitration panel would be empowered to grant those remedies.

Another example: a broker may have a U-5 defamation claim against his former broker-dealer.  If she signed a financial adviser agreement that has a Missouri choice-of-law provision (because that is where her broker-dealer is headquartered), but her broker-dealer defamed her to her clients in Georgia as well, the broker likely has a Missouri breach of contract cause of action and Georgia common law tort claims for defamation and tortious interference with a business relationship. So, if you are a member of the financial industry arena or an investor, and you just took an illegal cross-check, make sure you hire the right legal counsel, and do so as soon as possible.