tag:blogger.com,1999:blog-19456113016025072952024-03-06T14:02:24.618-06:00SECURITIES AND INVESTMENT BLOG-COSGROVE LAW GROUP, LLCNews and commentary on the latest securities developments.
The information on this Blog is prepared by Cosgrove Law Group, LLC for informational purposes only and is not intended to and does not constitute legal advice.Sheila R. Carrollhttp://www.blogger.com/profile/01387299078586822726noreply@blogger.comBlogger324125tag:blogger.com,1999:blog-1945611301602507295.post-62000321823912238062024-02-28T11:06:00.001-06:002024-02-28T11:06:14.620-06:00DOES YOUR FINANCIAL ADVISER HAVE PROFESSIONAL LIABILITY INSURANCE?<div class="separator" style="clear: both; text-align: justify;"><span style="font-family: "Times New Roman", serif; text-align: left;">Believe it
or not, your trusted financial adviser is only human. He or she can make a very
costly mistake despite his or her best intentions. Perhaps you have taken
comfort in the fact that your adviser, whether a registered representative or
an investment adviser representative, has a company with whom they are
affiliated. Surely the company has insurance, right? Well, I have more bad news
for you – that company might not have an errors and omissions policy either,
particularly if they are a small outfit.</span></div><p>
</p><p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif;">Our advice is that you ask to
receive a copy of your advisor’s policy at the beginning of your relationship.
If your advisor does commit a negligent or even fraudulent act – consult with
an attorney experienced in such matters. You may wish to confirm that an
insurance policy is in place before you proceed with expensive litigation. And
if you are an uninsured adviser that made a mistake, you should seek legal
counsel immediately. Food for thought.<o:p></o:p></span></p><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhQBJuXT7MsZ1E4qkf5BaGmzzZ8efh4zS4HkwVPK3TXhpbD1EX5dv6MrYwcwrlTXngYSLESV7qd658I2ewxUMffMKgEN2BLkdjYA4bRNuIRnHeNohZc9voITF_jsrl20QHDBKcHuRt8SgJy8chB1Jeup4J19O9AzU5A5jd7d9fAQlXJa1z1zbfqN4-2k0I" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="498" data-original-width="498" height="240" src="https://blogger.googleusercontent.com/img/a/AVvXsEhQBJuXT7MsZ1E4qkf5BaGmzzZ8efh4zS4HkwVPK3TXhpbD1EX5dv6MrYwcwrlTXngYSLESV7qd658I2ewxUMffMKgEN2BLkdjYA4bRNuIRnHeNohZc9voITF_jsrl20QHDBKcHuRt8SgJy8chB1Jeup4J19O9AzU5A5jd7d9fAQlXJa1z1zbfqN4-2k0I" width="240" /></a></div><p></p>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-20721256636338837312024-02-27T16:39:00.004-06:002024-02-27T16:40:34.908-06:00CAN A FINANCIAL ADVISER BE SUED BY A NON-CLIENT FOR NEGLIGENCE?<p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: "Times New Roman",serif;">The
answer to that question is “probably.” At least in Missouri, New York, and
Iowa. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif;"><span style="mso-tab-count: 1;"> </span>Missouri courts apply a balancing
test when determining if a “non-client” intended beneficiary of professional
services can sue for negligence despite a lack of privity. The leading case in
Missouri, at least as to accountants, is <i>Aluma Kraft Manufacturing Co. V.
Elmer</i>, 493 S.W.2d 378(1973). The <i>Aluma</i> court stated:</span><span style="font-family: "Times New Roman", serif;"> </span></p>
<p class="MsoNormal" style="margin-bottom: 8.0pt; margin-left: .5in; margin-right: .5in; margin-top: 0in; margin: 0in 0.5in 8pt;"><span style="font-family: "Times New Roman",serif;">“The
determination of whether in a specific case the defendant will be held liable
to a third person not in privity is a matter of policy and involves the
balancing of several factors: (1) the extent to which the transaction was
intended to affect the plaintiff; (2) the foreseeability of harm to him; (3)
the degree of certainty that the plaintiff suffered injury; and (4) the
closeness of the connection between the defendant’s conduct and the injury
suffered. Westerhold, supra, 419 S.W.2d at 81. We believe that these policy
factors are satisfied with this case.”</span><span style="font-family: "Times New Roman", serif; text-align: center;"> </span></p>
<p class="MsoNormal"><i><span style="font-family: "Times New Roman",serif;">Aluma </span></i><span style="font-family: "Times New Roman",serif;">at 383. The court relied in part
upon a New York accountant case, quoting the infamous Justice Cardozo.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: "Times New Roman",serif;">The
same principles of non-privity professional liability have been applied to
attorneys in Missouri. See <i>Donahue v. Shugart</i>, 900 S.W.2d 624 (Mo.
1995). In <i>Donahue</i> the intended beneficiaries of a decedent’s trust that
was declared invalid brought a legal malpractice and breach of fiduciary duty
claim against the decedent’s attorneys. <i>Id.</i> At 626. Prior to the
decedent’s death he directed Stamper, his attorney, to ensure that a specified
sum of monies from his trust account be paid to Mary Donahue and Sundy McClung
upon his death. <i>Id. </i>at 625. Donahue and McClung were not beneficiaries
of Stockton’s trust. <i>Id</i>. Stockton also directed Stamper to prepare a
deed to his home transferring a fifty percent interest in the home to Mary
Donahue, effective on Stockton’s death. <i>Id.</i> Upon learning that
Stockton’s death was imminent, Stamper sought advice from others in his law
firm on how to make the checks and deed effective in accordance with Stockton’s
wishes. <i>Id.</i><o:p></o:p></span></p>
<p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: "Times New Roman",serif;">Stamper
attempted to effectuate the transfers, but they were later declared to be
invalid by the Missouri Court of Appeals. <i>Donahue</i>, 900 S.W.2d at 625.
The Court determined that the plaintiff’s breach of fiduciary duty claim was
properly dismissed as being “dependent on the existence of attorney negligence,
not on the breach of trust” because the conduct complained of was merely negligence
in the performance of legal services. <i>Id. </i>at 630.</span><span style="font-family: "Times New Roman", serif;"> </span></p>
<p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: "Times New Roman",serif;">But
the <i>Donahue</i> court stated that the “Determination of whether attorney
owed legal duty to non-clients so as to be liable to non-clients in legal
malpractice action is determined by weighing factors in balancing test,
including: existence of specific intent by client that purpose of attorney’s
services were to benefit plaintiffs, foreseeability of harm to plaintiffs as
result of attorney’s negligence, degree of certainty that plaintiffs will
suffer injury from attorney misconduct, closeness of connection between
attorney’s conduct and injury, policy of preventing future harm, and burden on
profession of recognizing liability under circumstances. Pleadings were
sufficient to establish that attorneys owed duty to non-clients who were
intended recipients of client’s gifts causa mortis.”<o:p></o:p></span></p>
<p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: "Times New Roman",serif;">Finally,
the Supreme Court of Iowa applied these same basic principles to an insurance
agent to allow a non-client to proceed against the agent. There is no reason to
believe that the courts would not apply the same public policy to financial
advisers and the intended beneficiaries of their services. Food for thought.<o:p></o:p></span></p>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-14495917883059834742023-07-24T13:51:00.005-05:002023-07-24T13:51:33.067-05:00Missouri Securities Division is Investigating new Missouri Limited Liability Companies<p><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;"> A membership interest in a
limited liability company is a “security” as broadly defined under the Missouri
Securities Act of 2003.</span><a href="file:///C:/Users/Office%20Manager/Downloads/7.21.23%20-%20Missouri%20Enforcement%20Section%20Investigations.docx#_ftn1" name="_ftnref1" style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 107%;">[1]</span></span></span></a><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;"> Now the Missouri Commissioner
of Securities, through its Enforcement Section of the Securities Division
(“Enforcement Section”), is sending letters to specified companies that have </span><i style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;">newly
filed with the Missouri Secretary of State </i><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;">as limited liability companies
or as foreign companies, which state it has received information of
participation in prohibited conduct by these companies.</span></p><p><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;"> Section 409.6-602(b) of
the Missouri Revised Statutes</span><a href="file:///C:/Users/Office%20Manager/Downloads/7.21.23%20-%20Missouri%20Enforcement%20Section%20Investigations.docx#_ftn2" name="_ftnref2" style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 107%;">[2]</span></span></span></a><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;"> provides the Enforcement
Section with extremely wide latitude to compel the production of written
statements and documents regarding any matter that it considers relevant or
material to its investigation. Some of these letters require the compulsory
production of documents and written responses:</span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 1.0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">In narrative form detailing the objectives
of the limited liability companies;<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 1.0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">Listing all individuals/entities with
investments in the limited liability companies to include names, addresses,
telephone numbers, email addresses, and dates and amounts investments;<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 1.0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">Name and address of all financial
institutions where investors’ money was/were deposited; and <o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 1.0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">In narrative form detailing how the
investors’ funds are/were used.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-indent: .5in;"><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;">In seeking claims of
exemption from registration or exception in these letters, the Enforcement
Section seems to have assumed that these new limited liability companies are
operating in Missouri as an unregistered investment adviser, broker-dealer,
investment adviser representative, or broker-dealer agent, whether operating as
an investment company or not.</span><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;"> </span><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;">Consequently,
these letters should be taken extremely seriously because the costs of
defending against Enforcement Section enforcement proceedings that assert these
assumptions can be extreme, whether warranted or not.</span></p>
<p class="MsoNormal" style="text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">If you receive one of
these letters, you may not want to act alone and wish to consult with one of
the experienced attorneys at <a href="https://www.cosgrovelawllc.com/" target="_blank">Cosgrove Law Group, LLC</a>. Call us at 314-563-2490. </span><span style="font-family: "Times New Roman",serif;"><o:p></o:p></span></p><p class="MsoNormal" style="text-indent: .5in;">Author: <i><a href="https://www.cosgrovelawllc.com/brian-st-james.html">Brian St. James</a></i></p>
<div style="mso-element: footnote-list;"><!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/7.21.23%20-%20Missouri%20Enforcement%20Section%20Investigations.docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a> <span style="font-family: "Times New Roman",serif;">§§409.101 to 409-7-703, RSMo 2016
(Cu. Supp. 2022). <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
</div>
<div id="ftn2" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/7.21.23%20-%20Missouri%20Enforcement%20Section%20Investigations.docx#_ftnref2" name="_ftn2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;"> §409.6-602(b), RSMo 2016 (Cum.
Supp. 2022).</span><span style="mso-spacerun: yes;"> </span><o:p></o:p></p>
</div>
</div>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-22822487784901857932023-05-24T14:06:00.004-05:002023-05-24T14:06:33.494-05:00The Evolution of a Wells Process and the Anticipated SEC Sweeps<p> <span style="font-size: 12pt;">The Wells Process has a long history
dating back to 1972 when SEC Chairman William J Casey appointed John Wells
along with two others to the “Wells Committee.” The SEC is charged with the
compliance and enforcement of the federal securities law to protect citizens
from fraud and theft while maintaining a fair and efficient market. Before the
Wells Committee, the SEC could investigate, as it does today, but did not bring
forth any notice as to what they were investigating or even who they were
investigating. Attorneys who were specialized in this field could formally write
to the SEC, ask what charges were being brought against their client, and file
a rebuttal. Veterans of this process knew how it worked and used that to their
advantage, but the vast majority of the population had no idea about any
investigation until the formal charges were made. Then in January of 1972, the
Wells Committee saw this as an opportunity to change just that.</span></p>
<p class="MsoNormal"><span style="font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-tab-count: 1;"> </span>The
start of the Wells Process was born. The Wells Process starts with a written
letter made near the end of an SEC investigation known as a “Wells Notice.” A
Wells Notice is made up of three things. It informs the person(s) or business
of the intent of the SEC to file an action against them. It identifies the
exact laws allegedly being violated. And finally, it provides notice on how to
make a submission for your own defense called a “Wells Submission.” The Wells
Submission will have parameters on length and time set by the Wells Notice. According
to the notice, one has 180 days to enter a submission. The SEC can choose to
extend that time, but the one submitting cannot. It is important to note that
the Wells Notice has never been a formal rule in the SEC, and the SEC is not
required to give a Wells Notice to begin the Wells Process. In fact, if they
deem it as a public safety issue, they can completely forgo the Wells Process,
and the 180 days is strictly an internal time frame. The SEC can still file a
complaint after 180 days has passed. <o:p></o:p></span></p>
<p class="MsoNormal" style="text-indent: .5in;"><span style="font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">After
a Wells Notice is made, the next step is a “Wells Call” and finally a “Wells
Meeting.” The call is an informal call to gather information and ask questions,
while the meeting is a bit more formal which includes the Wells Submission.
These Wells Submissions are written documents that need to be very carefully
written. There is no formal charge at this time, but the submission can be used
in discovery later. At this time in the process, the meeting is conducted by
the Director or Assistant Director of the SEC’s Division of Enforcement. This
is the last chance for one to give their best defense. It is at this time, the
Staff can: settle the case, drop the case, or formally file charges. There are
not many statistics about the Wells Process, but we do know in 2012-2013, 20%
of Wells Notices ended with the case being dropped and no charges ever filed.
While 20% sounds promising, Wall Street Journal financial reporter Jean
Eaglesham thinks the percentage was higher the decade before and is dwindling
the decade after due to how the, “SEC stockpiles significant ammunition before
issuing a Well.” Still, the 20% does give hope. The ultimate goal of the SEC is
to settle these cases with the best outcome for all involved, not waste time
and resources. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-tab-count: 1;"> </span>That
brings us to <span style="background: white; color: black;">Gurbir Grewal, the
current director of the SEC’s Division of Enforcement. Grewal is now taking the
Well Process to the next evolutionary step. The Wells Process typically takes
up to 2 years. That is a long time to be under investigation and requires a
fair amount of resources. As mentioned, the Wells meeting used to be conducted by
the Director or Assistant Director, but Grewal’s next step is opening the
meetings to be conducted by regional directors. Grewal claims everyone will get
a meeting, just not with him. “Unless there’s really a real factual dispute, a
novel legal issue or an area of programmatic concern, you’re not going to get a
meeting with the director or the deputy,” says Grewal. While some may not
appreciate this, it will quicken the pace of investigations, but also quicken
the pace of the number of investigations, famously known as SEC sweeps. <o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="background: white; color: black;"><br /></span></span></p><p class="MsoNormal"><span style="font-size: 12.0pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="background: white; color: black;"><i>Author: Hanna Sprigg</i></span></span></p>Sheila R. Carrollhttp://www.blogger.com/profile/01387299078586822726noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-71226183176104477432023-02-23T12:04:00.006-06:002023-02-23T12:04:56.220-06:00Wells Fargo Advisors, LLC wins FINRA Award sum of $15,300,000.00+ in Damage<p> <span> </span><span style="text-align: center;">On February 2,
2023, a FINRA arbitration panel awarded the Claimant, Wells Fargo Advisors, LLC
a sum of 15,300,000.00 in Compensatory Damages and over $4,000,000.00 in
additional costs and attorney fees.</span></p><p align="center" style="margin-bottom: 8.0pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: center;"><o:p></o:p></p>
<p style="margin-bottom: 8.0pt; margin-left: 0in; margin-right: 0in; margin-top: 0in;"><span style="color: black;">Case Summary:</span><o:p></o:p></p>
<p style="margin-bottom: 8.0pt; margin-left: 0in; margin-right: 0in; margin-top: 0in;"><span class="apple-tab-span"><span style="color: black;"><span style="mso-tab-count: 1;"> </span></span></span><span style="color: black;">In October 2018, Kent Jackson Rhoades left his job at Wells
Fargo Advisors, LLC in Mountain Home, Arkansas to start an independent
financial consulting firm with Raymond James Financial Services, Inc. Rhoades
not only left the corporate company to venture out on his own but also hired on
a 12- person team, all of which worked under Rhoades at Wells Fargo, and named
them the Financial Services and Investment Strategies Group. It is important to
note that the Wells Fargo branch is no longer in business. </span><o:p></o:p></p>
<p style="margin-bottom: 8.0pt; margin-left: 0in; margin-right: 0in; margin-top: 0in;"><span class="apple-tab-span"><span style="color: black;"><span style="mso-tab-count: 1;"> </span></span></span><span style="color: black;">In August of 2020, Wells Fargo filed a complaint alleging
Raymond James Financial Services and Kent Jackson Rhoades led a “coordinated
raid.” What is a raid you might ask? A raid is poaching another financial
advisor’s team or clients with the intent of harming that firm’s business. One
might not see a case regarding “coordinated raids’ because they don’t happen
frequently and are difficult to prove. FINRA rule 2010 states,</span><span style="color: #1e1e1e;"> “A member, in the conduct of its business, shall observe
high standards of commercial honor and just and equitable principles of trade.”
While a little vague, under this rule, a financial firm cannot ethically poach
a significant portion of another </span><span style="color: black;">firm’s team
and/or clients, and in October 2018, Raymond James Financial Services did just
that. </span><o:p></o:p></p>
<p style="margin-bottom: 8.0pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-indent: .5in;"><span style="color: black;">Wells Fargo claimed Raymond James
took the entire financial advisor team, as well as clients that Rhoades had
been working with over the 20 years he worked at Wells Fargo. Wells Fargo
sought damages, costs and fees against Raymond James Financial Services, Kent
Jackson Rhoades and the 12-person team that collectively moved from Wells Fargo
to Raymond James Financial Services. Rhoades claimed that the clients at Wells
Fargo moved to his firm due to the “untruths and/or deception [which] caused
clients to sever their relationships.” Rhoades and the 12 pursued a
counterclaim award against Wells Fargo as well. However, on August 25,2022,
Wells Fargo dropped the claim against the 12, and the 12 dropped the
counterclaim against Wells Fargo, leaving just Rhoades and Raymond James
Financial. </span><o:p></o:p></p>
<p style="margin-bottom: 8.0pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-indent: .5in;"><span style="color: black;">After multiple hearings, FINRA
awarded Wells Fargo Inc. $15.3M in compensatory damages (with a 6% annual
interest rate), $3.5M in attorneys’ fee, $847,000 in costs, $1M in punitive
damages, a $500 non-refundable claim filing fee, and $53,775 in hearing session
fees totalling over $20M. The counterclaim was completely dismissed and all
claims for relief for Raymond James Financial Services were denied. <o:p></o:p></span></p>
<p style="margin-bottom: 8.0pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-indent: .5in;"><o:p> </o:p></p>
<p style="margin: 0in;"><span style="color: black; font-size: 10.0pt;">+ Awards
are rendered by independent arbitrators who are chosen by the parties to issue
final, binding decisions. FINRA makes available an arbitration forum—pursuant
to rules approved by the SEC—but has no part in deciding the award.</span><o:p></o:p></p>
<p style="margin: 0in;"><span style="color: black; font-size: 10.0pt;">Additional
sources:</span><o:p></o:p></p>
<p style="margin: 0in;"><a href="https://www.advisorhub.com/wells-fargo-advisors-wins-nearly-20m-in-raiding-claim-against-raymond-james/"><span style="color: #1155cc; font-size: 10.0pt;">https://www.advisorhub.com/wells-fargo-advisors-wins-nearly-20m-in-raiding-claim-against-raymond-james/</span></a><o:p></o:p></p>
<p style="margin: 0in;"><a href="https://www.advisorhub.com/wp-content/uploads/2019/08/Good-Moves-Bad-Moves-Bad-Move-Being-part-of-a-raid-1.pdf"><span style="color: #1155cc; font-size: 10.0pt;">https://www.advisorhub.com/wp-content/uploads/2019/08/Good-Moves-Bad-Moves-Bad-Move-Being-part-of-a-raid-1.pdf</span></a><o:p></o:p></p>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-11628189124755474232023-02-20T17:23:00.004-06:002023-02-20T17:23:47.438-06:00Missouri Legislature Proposes Investment Adviser Disclosure of Social Objectives <p><span style="font-family: "Times New Roman", serif; font-size: 12pt;">On January 8, 2023, Representative O’Donnell
introduced a bill to the 102</span><sup style="font-family: "Times New Roman", serif;">nd</sup><span style="font-family: "Times New Roman", serif; font-size: 12pt;"> General Assembly that adds to the
disclosure obligations of Missouri-registered investment advisers. If enacted,
Missouri House Bill No. 824 will amend Chapter 409 (Regulation of Securities)
of the Missouri Revised Statutes to require these investment advisers and
investment adviser representatives to disclose any socially responsible
criteria included in any recommendation to a client or solicitation of a
prospective client. Then, before acting on any such social objective, the
proposed law would require client written consent, such as:</span></p>
<p class="MsoNormal" style="margin-left: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">“I, (NAME OF CLIENT),
consent to my adviser or adviser’s representative incorporating a social
objective or nonfinancial objective into any discretionary investment decision
my adviser or adviser’s representative makes for my account; any recommendation
or advice my adviser or adviser’s representative makes to me for the purchase
or sale of a security or commodity; or the selection my adviser or my adviser’s
representative makes, or recommendation or advice my adviser or my adviser’s
representative makes to me regarding the selection, of a third-party manager or
subadvisor to manage the investments in my account.<span style="mso-spacerun: yes;"> </span>Also, I acknowledge and understand that
incorporating a social objective or nonfinancial objective into investment
decisions, recommendations, advice, and/or the selection of third-party manager
or subadvisor to manage the investments in my account will result in
investments and recommendations/advice that are not solely focused on
maximizing a financial return on my account.”<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">This bill’s proposed effective date is August 28, 2023,
which is very timely considering the U.S. Securities and Exchange Commission’s similar
recently proposed amendments to rules and reporting forms that would establish
disclosure requirements for funds and investment advisers that market
themselves as having environmental, social, and governance (ESG) strategies. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">Since matters such as investment adviser client
disclosures are complicated, it can be helpful to hire an attorney that
specializes in such areas. <a href="http://www.cosgrovelawllc.com" target="_blank">Cosgrove Law Group</a> has experience dealing with these
questions. If you are a client or a prospective client of a Missouri-registered
investment adviser that has questions about these or other investment adviser
disclosure obligations and would like to speak with one of our Missouri-licensed
attorneys, call 314-563-2490. <o:p></o:p></span></p>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-8507877897861459852023-01-20T09:43:00.005-06:002023-01-20T09:44:55.101-06:00Jury Trials in Missouri Securities Division Administrative Enforcement Actions<p> <span style="text-align: justify; text-indent: 0.5in;">The
Enforcement Section of the Missouri Secretary of State Securities Division (the
“Enforcement Section”) brought 35 </span><i style="text-align: justify; text-indent: 0.5in;"><u>administrative</u></i><span style="text-align: justify; text-indent: 0.5in;"> enforcement actions
between 2020 and 2021 pursuant to Section 409.6-604, RSMo.,</span><a href="file:///C:/Users/Office%20Manager/Downloads/1.19.23%20-%20Jury%20Trials%20in%20Mo%20Securities%20Div.%20Administrative%20Enforcement%20Actions.docx#_ftn1" name="_ftnref1" style="text-align: justify; text-indent: 0.5in;" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[1]</span></span></span></a><span style="text-align: justify; text-indent: 0.5in;">
which assessed $7.5 million in civil penalties.</span><a href="file:///C:/Users/Office%20Manager/Downloads/1.19.23%20-%20Jury%20Trials%20in%20Mo%20Securities%20Div.%20Administrative%20Enforcement%20Actions.docx#_ftn2" name="_ftnref2" style="text-align: justify; text-indent: 0.5in;" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[2]</span></span></span></a><span style="text-align: justify; text-indent: 0.5in;"> Some
of these administrative actions alleged securities fraud in violations of
Section 409.5-501(1), Section 509.5-501(2), and Section 509.501(3). The
administrative procedures allow the Missouri Secretary of State appointed Commissioner
of Securities (the “Commissioner”) to issue an interim order finding that the
respondent has committed securities fraud, which order becomes final unless the
respondent requests a hearing. The administrative procedures also authorize the
Commissioner to conduct the hearing, in effect serving as both the prosecution
and the judge, which may be why only 5 hearings were requested in these 35
enforcement actions.</span><a href="file:///C:/Users/Office%20Manager/Downloads/1.19.23%20-%20Jury%20Trials%20in%20Mo%20Securities%20Div.%20Administrative%20Enforcement%20Actions.docx#_ftn3" name="_ftnref3" style="text-align: justify; text-indent: 0.5in;" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[3]</span></span></span></a></p><p><span style="text-align: justify; text-indent: 0.5in;">Section
409.6-603 also authorizes the Missouri Securities Division to file </span><i style="text-align: justify; text-indent: 0.5in;"><u>civil</u></i><span style="text-align: justify; text-indent: 0.5in;">
actions to enforce alleged securities fraud violations to be tried by a neutral
judge in the Circuit Court of Cole County, Missouri. But the Division does not.</span><a href="file:///C:/Users/Office%20Manager/Downloads/1.19.23%20-%20Jury%20Trials%20in%20Mo%20Securities%20Div.%20Administrative%20Enforcement%20Actions.docx#_ftn4" name="_ftnref4" style="text-align: justify; text-indent: 0.5in;" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[4]</span></span></span></a><span style="text-align: justify; text-indent: 0.5in;"> And
why would it when the Commissioner whose job it is to enforce the Missouri
securities laws also gets to determine whether those laws have been violated?</span></p><p><span style="text-indent: 31pt;">But
administrative enforcement proceedings for alleged securities fraud cases are
not the only play here in Missouri. The case can certainly be made that the
Missouri Constitution, art. I, section 22(a) applies to securities fraud
enforcement claims, which states: “the right of trial by jury as heretofore
enjoyed shall remain inviolate; …”</span><a href="file:///C:/Users/Office%20Manager/Downloads/1.19.23%20-%20Jury%20Trials%20in%20Mo%20Securities%20Div.%20Administrative%20Enforcement%20Actions.docx#_ftn5" name="_ftnref5" style="text-indent: 31pt;" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[5]</span></span></span></a><span style="text-indent: 31pt;"> “Quite
simply, the words of the provision are intended to guarantee a right, not
restrict a right. The choice of words, particularly the use of the words
‘remain inviolate,’ is a more emphatic statement of the right than the simply
stated guarantee written some 30 years earlier as the 7th Amendment of the
United States Constitution that ‘…the right of trial by jury shall be
preserved…’” </span><i style="text-indent: 31pt;">State ex rel. Diehl v. O’Malley</i><span style="text-indent: 31pt;">, 95 S.W. 3rd 82, 84 (Mo.
Ct. App. 2002).</span> </p><p><span style="text-align: justify; text-indent: 0.5in;">Credit
the U.S. Court of Appeals for the Fifth Circuit for first coming up with this
idea in the context of securities fraud administrative enforcement actions in </span><i style="text-align: justify; text-indent: 0.5in;">Jarkesy
v. Securities and Exchange Commission</i><span style="text-align: justify; text-indent: 0.5in;">, 34 F. 4</span><sup style="text-align: justify; text-indent: 0.5in;">th</sup><span style="text-align: justify; text-indent: 0.5in;"> 446 (5</span><sup style="text-align: justify; text-indent: 0.5in;">th</sup><span style="text-align: justify; text-indent: 0.5in;">
Cir. 2022), which ruled on May 18, 2022, in a 2-1 decision, that the U.S.
Securities and Exchange Commission (“SEC”) may no longer use its own
administrative proceedings framework to enforce SEC securities fraud cases.
Instead, the SEC must bring such actions in federal district courts where
respondents may exercise their rights to civil jury pursuant to the 7</span><sup style="text-align: justify; text-indent: 0.5in;">th</sup><span style="text-align: justify; text-indent: 0.5in;">
Amendment. The same principle applies to Missouri’s administrative proceedings
framework to enforce Missouri securities fraud cases, even though there is also
gratuitous language in </span><i style="text-align: justify; text-indent: 0.5in;">Diehl</i><span style="text-align: justify; text-indent: 0.5in;"> and </span><i style="text-align: justify; text-indent: 0.5in;">Goodrum v. Asplundh Tree Expert Co</i><span style="text-align: justify; text-indent: 0.5in;">.,
824 S.W. 2d 6, 11 (Mo. banc 1992), which appears to state otherwise. We
disagree. </span><span style="text-align: justify; text-indent: 0.5in;"> </span><span style="text-align: justify; text-indent: 0.5in;">The key is that the rights the
Enforcement Section seeks to vindicate in securities fraud administrative
enforcement actions are analogous to fraud causes of action at common law
brought at the time of Missouri’s 1820 Constitution.</span><span style="text-align: justify; text-indent: 0.5in;"> </span></p><p><span style="text-align: justify; text-indent: 0.5in;"><a href="http://cosgrovelawllc.com" target="_blank">Cosgrove Law Group</a> has experience dealing with these questions. If you are served with a
securities fraud administrative enforcement action by Missouri Securities
Division and would like to speak with one of our licensed attorneys, call
314-563-2490. </span><span style="text-align: justify; text-indent: 0.5in;"> </span></p><p class="MsoNormal" style="text-align: justify; text-indent: 0.5in;"><o:p></o:p></p>
<div style="mso-element: footnote-list;"><!--[if !supportFootnotes]-->Author: <a href="https://www.cosgrovelawllc.com/brian-st-james.html" target="_blank">Brian St. James</a><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/1.19.23%20-%20Jury%20Trials%20in%20Mo%20Securities%20Div.%20Administrative%20Enforcement%20Actions.docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[1]</span></span><!--[endif]--></span></span></a> All
statutory references are to the 2020 Revised Statutes of the State of
Missouri.<span style="mso-spacerun: yes;"> </span><o:p></o:p></p>
</div>
<div id="ftn2" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/1.19.23%20-%20Jury%20Trials%20in%20Mo%20Securities%20Div.%20Administrative%20Enforcement%20Actions.docx#_ftnref2" name="_ftn2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[2]</span></span><!--[endif]--></span></span></a>
Committee Meeting Materials, “Administrative Practice Before the Missouri
Commissioner of Securities,” 2022 MoBar Fall Conference, Office of the Missouri
Secretary of State Securities Division.<span style="mso-spacerun: yes;"> </span><o:p></o:p></p>
</div>
<div id="ftn3" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/1.19.23%20-%20Jury%20Trials%20in%20Mo%20Securities%20Div.%20Administrative%20Enforcement%20Actions.docx#_ftnref3" name="_ftn3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><i><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman",serif; font-size: 10pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[3]</span></b></span><!--[endif]--></span></i></span></a><i>
Id. <o:p></o:p></i></p>
</div>
<div id="ftn4" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/1.19.23%20-%20Jury%20Trials%20in%20Mo%20Securities%20Div.%20Administrative%20Enforcement%20Actions.docx#_ftnref4" name="_ftn4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[4]</span></span><!--[endif]--></span></span></a> <i>Id.</i>
<o:p></o:p></p>
</div>
<div id="ftn5" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/1.19.23%20-%20Jury%20Trials%20in%20Mo%20Securities%20Div.%20Administrative%20Enforcement%20Actions.docx#_ftnref5" name="_ftn5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[5]</span></span><!--[endif]--></span></span></a> Article,
I, Section 22(a), the Missouri Constitution. <o:p></o:p></p>
</div>
</div>Sheila R. Carrollhttp://www.blogger.com/profile/01387299078586822726noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-43055657289519225782022-06-28T14:55:00.006-05:002022-06-28T14:55:42.773-05:00ARE YOU A FINANCIAL ADVISOR WITH A WRONGFUL TERMINATION OR DEFAMATION CLAIM?<p> <span style="font-family: "Times New Roman", serif; font-size: 14pt; text-indent: 0.5in;">Advisors terminated by
their broker-dealer should immediately retain experienced legal counsel.</span></p>
<p class="MsoNormal" style="text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">The broker-dealer has 30
days after termination to file the mandatory U-5.<span style="mso-spacerun: yes;"> </span>Legal counsel can help you negotiate fair and
accurate language for this critical and potentially public disclosure.<span style="mso-spacerun: yes;"> </span>Moreover, how the U-5 is completed above and
beyond the narrative “reason for termination” can be pivotal.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;"><span style="mso-tab-count: 1;"> </span>Many
advisors fail to appreciate that, for the most part, their broker-dealer can
terminate them without cause.<span style="mso-spacerun: yes;"> </span>But there
are contractual and public policy exceptions to this general rule that must be evaluated.<span style="mso-spacerun: yes;"> </span>Cosgrove Law Group has extensive experience
working with financial advisors who have been terminated, including not just
U-5 issues, but also issues such as promissory notes and other compensation
matters. <o:p></o:p></span></p>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-75205348421084215252022-06-01T11:44:00.000-05:002022-06-01T11:44:16.803-05:00Two New Arbitration Cases<p> <span style="font-family: "Times New Roman", serif; text-align: justify;">April
26, 2022, brought us two new arbitration rulings to sink our teeth into. One
ruling was issued by the Supreme Court and the other by the Court of Appeals. I
think the court of Appeals decision might get reversed.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif;"><span style="mso-tab-count: 1;"> </span>In </span><a href="https://casetext.com/case/car-credit-inc-v-pitts-2?"><span style="font-family: "Times New Roman",serif;">Car Credit, Inc v. Pitts</span></a><span style="font-family: "Times New Roman",serif;">, the Supreme Court considered a
challenge to a judgment confirming an arbitration award. The appellant claimed
that the award should be vacated because the arbitration forum designated in
the arbitration clause was not utilized because it was unavailable. In my
opinion, the Supreme Court (and Federal courts) go out of their way to confirm
arbitration awards. This case was no different, but it relied upon a rule that
the Supreme Court has repeatedly articulated. It is highly technical but
lawyers in this field need to know it. The Court found that the arbitration
agreement contained an enforceable delegation clause and the appellant failed
to challenge the validity and enforceability of that clause.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif;"> The
appellant did challenge the AAA arbitrator’s authority to hear the case on
jurisdictional grounds. The arbitrator denied that challenge. But the appellant
failed to challenge the arbitrator’s jurisdiction to make that ruling.
Regardless, the Court of Appeals ruled in her favor. But the Supreme Court reversed,
noting in part that “the delegation provision is an agreement to arbitrate
threshold issues concerning the arbitration agreement”, citing the Seminal case
of </span><a href="https://casetext.com/case/west-rent-a-center-v-jackson?"><span style="font-family: "Times New Roman",serif;">Rent-A-Center, W., Inc. v. Jackson</span></a><span style="font-family: "Times New Roman",serif;">.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif;"><span style="mso-tab-count: 1;"> </span>In what may be the next arbitration
ruling to be reversed by the Supreme Court, the Court of Appeals ruled in favor
of the appellant in </span><a href="https://casetext.com/case/wind-v-mcclure?"><span style="font-family: "Times New Roman",serif;">Wind v. McClure</span></a><span style="font-family: "Times New Roman",serif;">. In that case, the Court of
Appeals held that the Circuit Court was correct in refusing to enforce an
arbitration agreement because its language and format failed to comply with state
law mandates. To be specific, the arbitration agreement failed to include
certain large font warnings, regarding the existence of an arbitration
clause.<span style="mso-spacerun: yes;"> </span>The requirement in question,
however, is not included in the Federal Arbitration Act, the supremacy of which
the Supreme Court strictly enforces. Perhaps the appellate will not appeal.
Food for thought. <o:p></o:p></span></p>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-63297047736610064692022-06-01T11:40:00.009-05:002022-06-01T11:42:03.809-05:005th Circuit Strikes Down SEC Administrative Proceedings Framework for Securities Fraud cases<p> <span face="Bahnschrift, sans-serif" style="text-indent: 0.5in;">In <a href="https://www.ca5.uscourts.gov/opinions/pub/20/20-61007-CV0.pdf" target="_blank">Jarkesy v. Securities and Exchange Commission</a>, Case No. 3-15255, a panel of the U.S. Court of Appeals for
the Fifth Circuit ruled on May 18, 2022, in a 2-1 decision that the U.S.
Securities and Exchange Commission (“SEC”) may no longer use its own administrative
proceedings framework to enforce SEC securities fraud cases. Instead, the SEC
must bring such actions in federal district courts where respondents may
exercise their rights to civil jury. This is a stunning development for the SEC
because the case finally recognizes that the SEC should not be acting as both
prosecutor and jury in securities fraud cases nor require respondents to
exhaust their administrative remedies before having their day in court.</span></p>
<p class="MsoNormal" style="line-height: 115%; text-indent: 0.5in;"><span face=""Bahnschrift",sans-serif">In Jarkesy, the SEC brought
administrative enforcement proceedings against the respondents alleging
securities fraud. From the inception of the matter, however, respondents
challenged the SEC’s right to bring such a matter administratively because it
deprived them of their rights to civil jury. The administrative law judge ruled
against respondents as did the SEC upon review and ordered respondents to cease
and desist from committing further violations, pay a civil penalty of $300,000,
and to disgorge nearly $685,000 in alleged ill-gotten gains. </span><span face=""Bahnschrift",sans-serif" style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Tahoma;"><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-indent: 0.5in;"><i><span face=""Bahnschrift",sans-serif" style="color: black; font-size: 12pt; line-height: 115%; mso-bidi-font-family: "Calibri Light"; mso-bidi-font-weight: bold; mso-bidi-theme-font: major-latin; mso-effects-shadow-align: topleft; mso-effects-shadow-alpha: 40.0%; mso-effects-shadow-angledirection: 2700000; mso-effects-shadow-anglekx: 0; mso-effects-shadow-angleky: 0; mso-effects-shadow-color: black; mso-effects-shadow-dpidistance: 1.5pt; mso-effects-shadow-dpiradius: 3.0pt; mso-effects-shadow-pctsx: 100.0%; mso-effects-shadow-pctsy: 100.0%; mso-effects-shadow-themecolor: dark1; mso-style-textoutline-outlinestyle-align: center; mso-style-textoutline-outlinestyle-compound: simple; mso-style-textoutline-outlinestyle-dash: solid; mso-style-textoutline-outlinestyle-dpiwidth: 0pt; mso-style-textoutline-outlinestyle-join: round; mso-style-textoutline-outlinestyle-linecap: flat; mso-style-textoutline-outlinestyle-pctmiterlimit: 0%; mso-style-textoutline-type: none; mso-themecolor: text1;">“</span></i><i><span face=""Bahnschrift",sans-serif" style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: "Calibri Light"; mso-bidi-font-weight: bold; mso-bidi-theme-font: major-latin;">The case finally recognizes that the SEC should not
be acting as both prosecutor and jury in securities fraud cases nor require
respondents to exhaust their administrative remedies before having their day in
court.”<span style="color: black; mso-effects-shadow-align: topleft; mso-effects-shadow-alpha: 40.0%; mso-effects-shadow-angledirection: 2700000; mso-effects-shadow-anglekx: 0; mso-effects-shadow-angleky: 0; mso-effects-shadow-color: black; mso-effects-shadow-dpidistance: 1.5pt; mso-effects-shadow-dpiradius: 3.0pt; mso-effects-shadow-pctsx: 100.0%; mso-effects-shadow-pctsy: 100.0%; mso-effects-shadow-themecolor: dark1; mso-style-textoutline-outlinestyle-align: center; mso-style-textoutline-outlinestyle-compound: simple; mso-style-textoutline-outlinestyle-dash: solid; mso-style-textoutline-outlinestyle-dpiwidth: 0pt; mso-style-textoutline-outlinestyle-join: round; mso-style-textoutline-outlinestyle-linecap: flat; mso-style-textoutline-outlinestyle-pctmiterlimit: 0%; mso-style-textoutline-type: none; mso-themecolor: text1;"><o:p></o:p></span></span></i></p>
<p class="MsoNormal" style="line-height: 115%; text-indent: 0.5in;"><span face=""Bahnschrift",sans-serif">On appeal, the 5th Circuit vacated
the SEC’s judgment and held that the SEC’s administrative proceedings were
unconstitutional for at least two reasons: (1) respondents were deprived of
their Seventh Amendment right to civil jury; and (2) Congress
unconstitutionally delegated legislative power to the SEC by failing to give
the SEC an intelligible principle by which it could determine what matters it
could use its administrative proceedings framework and what matters it was
required to file suit in federal district courts. It remains to be seen whether
the SEC will request a rehearing before the entire panel of the Fifth Circuit
or seek redress from the U.S. Supreme Court, and whether other circuits of the
U.S. Court of Appeals will follow suit. But as of now, the SEC should no longer
use its own administrative enforcement proceedings in securities fraud cases. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 115%; text-indent: 0.5in;"><span face=""Bahnschrift",sans-serif">For further guidance on Jarkesy or
SEC enforcement proceedings in general, feel free to give us a call at
(314)-563-2490.</span></p><p class="MsoNormal" style="line-height: 115%; text-indent: 0.5in;"><span face=""Bahnschrift",sans-serif">Author: <a href="https://www.cosgrovelawllc.com/brian-st-james.html" target="_blank">Brian St. James</a></span></p><p class="MsoNormal" style="line-height: 115%; text-indent: 0.5in;"><span face=""Bahnschrift",sans-serif"><br /></span></p>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-35596523852834453152021-11-08T16:45:00.002-06:002021-11-08T16:45:18.432-06:00Self-Directed IRA Custodian Liability under State Securities Acts<p><span style="text-align: justify;">It should come as no
surprise to anyone that if purchasers of securities or a state’s securities
commission bring an</span><span style="text-align: justify;"> </span><span style="text-align: justify;">enforcement action
for the unlawful sale or contract for sale of unregistered securities, then they
will seek recourse against anyone involved in the transaction because the proceeds
of such sales have often been spent by unscrupulous issuers in many of these circumstances.
Self-directed IRA custodians are no exception.</span><span style="text-align: justify;"> </span></p>
<p class="MsoNormalCxSpMiddle" style="text-align: justify;">Such was the case in <i>Boyd
v. Kingdom Trust Company, et al.,<a href="file:///C:/Users/Office%20Manager/Downloads/Self-Direced%20IRA%20Custodians.docx#_ftn1" name="_ftnref1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-size: 11.0pt; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[1]</span></b></span><!--[endif]--></span></span></a></i> where two Ohio
residents opened self-directed IRA accounts to invest in promissory notes as
alternative investments. As practice dictates, the promissory notes were
purchased by the self-directed IRA custodians for the benefit of the Ohio
residents and the physical promissory notes held by the custodians in the
self-directed IRA accounts. </p>
<p class="MsoNormalCxSpMiddle" style="text-align: justify;">The residents argued
that the self-directed IRA custodians and the issuer were jointly and severally
liable pursuant to Ohio Securities Act provision that states: </p>
<p class="MsoNormalCxSpMiddle" style="margin-left: .5in; mso-add-space: auto; text-align: justify;">“The person making such sale or contract for sale, and
every person that has participated in or aided the seller in any way in making
such sale or contract for sale, are jointly and severally liable to the
purchaser … for the full amount paid by the purchaser and for all taxable
costs.”<a href="file:///C:/Users/Office%20Manager/Downloads/Self-Direced%20IRA%20Custodians.docx#_ftn2" name="_ftnref2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-size: 11.0pt; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[2]</span></span></span></span></a></p>
<p class="MsoNormalCxSpMiddle" style="text-align: justify;">The Ohio Supreme Court
in this case took a narrow view of this enactment by distinguishing the
self-directed IRA custodians’ role as <i>purchasers</i> of the promissory notes
as opposed to either participating in the sale or aiding the issuer in the sale
and vindicated them, finding that “a financial institution’s mere participation
in a transaction, absent any aid or participation in the sale of illegal
securities, does not give rise to liability under R.C. 1707.43(A).”<a href="file:///C:/Users/Office%20Manager/Downloads/Self-Direced%20IRA%20Custodians.docx#_ftn3" name="_ftnref3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-size: 11.0pt; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[3]</span></span><!--[endif]--></span></span></a>
<o:p></o:p></p>
<p class="MsoNormalCxSpMiddle" style="text-align: justify;"><o:p> </o:p>But every self-directed
IRA custodian should also note that this Court also stated that: </p>
<p class="MsoNormalCxSpMiddle" style="margin-left: .5in; mso-add-space: auto; text-align: justify;">“Nothing in our holding today would insulate from liability
a self-directed IRA custodian who colludes with the seller in an unlawful sale
of securities or actively participates or aids in the sale of illegal
securities. But the certified question before us is limited to the liability of
a self-directed IRA custodian <i>whose only alleged participatory conduct</i>
was the purchase of illegal securities on behalf and at the direction of the
owner of a self-directed IRA.”<a href="file:///C:/Users/Office%20Manager/Downloads/Self-Direced%20IRA%20Custodians.docx#_ftn4" name="_ftnref4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-size: 11.0pt; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[4]</span></span></span></span></a></p>
<p class="MsoNormalCxSpMiddle" style="text-align: justify;">Consequently, the
self-directed IRA custodians escaped liability in this case merely because the
two Ohio residents failed to allege any other participatory activity in the
sale of the promissory notes, such as providing the templates for the
promissory notes, drafting them, being included in the issuer’s pitch
materials, etc.<a href="file:///C:/Users/Office%20Manager/Downloads/Self-Direced%20IRA%20Custodians.docx#_ftn5" name="_ftnref5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-size: 11.0pt; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[5]</span></span><!--[endif]--></span></span></a> And in a regulatory
environment such as the present one in which plaintiffs and enforcement
sections of<span style="mso-spacerun: yes;"> </span>state securities commissions
seek restitution for defrauded investors by all means available to them,
self-directed IRA custodians should be extremely mindful of their participation
in these transactions. </p>
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-size: 11.0pt; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">Consequently, if faced with such potential liability, you may wish to
consult with experienced securities enforcement counsel at <a href="http://www.cosgrovelawllc.com" target="_blank">Cosgrove Law Group, LLC</a>.</span><div><span style="font-family: Times New Roman, serif;"><br /></span></div><div><span style="font-family: Times New Roman, serif;">Author: <a href="https://www.cosgrovelawllc.com/brian-st-james.html" target="_blank">Brian St. James</a></span></div><div><span style="font-family: Times New Roman, serif;"><br /></span></div><div><strong style="background-color: white; box-sizing: inherit; color: #222222; font-family: adobe-garamond-pro, serif; font-size: 16px;">Please follow us on Twitter @CosLawGroup, on LinkedIn at <a href="https://www.linkedin.com/company/cosgrove-law-llc/?viewAsMember=true" rel="noopener" style="background-color: transparent; box-sizing: inherit; color: #1b5477;" target="_blank">Cosgrove Law Group, LLC</a>, and on Facebook at <a href="https://www.facebook.com/CosLawGroup/" rel="noopener" style="background-color: transparent; box-sizing: inherit; color: #1b5477;" target="_blank">Cosgrove Law Group, LLC</a>. </strong><span style="font-family: Times New Roman, serif;"><br /></span>
<div style="mso-element: footnote-list;"><!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoFootnoteTextCxSpFirst"><a href="file:///C:/Users/Office%20Manager/Downloads/Self-Direced%20IRA%20Custodians.docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a> 150 Ohio St. 3d 196,
2018-Ohio-3156, 113 N.E. 3d 470 (2018). <o:p></o:p></p>
</div>
<div id="ftn2" style="mso-element: footnote;">
<p class="MsoFootnoteTextCxSpMiddle"><a href="file:///C:/Users/Office%20Manager/Downloads/Self-Direced%20IRA%20Custodians.docx#_ftnref2" name="_ftn2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></span></a> R.C. 1707.43(A). Note this
provision has been enacted by each state that has adopted the Model Securities
Act. <o:p></o:p></p>
</div>
<div id="ftn3" style="mso-element: footnote;">
<p class="MsoFootnoteTextCxSpMiddle"><a href="file:///C:/Users/Office%20Manager/Downloads/Self-Direced%20IRA%20Custodians.docx#_ftnref3" name="_ftn3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[3]</span></span><!--[endif]--></span></span></a> 150 Ohio St. 3d at 199,
113 N.E. 3d at 473. <o:p></o:p></p>
</div>
<div id="ftn4" style="mso-element: footnote;">
<p class="MsoFootnoteTextCxSpMiddle"><a href="file:///C:/Users/Office%20Manager/Downloads/Self-Direced%20IRA%20Custodians.docx#_ftnref4" name="_ftn4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[4]</span></span><!--[endif]--></span></span></a> <i>Id. </i>Emphasis added.<i>
<span style="mso-spacerun: yes;"> </span></i><o:p></o:p></p>
</div>
<div id="ftn5" style="mso-element: footnote;">
<p class="MsoFootnoteTextCxSpLast"><a href="file:///C:/Users/Office%20Manager/Downloads/Self-Direced%20IRA%20Custodians.docx#_ftnref5" name="_ftn5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[5]</span></span><!--[endif]--></span></span></a> Situations where the
custodian issues a finder’s fee or commission to the seller could also be
“participatory activity.” <o:p></o:p></p>
</div>
</div></div>Sheila R. Carrollhttp://www.blogger.com/profile/01387299078586822726noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-7061015841411263102021-10-19T16:51:00.000-05:002021-10-19T16:51:18.776-05:00Conflict Management for Terminated Financial Advisors <p><span style="font-family: "Times New Roman", serif; font-size: 12pt;">There is plenty of room for conflict when a financial
advisor is leaving his or her broker-dealer. Although the departure may start
off in an amicable fashion, tensions often flare once promissory notes and
client retention issues arise. Moreover, an involuntary or “for-cause”
termination may implicate defamation and regulatory issues. In other words,
your broker-dealer may defame you on your U-5/U-4</span><a href="file:///C:/Users/Office%20Manager/Downloads/10.19.21-%20Conflict%20Management%20FA%20Term%20.docx#_ftn1" name="_ftnref1" style="font-family: "Times New Roman", serif; font-size: 12pt;" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 107%;">[1]</span></span></span></a><span style="font-family: Times New Roman, serif;"><span style="font-size: 12pt;"> providing you with an
arbitration claim but also subjecting you to months of regulatory scrutiny from
FINRA and state regulators. So here is my lecture: it is wise to retain </span>independent<span style="font-size: 12pt;"> counsel
as soon as you are even contemplating leaving your current broker-dealer. Your
legal counsel can help you achieve a smooth transition or at least advocate for
you during the termination process. <a href="https://www.cosgrovelawllc.com/u-5-defamation.html" target="_blank">Our firm</a> has represented countless
departing brokers on a nearly endless array of issues. We have also recouped
millions of dollars in defamations awards and settlements. Food for thought.</span></span></p><p><span style="font-family: Times New Roman, serif;"><span style="font-size: 12pt;"><br /></span></span></p>
<div style="mso-element: footnote-list;"><!--[if !supportFootnotes]--><span style="background-color: white; box-sizing: inherit; color: #222222; font-family: adobe-garamond-pro, serif; font-size: 16px;">Please follow us on Twitter @CosLawGroup, on LinkedIn at <a href="https://www.linkedin.com/company/cosgrove-law-llc/?viewAsMember=true" rel="noopener" style="background-color: transparent; box-sizing: inherit; color: #1b5477;" target="_blank">Cosgrove Law Group, LLC</a>, and on Facebook at <a href="https://www.facebook.com/CosLawGroup/" rel="noopener" style="background-color: transparent; box-sizing: inherit; color: #1b5477;" target="_blank">Cosgrove Law Group, LLC</a>. </span></div><div style="mso-element: footnote-list;"><span style="color: #222222; font-family: adobe-garamond-pro, serif;"><b><br clear="all" /></b></span>
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/10.19.21-%20Conflict%20Management%20FA%20Term%20.docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;"> In 2020, U5 defamation cases were
the fourth most common intra-industry claim filed with FINRA, behind breach of
contract, promissory notes, and compensation claims. (<a href="https://www.littler.com/publication-press/publication/form-u5-defamation-claims-rise-finra-be-prepared" target="_blank">https://www.littler.com/publication-press/publication/form-u5-defamation-claims-rise-finra-be-prepared</a>)<o:p></o:p></span></p>
</div>
</div>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-35646205322694673772021-10-14T16:36:00.001-05:002021-10-14T16:36:30.452-05:00The SEC Chair sets the Agency’s sights on Cryptocurrencies<p> On October 5, 2021, Securities and Exchange
Commission Chairman Gary Gensler addressed the House Financial Services
Committee regarding the agency’s role in regulating the cryptocurrency markets.
His remarks regarding Congress’ need to fill the regulatory gaps in
cryptocurrency markets have been criticized as confusing considering his past
statements that most cryptocurrencies are securities and therefore already fall
under the SEC’s regulatory scheme. Adding to the uncertainty is his refusal to
stake out a clear position as to whether the two biggest cryptocurrencies,
Bitcoin and Ethereum, are securities. </p>
<p class="MsoNormalCxSpMiddle">The SEC and its state counterparts presently apply
the <i>Howey</i><a href="file:///C:/Users/Office%20Manager/Downloads/Cryptocurrencies.docx#_ftn1" name="_ftnref1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-size: 11.0pt; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a><i>/Forman<a href="file:///C:/Users/Office%20Manager/Downloads/Cryptocurrencies.docx#_ftn2" name="_ftnref2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif; font-size: 12pt;">[2]</span></span><!--[endif]--></span></span></a></i> tests set down by
the U.S. Supreme Court in analyzing whether cryptocurrencies are “investment
contracts” within federal and state securities laws. This fact extensive
analysis that is applied on a case-by-case basis may lead to different results
from one cryptocurrency to another. Consequently, if faced with an enforcement
action by either the SEC or the States of Missouri, you may wish to consult
with experienced securities enforcement counsel at <a href="http://Cosgrovelawllc.com" target="_blank">Cosgrove Law Group</a>. <o:p></o:p></p>
<div style="mso-element: footnote-list;"><!--[if !supportFootnotes]--><p style="background-color: white; color: #222222; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13.2px;"><span style="font-family: "Times New Roman", serif; font-size: 12pt;">Author: <a href="https://www.cosgrovelawllc.com/brian-st-james.html" target="_blank">Brian St. James</a></span></p><p style="background-color: white; color: #222222; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13.2px;"><br /></p><p style="background-color: white; color: #222222; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13.2px;"><strong style="box-sizing: inherit; font-family: adobe-garamond-pro, serif; font-size: 16px;">Please follow us on Twitter @CosLawGroup, on LinkedIn at <a href="https://www.linkedin.com/company/cosgrove-law-llc/?viewAsMember=true" rel="noopener" style="background-color: transparent; box-sizing: inherit; color: #1b5477; text-decoration-line: none;" target="_blank">Cosgrove Law Group, LLC</a>, and on Facebook at <a href="https://www.facebook.com/CosLawGroup/" rel="noopener" style="background-color: transparent; box-sizing: inherit; color: #1b5477; text-decoration-line: none;" target="_blank">Cosgrove Law Group, LLC</a>. </strong></p>
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoFootnoteTextCxSpFirst"><a href="file:///C:/Users/Office%20Manager/Downloads/Cryptocurrencies.docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a> <i>S.E.C. v. W.J. Howey
Co.</i>, 328 U.S. 293, 66 S. Ct. 1100, 90 L.Ed. 1244 (1946) and 293, <o:p></o:p></p>
</div>
<div id="ftn2" style="mso-element: footnote;">
<p class="MsoFootnoteTextCxSpLast"><a href="file:///C:/Users/Office%20Manager/Downloads/Cryptocurrencies.docx#_ftnref2" name="_ftn2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></span></a> United Housing Foundation,
Inc. v. Forman, 421U.S. 837, 95 S. Ct. 2051, 44 L. Ed. 2d 621 (1975)<span style="mso-spacerun: yes;"> </span><o:p></o:p></p>
</div>
</div>Sheila R. Carrollhttp://www.blogger.com/profile/01387299078586822726noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-23358323823700653582021-09-27T15:53:00.003-05:002021-09-27T15:53:30.396-05:00State Regulators Focus on Precious Metals and Self-Directed IRA’s<p>The organization of North American securities regulators
recently had their annual conference. The organization is known as NASAA.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">During
the conference presentation and panel discussion, it was reported that much
attention was paid to self-directed IRA’s. The regulators believe that SDIRA’s
are being used in conjunction with investment “scams.” It was reported that the
regulators are anxious to work with federal legislators, but it was unclear as
to what the proposed legislative solution to the alleged problem would be.<o:p></o:p></p>
<p class="MsoNormal">In
conjunction with the discussions, the regulators referenced the precious metals
industry. Our firm has worked with stakeholders in the precious metals industry
for over a decade. Many of those industry players take compliance and ethical
business practices very seriously. We also represent precious metals industry
stakeholders when they are contacted by or receive a subpoena from a regulator.
It was reported that state regulators opened more than 80 investigations of
offerings related to SDRIA’s last year and brought 53 enforcement actions as
well. The results of these investigations and actions were not, however,
reported. <o:p></o:p></p>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-952615582751025672021-09-15T13:00:00.003-05:002021-09-15T13:00:51.295-05:00Court Strikes Non-Compete and Non-Solicitation Provisions<p> <span style="text-indent: 0.5in;">In a financial services industry
dispute, the <a href="https://cases.justia.com/federal/appellate-courts/ca8/20-3061/20-3061-2021-08-24.pdf?ts=1629819064">Eighth Circuit Court of Appeals</a> recently reversed a district
court's enforcement of a non-compete agreement and non-solicitation agreement
in employment contracts. The appellants were a financial advisor and her new
financial services firm. The appellee that lost on appeal was the financial
advisor's former employer.</span></p><p><span style="text-indent: 0.5in;">The financial advisor was Cara
Miller. When she worked for Honkamp Krueger Financial Services, she signed an
employment agreement that included a non-compete and non-solicitation agreement
and then an Agreement Ancillary to Employment that failed to include a
non-compete provision. Miller voluntarily terminated her employment when Honkamp
Krueger was purchased by another firm. She wisely sent a letter terminating
her </span><i style="text-indent: 0.5in;"><u>employment agreement</u></i><span style="text-indent: 0.5in;"> rather than just her
employment. She sought a declaratory judgment in the district court. Honkamp
Kruger counterclaimed, seeking a preliminary injunction against her, and
prevailed. </span></p><p><span style="text-indent: 0.5in;">The Court of Appeals took different
approaches to the non-compete and non-solicitation agreement</span><a href="file:///C:/Users/Office%20Manager/Downloads/9.15.21-%20Non-compete%20Honkamp.docx#_ftn1" name="_ftnref1" style="text-indent: 0.5in;" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 11.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span></span></a><span style="text-indent: 0.5in;">.
The Court concluded that the non-compete agreement ended when Miller provided
written notice that the employment contract had ended. The Court found that the
District Court's application of the non-solicitation agreement was void against
public policy in that it prohibited </span><i style="text-indent: 0.5in;">accepting</i><span style="text-indent: 0.5in;"> clients as well
as soliciting them. Two quotes from the opinion are worthy of repetition: 1)
"…non-compete agreements are 'strictly' constructed against the one
seeking to restrain another from pursuing his profession, business, or
employment", and 2) "…a contract cannot prevent former employees from
accepting clients of their former employers because clients are not parties to
the contract and should be allowed to choose with whom they want to do
business." Food for thought.</span></p><p class="MsoNormal" style="text-indent: .5in;"><o:p></o:p></p>
<div style="mso-element: footnote-list;"><!--[if !supportFootnotes]--><strong style="background-color: white; box-sizing: inherit; color: #222222; font-family: adobe-garamond-pro, serif; font-size: 16px;">Please follow us on Twitter @CosLawGroup, on LinkedIn at <a href="https://www.linkedin.com/company/cosgrove-law-llc/?viewAsMember=true" rel="noopener" style="background-color: transparent; box-sizing: inherit; color: #1b5477;" target="_blank">Cosgrove Law Group, LLC</a>, and on Facebook at <a href="https://www.facebook.com/CosLawGroup/" rel="noopener" style="background-color: transparent; box-sizing: inherit; color: #1b5477;" target="_blank">Cosgrove Law Group, LLC</a>. </strong><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/9.15.21-%20Non-compete%20Honkamp.docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a><a href="https://1.next.westlaw.com/Document/Ic18609b004ed11ec8cc1ca5e79b1b862/View/FullText.html?listSource=Foldering&originationContext=clientid&transitionType=MyResearchHistoryItem&contextData=%28oc.Search%29&VR=3.0&RS=cblt1.0">https://1.next.westlaw.com/Document/Ic18609b004ed11ec8cc1ca5e79b1b862/View/FullText.html?listSource=Foldering&originationContext=clientid&transitionType=MyResearchHistoryItem&contextData=%28oc.Search%29&VR=3.0&RS=cblt1.0</a><o:p></o:p></p>
</div>
</div>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-8669730177334733612021-09-15T12:55:00.005-05:002021-09-15T12:56:35.232-05:00What to do about FINRA Customer Complaints<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Trust is essential for a
successful career as a securities broker. FINRA’s <i><a href="https://brokercheck.finra.org/" target="_blank">BrokerCheck</a></i> website allows the public and employers to search a
securities broker by name and discover any disciplinary actions that have been
issued against that broker. A <i>BrokerCheck
</i>report also lists any <a href="https://www.finra.org/rules-guidance/rulebooks/immediately-effective-rule-changes-pending-sec-notification/8312">formal complaints</a> by previous investors. This system helps
prevent investors from getting involved with securities brokers with a history
of fraudulent and/or negligent behavior. In some instances, however, <i>BrokerCheck</i>
casts too wide a net, causing significant reputational harm to undeserving brokers. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">When a customer complaint appears on a broker’s <i>BrokerCheck </i>report, it is originally
listed as pending. This occurs whether or not the complaint actually has merit. Unfortunately, complaints can be listed
as pending for years until settled or decided in an arbitration. If the Broker-Dealer or FINRA deny the complaint on its merits the status of the complaint changes from <i>pending</i> to <i>denied</i>; however, the complaint remains on the <i>BrokerCheck</i>
report. Even though a complaint is listed as <i>denied</i>, investors may still find themselves weary of that broker
when comparing them to a broker with a claim-free record.</span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;">Recognizing
that </span><i style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;">BrokerCheck</i><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;"> complaints can have a tremendous influence on a
broker’s career, FINRA allows brokers to request <a href="https://www.finra.org/registration-exams-ce/classic-crd/faq/finra-rule-2080-frequently-asked-questions">expungement</a> of claims on their
</span><i style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;">BrokerCheck</i><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;"> report. </span><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;"> Here at Cosgrove Law Group, LLC, we have
experience helping securities brokers remove meritless complaints from their
FINRA </span><i style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;">BrokerCheck </i><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;">report. If you are
suffering under a meritless claim on your </span><i style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;">BrokerCheck</i><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;"> report, please
contact the <a href="https://www.cosgrovelawllc.com/">Cosgrove Law Group, LLC</a> for more information on how we can help. </span></p><p><span style="font-family: "Times New Roman", serif; font-size: 12pt;">Authors: Alexander Oakes and
<a href="https://www.cosgrovelawllc.com/max-simpson-attorney.html">Max Simpson</a></span></p><p><br /></p><p><strong style="background-color: white; box-sizing: inherit; color: #222222; font-family: adobe-garamond-pro, serif; font-size: 16px;">Please follow us on Twitter @CosLawGroup, on LinkedIn at <a href="https://www.linkedin.com/company/cosgrove-law-llc/?viewAsMember=true" rel="noopener" style="background-color: transparent; box-sizing: inherit; color: #1b5477;" target="_blank">Cosgrove Law Group, LLC</a>, and on Facebook at <a href="https://www.facebook.com/CosLawGroup/" rel="noopener" style="background-color: transparent; box-sizing: inherit; color: #1b5477;" target="_blank">Cosgrove Law Group, LLC</a>. </strong></p>Sheila R. Carrollhttp://www.blogger.com/profile/01387299078586822726noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-77828820921128278002021-06-25T09:39:00.002-05:002021-06-25T09:39:30.440-05:00The Arbitration System<div style="text-align: left;"><span style="font-family: times; font-size: medium;"><span style="background-color: white; color: #222222;">The premise that
underlies the justification for the loss of rights in arbitration is simple:
both parties knowingly agreed to binding arbitration. This presumption is based
upon the presumptions that 1) signators read contracts before signing, 2) they
have the time and knowledge to understand the implications of the arbitration
provision, and 3) they have a viable ability to opt-out of agreeing to the
provision. Arbitration's entire legitimacy is based upon these fairly specious
presumptions. And there has been much written about these presumptions and
whether or not binding arbitration is actually the product of an informed
voluntary decision by both parties. </span><i style="color: #222222;">See</i><span style="background-color: white; color: #222222;"> “Whimsy Little
Contracts' with Unexpected Consequences: An Emperical Analyss of Consumer Understanding
of Arbitration Agreements,” Jeff Sovern, Elayne Greenberg, Paul Kirgis, and
Yuxiang Liu, </span><u style="color: #222222;">St. John's Legal Studies Research Paper No. 14-0009</u><span style="background-color: white; color: #222222;">,
October 29, 2014 and “Arbitration Clauses Trap Consumers with Fine Print,” Jeff
Sovern, </span><u style="color: #222222;">AmericanBanker.com</u><span style="background-color: white; color: #222222;">, December 2, 2014.</span></span></div><div style="text-align: left;"><span style="font-family: times; font-size: medium;"><span style="color: #222222; line-height: 107%;"><br /></span><span style="color: #222222; line-height: 107%;"><span style="background: white;">The position of the “Whimsy Little
Contracts'...” study is that no one would voluntarily agree to have substantial
rights resolved in a quasi-judicial system contaminated by bias. Take a look at
this chart and decide for yourself if the system is fair and free of improper
influence:</span></span></span></div><div style="text-align: left;"><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;"><span style="background: white;"><br /></span></span></div><div style="text-align: left;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgAXzYa_GLkuVFeLEwiOEYep2leD6HBvGx6aRVRyyl8YeSbiq7q40tLczPYnSWf3dsbRalnCL9FgpFCJWv7kuVyDEuFhIVTw0p_ZOp4zZpYlvh5QO6D1Ee6ND-DuEVmTQKijriD1LEJTCM/s1600/Arbitration+System+Chart.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1237" data-original-width="1600" height="327" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgAXzYa_GLkuVFeLEwiOEYep2leD6HBvGx6aRVRyyl8YeSbiq7q40tLczPYnSWf3dsbRalnCL9FgpFCJWv7kuVyDEuFhIVTw0p_ZOp4zZpYlvh5QO6D1Ee6ND-DuEVmTQKijriD1LEJTCM/w423-h327/Arbitration+System+Chart.jpg" width="423" /></a></div><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;"><br /></span><span style="font-family: times; font-size: medium;"><span style="color: #222222; line-height: 107%;"><span style="background: white;">Finally, there is another false assumption that
bolsters the presumption favoring arbitration: it is more efficient than the
courts: Cheaper and quicker! Unfortunately, I could rattle off twenty examples
demonstrating just how questionable this presumption is when presented as a
general truth. I received an arbitration award from JAMS 7 years after the
claim was filed. I just paid AAA over $20,000 before the Panel has ever
convened, and the Respondent buried us in discovery. If I was in Federal Court,
I would have a scheduling order protecting my client for approximately $200 in
filing fees.</span></span><span style="color: #222222; line-height: 107%;"><br /></span><span style="color: #222222; line-height: 107%;"><span style="background: white;"><br /></span></span></span></div><div style="text-align: left;"><span style="color: #222222; line-height: 107%;"><span style="background: white;"><span style="font-family: times; font-size: medium;">In sum, both the courts and the legislature need
to take a hard and honest look at the jurisprudential legitimacy of binding
arbitration. Food for thought.</span></span></span></div><p class="MsoNormal" style="text-align: left;"><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;"><br /><span style="background: white;"><br /></span></span></p>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-89441207418461493952021-06-23T09:41:00.001-05:002021-06-23T09:45:39.323-05:00The Harms and Indicators of Excessive Trading<p> </p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Many securities brokers
work for commissions. This means that they charge investors a fee whenever
executing a trade on their behalf. This method of compensation has, in the
past, enticed some nefarious brokers to increase their compensation by making
more trades on a customer’s behalf than is in the customer’s best interest. <o:p></o:p></span></p>
<p class="MsoNormal"><b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">What
is Excessive Trading?<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: 0.5in;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Excessive
trading, also known as churning, occurs when a securities broker executes
trades in a customer’s account at an unsuitable frequency in an effort to
increase their own commissions. Make no mistake, excessive trading is illegal.
Unfortunately, in all but the most egregious circumstances, you may need to
consult a professional to determine whether you are a victim of excessive
trading. There is no “one size fits all” test to determine whether a broker is
churning a customer’s account. Instead, courts and regulators balance several
factors to determine whether a broker’s trading would be deemed excessive. It
is determined by the volume at which trades are being executed, the type of
security being traded, the investor’s stated investment objectives and the
investor’s risk tolerance (including their age, net worth, and investment
experience). For instance, the same number of trades may be suitable for an
investor with more speculative objectives but unsuitable for an investor with
more conservative objectives. Moreover, one type of product traded a certain
number of times may be suitable; whereas, a different type of product—not meant
for that volume of trading—traded just as many times may be unsuitable. <o:p></o:p></span></p>
<p class="MsoNoSpacing"><b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman",serif; font-size: 14pt;">The Harms of
Excessive Trading</span></b><span style="font-family: "Times New Roman", serif; font-size: 12pt;"> </span></p>
<p class="MsoNoSpacing" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><span style="mso-tab-count: 1;"> </span>Excessive trading can cause significant and irreparable
harm to investors beyond simply loss of principal. It will almost always
prevent the desired growth due both to excessive fees that accompany it and the
excessive switching of investment products that will only yield growth if they
are held onto for certain periods of time. Even if an investor’s principal investment
remains intact after a ten year period, the fact that an account achieved no,
or minimal, growth over that period—when a properly traded account would have
seen the growth the investor desired—can cause damage to an investor’s
financial health which cannot be undone.</span><span style="font-family: "Times New Roman", serif; font-size: 12pt;"> </span></p>
<p class="MsoNoSpacing"><b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman",serif; font-size: 14pt;">The Evolution of
Excessive Trading</span></b><span style="font-family: "Times New Roman", serif; font-size: 12pt;"> </span></p>
<p class="MsoNoSpacing" style="line-height: 200%; text-indent: 0.5in;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Excessive
trading primarily occurs when securities brokers engage in unnecessarily
frequent switching of equities sold on public securities exchanges. When this
occurs, the broker “earns” a commission for each trade. Over time, these
charges compound and cause substantial harm. In recent years, more and more
securities brokers are starting to engage in excessive trading of more long
term investment products not sold on public exchanges such as mutual funds,
unit investment trusts, private equity funds, closed-end funds, and, most
notably, variable annuities. Long-term product switching, especially when it
involves variable annuities, does not need to occur at the same volume as
equity switching in order to be deemed excessive. For example, annuities are <b style="mso-bidi-font-weight: normal;">specifically</b> designed to be held onto
long term and are often marketed to elderly vulnerable investors with very low
risk tolerance. Investors placed in products such as variable annuities may be
charged inordinately high<a href="file:///C:/Users/Office%20Manager/Downloads/The%20Harms%20and%20Indicators%20of%20Excessive%20Trading%20V2%20(1).docx#_ftn1" name="_ftnref1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 115%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a> fees when they are both
placed in and exit the product. That means that the fees investors incur as a
result of excessive trading will rack up even more when the trading involves
individually tailored private investment products like annuities. <o:p></o:p></span></p>
<p class="MsoNoSpacing"><b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman",serif; font-size: 14pt;">The Indicators of
Excessive Trading</span></b><span style="font-family: "Times New Roman", serif; font-size: 12pt;"> </span></p>
<p class="MsoNoSpacing" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><span style="mso-tab-count: 1;"> </span>Regulatory agencies such as FINRA have two main tools to
identify excessive trading. One is by looking at the Turn-Over Rate. This is
the number of times the securities in the account turn into new securities. The
second is called the Cost-Equity Ratio. This is the amount the account would
need to appreciate in order for the customer to simply cover the fees they are
being charged. A turn-over rate of 6 and a cost-equity ratio of 20 percent are
the prime indicators that excessive trading is most likely occurring. However,
as noted above, these are just two indicators of many. Excessive trading still
may exist where these indicators are not met.<o:p></o:p></span></p>
<p class="MsoNoSpacing"><b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman",serif; font-size: 14pt;">Who Can Stop
Excessive Trading?</span></b><span style="font-family: "Times New Roman", serif; font-size: 12pt;"> </span></p>
<p class="MsoNoSpacing" style="line-height: 200%; text-indent: 0.5in;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">More
so than both FINRA and the customers themselves, it is actually the
broker-dealer who is in the best position to both spot and put a stop to
excessive trading. Many securities firms have alert systems in place where they
will be automatically be notified if an investor’s turn-over rate reaches 6 and
their cost-equity ratio reaches 20 percent; however, case-law dictates that
these two numbers are <b style="mso-bidi-font-weight: normal;">not</b> necessary
to make someone liable for excessive trading. Many brokers engaging in this
practice know how to effectively skirt these alerts and avoid raising red flags
by engaging in trading that falls <b style="mso-bidi-font-weight: normal;">just</b>
shy of reaching the numbers necessary to trigger the alerts. For this reason,
FINRA has called on all broker-dealers to be more vigilant in broker
supervision beyond merely “checking in on things” once an alert has gone off.<o:p></o:p></span></p>
<p class="MsoNoSpacing" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><span style="mso-tab-count: 1;"> </span>Unfortunately, it is incredibly difficult for investors
to recognize when excessive trading is actually occurring. The investor is not
trained in this industry and may only receive quarterly or annual statements
from their broker. In some of the most egregious violations, brokers will skirt
supervision mechanisms by fraudulently changing an investor’s preferences to
allow for more frequent and speculative trading, essentially banking on
investors not noticing the change in preferences on their account statements. <o:p></o:p></span></p>
<p class="MsoNoSpacing" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><span style="mso-tab-count: 1;"> </span>The best thing that investors can do is make sure that
their investment objectives and risk tolerance are listed correctly on account
statements, actively communicate with their broker, and take thorough notes of
their conversations. If investors do have any suspicions, they should <b style="mso-bidi-font-weight: normal;">never </b>be afraid to call the
broker-dealer and speak to a supervising manager. Legitimate brokers are not
offended by this action and it will have no affect on your working
relationship.<o:p></o:p></span></p>
<p class="MsoNoSpacing" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><span style="mso-tab-count: 1;"> </span>Here at <a href="https://www.cosgrovelawllc.com/contact-us.html" target="_blank">Cosgrove Law Group, LLC</a>, we have substantial
experience dealing with fraud related to brokers and financial professionals. If
you suspect that you are a victim of excessive trading, contact the experienced
attorneys at <a href="https://www.cosgrovelawllc.com/our-team.html" target="_blank">Cosgrove Law Group, LLC</a>. <o:p></o:p></span></p>
<div style="mso-element: footnote-list;"><!--[if !supportFootnotes]-->Author: Alexander Oakes, J.D. Candidate 2023, St. Louis University School of Law<br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/The%20Harms%20and%20Indicators%20of%20Excessive%20Trading%20V2%20(1).docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a> It
is not uncommon to see an investor charged 25 percent of their principal
investment if they exit an annuity early.<o:p></o:p></p>
</div>
</div>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-32668139445335380722021-02-12T14:20:00.000-06:002021-02-12T14:20:13.817-06:00U-5 Filings and the Compelled Self-published Defamation Doctrine<p> </p><p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">Last
year, the California Court of Appeals issued a highly instructive opinion in
the area of U-5 defamation. Some excerpts from that opinion will help us get
started on a variety of blogs. The case is <u><a href="https://law.justia.com/cases/california/court-of-appeal/2020/d074459.html" target="_blank">Tilkey v Allstate Insurance Company</a></u>. <o:p></o:p></span></p>
<p align="center" class="MsoNormal" style="line-height: 200%; text-align: center;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">INTRODUCTION<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">While
Michael Tilkey and his girlfriend Jacqueline Mann were visiting at her home,
the two got into an argument. Tilkey decided to leave the apartment. When he
stepped out onto the enclosed patio to collect his cooler, Mann locked the door
behind him. Tilkey banged on the door to regain entry, and Mann called police. Tilkey
was arrested and pled guilty to a disorderly conduct charge only, and other charges
were dropped. After Tilkey completed a domestic nonviolence diversion program,
the disorderly conduct charge was dismissed as well. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">Before
the disorderly conduct charge was dismissed, Tilkey's company of 30 years,
Allstate Insurance Company (Allstate), terminated his employment based on his
arrest for a domestic violence offense and his participation in the diversion
program. Allstate informed Tilkey it was discharging him for threatening
behavior and/or acts of physical harm or violence to another person. Following
the termination, Allstate reported its reason for the termination on a Form U5,
filed with Financial Industry Regulatory Authority (FINRA) and accessible to
any firm that hires licensed broker-dealers like Tilkey. Tilkey sued Allstate
for wrongful termination and compelled self-published defamation.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">The
jury returned a verdict in Tilkey's favor on all causes of action and awarded
him $2,663,137 in compensatory damages and $15,978,822 in punitive damages. The
Court of Appeals concluded that compelled self-published defamation is a viable
theory, and substantial evidence supported the verdict that the statement was
not substantially true. The court did, however, remand the matter for
recalculation of the punitive damages award.<o:p></o:p></span></p>
<p align="center" class="MsoNormal" style="line-height: 200%; text-align: center;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">FACTS<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">On
August 31, 2014, Mann sent an e-mail to Tilkey at work mentioning the charges
that had been filed against him. A field compliance employee later discovered
this e-mail while conducting a routine compliance review and forwarded it to
Human Resources (HR). HR professional Tera Alferos conducted the initial
investigation, and she interviewed Tilkey. She noted Tilkey had been asked to
accept a plea deal to have two of the three charges dropped, then the last one
dismissed. She never spoke with Mann or interviewed the arresting officers. She
also did not investigate Mann's background or review her social media accounts.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">A
couple weeks later, Alferos sent her supervisor a summary of her investigation,
which stated that the police report had been reviewed and noted Tilkey had been
charged with but not convicted of a crime. The summary also explained there was
no FINRA reporting obligation because there were no felony charges, and it
concluded there had been no violation of company policy.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">A
supervisor then changed the conclusion to state Tilkey's behavior may have been
at a level that caused the company to lose confidence in him. At the
supervisor’s request, Alferos next added references to the domestic violence
charge because it suggested Tilkey had engaged in behavior that could be
construed as acts of physical harm or violence toward another person, in
violation of company policy. In an e-mail referencing the decision to terminate
Tilkey's employment, a Ms. Metzger wrote that they were amending the reason for
terminating Tilkey to be "violence against another person whether employed
by Allstate or not. "It identified the policy violation as "[t]hreats
or acts of physical harm or violence to the property or assets of the Company,
or to any person, regardless of whether he/she is employed by Allstate." When
the company terminated his employment, it informed Tilkey, "Your
employment is being terminated as a result of engaging in behaviors that are in
violation of Company Policy. Specifically, engaging in threatening behavior
and/or acts of physical harm or violence to any person, regardless of whether
he/she is employed by Allstate."<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">The
company then filed a Form U5 with FINRA reporting its reason for terminating
him as follows: "Termination of employment by parent property and casualty
insurance company after allegations of engaging in behaviors that are in
violation of company policy, specifically, engaging in threatening behavior
and/or acts of physical harm or violence to any person, regardless of whether
he/she is employed by Allstate. Not securities related."<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">Tilkey
sued Allstate asserting three causes of action: (1) violation of California
section 432.7; (2) wrongful termination based on noncompliance with section
432.7; and (3) compelled self-published defamation to prospective employers. Following
trial, the jury returned a verdict for Tilkey and awarded $2,663,137 in
compensatory damages, with $960,222 for wrongful termination and $1,702,915 for
defamation, and $15,978,822 in punitive damages. Allstate moved for a new
trial, which the trial court denied. Allstate appealed.<o:p></o:p></span></p>
<p align="center" class="MsoNormal" style="line-height: 200%; text-align: center;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">I:
WRONGFUL TERMINATION <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">Allstate
argued it did not violate the California wrongful termination statue (432.7) when
it used as a factor in its termination decision Tilkey's arrest and subsequent conditional
plea and entry into a diversion program. Tilkey countered that the company's
reliance on his arrest records violated section 432.7; thus, he was wrongfully
terminated. The parties' disagreement hinged on the interpretation of section
432.7, subdivision (a)(1), which prohibits employers from utilizing as a factor
in employment decisions any record of arrest or detention that did not result
in conviction or any record regarding referral to or participation in any
pretrial or post trial diversion program.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">Allstate
argued a conditional plea agreement qualifies as a conviction. Tilkey contended
he never entered a guilty plea; thus, there was no conviction. The court
concluded we conclude the term "conviction" as defined in section
432.7 does not require entry of judgment: “The plain language here makes clear
that a judgment is not required because the conviction can exist without
respect to sentencing. (See ibid.) The statute's legislative history supports
this interpretation.” A conviction under section 432.7 does not require an
entry of judgment; it simply requires entry of a guilty plea. Thus, Allstate
did not violate section 432.7 by using Tilkey's arrest as a factor in its
decision to terminate his employment.<o:p></o:p></span></p>
<p align="center" class="MsoNormal" style="line-height: 200%; text-align: center;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">II:
DEFAMATION<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">Allstate
next challenged the defamation verdict, contending that self-compelled
defamation should not provide a basis for a defamation per se cause of action.
It further contended there was no evidence that Tilkey's self-publication was
compelled by its publication of the reason for his employment termination on
the Form U5 because that publication contained a privileged statement. Finally,
Allstate maintained that its statement was substantially true, justifying
reversal of the verdict.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">For
a valid defamation claim, the general rule is that "the publication must
be done by the defendant." (Live Oak Publishing Co. v. Cohagan (1991) 234
Cal.App.3d 1277, 1284 (Live Oak Publishing).) But there is an exception
"when it [is] foreseeable that the defendant's act would result in [a
plaintiff's] publication to a third person." For the exception to apply,
the defamed party must operate under a strong compulsion to republish the
defamatory statement, and the circumstances creating the compulsion must be
known to the originator of the statement at the time he or she makes it to the
defamed individual.<o:p></o:p></span></p>
<p align="center" class="MsoNormal" style="line-height: 200%; text-align: center;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">Compelled
Self-Published Defamation Per Se<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">In
an action for defamation per se, the meaning is so clear from the face of the
statement that the damages can be presumed. The originator of the statement is
liable for the foreseeable repetition because of the causal link between the
originator and the presumed damage to the plaintiff's reputation but the
publication must be foreseeable.<span style="mso-spacerun: yes;"> </span>The
presumed injury is no less damaging because the plaintiff was compelled to make
the statement instead of the employer making it directly to the third party.
Allstate offered several other arguments for why the Court should not accept a
theory of compelled self-published defamation. <o:p></o:p></span></p>
<p align="center" class="MsoNormal" style="line-height: 200%; text-align: center;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">Form
U5 Privilege<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">Allstate
provided a written explanation for Tilkey's termination of employment on the
Form U5 to FINRA, which was available to every prospective employer of similarly
licensed employees. Thus, disclosure was not absolutely privileged. Thus,
Tilkey was compelled to explain the reason for his discharge, and this
repetition was reasonably foreseeable.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">Additionally,
the qualified privilege that attaches to communications about an employee's job
performance when made without malice or abuse to a third party likewise
protects an employer against compelled self-published defamation. This
conditional privilege helps protect the free flow of reference information.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">Firms
are required to file a Form U5 with FINRA whenever a registered representative
leaves the firm. If the registered representative's employment has been
terminated, the form asks the firm to provide a reason for termination. When
the Form U5 identifies allegations of improper conduct by a broker-dealer, an
issue that FINRA may need to investigate, it can on those occasions be
considered "a communication made 'in anticipation of an action or other
official proceeding.' (<u>Briggs v. Eden Council for Hope & Opportunity</u>
(1999) 19 Cal.4th [1106,] 1115.)" (<u>Fontani v. Wells Fargo Investments,
LLC</u> (2005) 129 Cal.App.4th 719, 732, disapproved of on other grounds in <u>Kibler
v. Northern Inyo County Local Hospital District</u> (2006) 39 Cal.4th 192.) In
those instances, the information reported on the Form U5 would be protected by
the absolute privilege outlined in Civil Code section 47, subdivision (b), at
least in California. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">Section
7 of the Form U5, however, <span style="mso-spacerun: yes;"> </span>includes a
list of disclosure questions for full terminations that asks if the terminated
employee was the subject of a governmental investigation; was under internal
review for fraud, wrongful taking of property, or violated investment related
laws, regulations, or industry standards relating to compliance; was convicted
of or pled guilty to a felony; or was convicted of or pled guilty to a misdemeanor
that related to investments, fraud, false statements, bribery, perjury,
forgery, counterfeiting, extortion, or wrongful taking of property. These
questions make clear that FINRA seeks termination information that allows it to
assess whether the employee's conduct lacked compliance with regulatory
requirements in the securities arena. FINRA does not ask for information about
non-securities-related activities because that information falls outside its
scope of regulation.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">Thus,
according to the California Court, the absolute privilege extends to
communications required by FINRA, i.e., fraud- and securities-related
information. However, the communication of Tilkey's termination here did not
regard improper securities-related conduct, and Allstate did not limit its
responses to fraud- and securities-related information. Instead, Allstate
explained Tilkey's departure was the result of a "termination of
employment by parent property and casualty insurance company after allegations
of engaging in behavior that are in violation of company policy, specifically,
engaging in threatening behavior and/or acts of physical harm or violence to
any person, regardless of whether he/she is employed by Allstate. Not
securities related." This statement did not contain allegations of
improper securities conduct, theft, or allegations or charges of fraud or
dishonesty. It was not offered in anticipation of or to initiate an
investigation; nor was it offered in the course of any other official 29 proceeding.
(See Civ. Code, § 47, subd. (b).) Thus, the absolute privilege does not apply<a href="file:///C:/Users/Office%20Manager/Downloads/M.%20Tilkey%20v%20Allstate%20(CA%20Court%20of%20Appeals%204th%20district,%202021).docx#_ftn1" name="_ftnref1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a>.<o:p></o:p></span></p>
<p align="center" class="MsoNormal" style="line-height: normal; text-align: center;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Substantial
Evidence Supported the Jury Findings That Tilkey Was Compelled to Self-Publish a
Statement That Was Not Substantially True<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 200%;">The
jury concluded that Tilkey was under strong pressure to communicate Allstate's
defamatory statement to another person. There was ample evidence to support
this conclusion. A “vocational evaluator” testified Tilkey would have a
difficult time ever getting another job because he had been terminated, and the
reason for termination reported on the Form U5 was negative. He also noted that
because Tilkey sold life insurance, he was required to hold securities
licenses, and agencies and employers hiring those with securities licenses
would have access to U5 forms. Tilkey's supervisor at Allstate, testified that
Allstate routinely reviewed the securities public information from the Form U5
of any person they were hiring, and he could not recall ever hiring anyone at
Allstate whose Form U5 stated he was terminated for cause. Tilkey testified
that when he recruited agents, he would have someone check the Form U5, and he
never hired anyone whose Form U5 showed the termination was for cause. He also
never received an interview from any company that had access to a Form U5, even
though he had 30 years of experience and performed well, receiving the third
largest bonus in the state just a few weeks before his termination. Even if the
company never offered any specific information about the reason for Tilkey's
discharge from employment to prospective employers, its statement at the time
of discharge and its reporting of the information on the publicly available
Form U5 necessitated Tilkey's self-publication in other settings. In sum, the
Court of Appeals upheld the defamation verdict but concluded that the punitive
damage award was excessive. More on that later. <o:p></o:p></span></p>
<div style="mso-element: footnote-list;"><!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/M.%20Tilkey%20v%20Allstate%20(CA%20Court%20of%20Appeals%204th%20district,%202021).docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a> <span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Had Allstate
instead eliminated the specifics in its statement, privilege may have attached
because Allstate was required to report the termination. For example, it could
have supplied the following statement: "Termination of employment by
parent property and casualty insurance company after allegations of engaging
behavior that are in violation of company policy. Not securities related."</span><o:p></o:p></p>
</div>
</div>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-53286960483294333672021-01-21T17:12:00.006-06:002021-01-21T17:12:56.265-06:00Gary Gensler Nominated to be the New SEC Chairman<p>On January 18<sup>th</sup>, a few days before Biden was sworn in as President, he announced his nomination for the new Securities and Exchange Commission (“SEC”) chairman. President Joseph Biden named <a href="https://en.wikipedia.org/wiki/Gary_Gensler" rel="noopener" target="_blank">Gary Gensler</a> as his pick for SEC chairman<a href="#_ftn1" name="_ftnref1">[1]</a>. While Gensler still needs to be confirmed by the senate<a href="#_ftn2" name="_ftnref2">[2]</a>, it is expected that he will be approved. Gensler’s confirmation will create a 3-2 democratic majority in the SEC commission.</p>
<p>Gary Gensler has an extensive resume within the financial industry. He is a former Commodity Futures Trading Commission (“CFTC”) chairman, and is known for supporting intensive regulation. During his tenure at the CFTC, he introduced new rules concerning derivative markets, and implemented the Dodd-Frank Act of 2010. Gensler has also worked inside the industry he regulated, as an executive at Goldman Sachs from 1979 to the late 1990s<a href="#_ftn3" name="_ftnref3">[3]</a>. Gensler has served as Secretary of the Treasury for Domestic Finance and Assistant Secretary of the Treasury for Financial Markets<a href="#_ftn4" name="_ftnref4">[4]</a>. Currently, he is a professor of Global Economics and Management at MIT Sloan School of Management<a href="#_ftn5" name="_ftnref5">[5]</a>.</p>
<p>Gary Gensler is recognized as an aggressive regulator. He is known to be direct about his policy decisions and not straying away from controversy<a href="#_ftn6" name="_ftnref6">[6]</a>. Gensler’s transparent conduct can be beneficial for the SEC, and also beneficial to those who fall under SEC regulation. Transparency in decision making can make it easier to predict what new polices could be passed, but more importantly, <em>how</em> those polices will affect the securities industry. This is primarily because Gensler is unambiguous about what he wants to accomplish. Gensler is consistent. While Gensler is transparent about his policy decisions, he advocates for that same transparency within securities markets. Possible changes include an increase in ESG disclosures<a href="#_ftn7" name="_ftnref7">[7]</a>, possible new rules to “swaps” (similar to his actions as CFTC Chairman), and increased whistleblower protections<a href="#_ftn8" name="_ftnref8">[8]</a>.</p>
<p>Gensler may impact the cryptocurrency industry. Gensler is a supporter of Bitcoin and other cryptocurrencies, however, he has also indicated the possibility of some cryptocurrencies falling under the scope of securities definitions (such as XRP)<a href="#_ftn9" name="_ftnref9">[9]</a>. Overall, we can expect Gensler and the SEC to become more hands-on when it comes to regulation. </p>
<p>At Cosgrove Law Group, we will be keeping a close eye on potential new regulation by the SEC. If you have any questions regarding securities regulations and rules, please feel free to give us a call at 314-563-2490.</p>
<p><strong>Please follow us on Twitter <a href="https://twitter.com/CosLawGroup" rel="noopener" target="_blank">@CosLawGroup</a>, on LinkedIn at <a href="https://www.linkedin.com/company/cosgrove-law-llc/?viewAsMember=true" rel="noopener" target="_blank">Cosgrove Law Group, LLC</a>, and on Facebook at <a href="https://www.facebook.com/CosLawGroup/" rel="noopener" target="_blank">Cosgrove Law Group, LLC</a>. </strong></p>
<p> </p>
<p><a href="#_ftnref1" name="_ftn1">[1]</a> Politi, J. (2021, January 18). Biden names Gensler as SEC head in push towards more scrutiny. Retrieved January 21, 2021, from https://www.ft.com/content/a1ddd082-a253-4148-975a-1ec85b5e94d0</p>
<p><a href="#_ftnref2" name="_ftn2">[2]</a> Dizikes, P. (2021, January 19). MIT Sloan's Gary Gensler to be nominated for chair of Securities and Exchange Commission. Retrieved January 21, 2021, from https://news.mit.edu/2021/gary-gensler-nominated-chair-sec-0119</p>
<p><a href="#_ftnref3" name="_ftn3">[3]</a> Gary Gensler. (n.d.). Retrieved January 21, 2021, from https://ballotpedia.org/Gary_Gensler</p>
<p><a href="#_ftnref4" name="_ftn4">[4]</a> Sprunt, B. (2021, January 18). Biden Taps Veteran Financial Regulators To Lead SEC, CFPB. Retrieved January 21, 2021, from https://www.npr.org/sections/biden-transition-updates/2021/01/18/958023670/biden-taps-veteran-financial-regulators-to-lead-sec-cfpb</p>
<p><a href="#_ftnref5" name="_ftn5">[5]</a> Lundy, J. G., MacPhail, M. R., & Porteous, D. W. (2021, January 19). President Biden Announces Gary Gensler as SEC Chair Nominee. Retrieved January 21, 2021, from https://www.natlawreview.com/article/president-biden-announces-gary-gensler-sec-chair-nominee</p>
<p><a href="#_ftnref6" name="_ftn6">[6]</a> Nicodemus, A. (2021, January 19). 'A very strong and vocal regulator': Biden taps Gary Gensler to lead SEC. Retrieved January 21, 2021, from https://www.complianceweek.com/regulatory-policy/a-very-strong-and-vocal-regulator-biden-taps-gary-gensler-to-lead-sec/29931.article</p>
<p><a href="#_ftnref7" name="_ftn7">[7]</a> Glazer, E. (2021, January 18). Companies Brace Themselves for New ESG Regulations Under Biden. Retrieved January 21, 2021, from https://www.wsj.com/articles/companies-brace-themselves-for-new-esg-regulations-under-biden-11610719200</p>
<p><a href="#_ftnref8" name="_ftn8">[8]</a> Schweller, G. (2021, January 18). Biden Picks Gary Gensler to Chair SEC. Retrieved January 21, 2021, from https://whistleblowersblog.org/2021/01/articles/whistleblower-news/biden-picks-gary-gensler-to-chair-sec/</p>
<p><a href="#_ftnref9" name="_ftn9">[9]</a> Basar, S. (2021, January 21). Crypto Industry Eyes Gary Gensler at SEC. Retrieved January 21, 2021, from https://www.tradersmagazine.com/am/crypto-industry-eyes-gary-gensler-at-sec/</p>
<p> </p>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-77522617491362378662021-01-06T10:18:00.001-06:002021-01-06T10:18:15.092-06:00FINRA Orders Worden to Pay $1.2 Million in Restitution to Customers Whose Accounts Were Excessively Traded<p>FINRA <a href="https://www.finra.org/media-center/newsreleases/2020/finra-orders-worden-capital-management-llc-pay-more-12-million" target="_blank">announced</a> last week that it sanctioned Worden Capital
Management LLC (WCM) more than $1.5 million, including approximately $1.2
million in restitution to customers whose accounts were excessively traded by
the firm’s representatives, and a $350,000 fine for supervisory and other
violations. WCM must also retain an independent consultant to conduct a
comprehensive review of the relevant portions of the firm’s supervisory systems
and procedures.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">FINRA found that from January 2015 to October 2019, WCM and
the firm’s owner and CEO, Jamie Worden, failed to establish and enforce a
supervisory system reasonably designed to achieve compliance with FINRA’s rules
relating to excessive trading. As a result, WCM’s registered representatives
made unsuitable recommendations and excessively traded customers’ accounts,
causing customers to incur more than $1.2 million in commissions..<o:p></o:p></p>
<p class="MsoNormal">Jessica Hopper, Head of FINRA’s Department of Enforcement,
said, “FINRA has an unwavering commitment to protect investors from excessive
and unsuitable trading. Firms must ensure they establish systems and procedures
reasonably designed to supervise representatives’ recommendations to their
customers, and firms’ supervisory personnel must have in place the necessary
tools and training to address red flags.”<o:p></o:p></p>
<p class="MsoNormal">FINRA also found that WCM and Worden interfered with
customers’ requests to transfer their accounts to another member firm. Finally,
as a result of supervisory failures, WCM failed to timely file amendments to
registered representatives’ Form U4s and Form U5s to disclose the filing or
resolution of customer arbitrations<a href="file:///C:/Users/Office%20Manager/Downloads/FINRA%20Blog%20Worden%201.2%20mil.docx#_ftn1" name="_ftnref1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 11.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a>. <o:p></o:p></p>
<div style="mso-element: footnote-list;"><!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/FINRA%20Blog%20Worden%201.2%20mil.docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a> Michelle,
Ong. (2020, December 31). FINRA Orders Worden Capital Management LLC to Pay More
than $1.2 Million in Restitution to Customers Whose Accounts Were Excessively
Traded. Retrieved January 05, 2021, from
https://www.finra.org/media-center/newsreleases/2020/finra-orders-worden-capital-management-llc-pay-more-12-million<o:p></o:p></p>
<p class="MsoFootnoteText"><o:p> </o:p></p>
</div>
</div>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-4206579242415804592020-12-14T13:09:00.006-06:002020-12-14T13:26:41.343-06:00What Chairman Jay Clayton’s Resignation Could Mean for Future of Financial Regulation<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%;">On November 16<sup>th</sup>, 2020 <a href="sec.gov" target="_blank">Securities and Exchange Commission</a> (“SEC”) Chairman, Jay Clayton announced he will be stepping
down from his position at the end of 2020<a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 107%;">[1]</span></span><!--[endif]--></span></a>. The Chairman’s
announcement comes as no surprise, mainly due to Joe Biden’s presidential
victory. SEC chairs typically step down when there is a new president elect<a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftn2" name="_ftnref2" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 107%;">[2]</span></span><!--[endif]--></span></a>. (Former Chair Mary Jo
White stepped down in 2016 after current President Donald Trump’s election<a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftn3" name="_ftnref3" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 107%;">[3]</span></span><!--[endif]--></span></a> and former Chair Mary
Schapiro resigned in 2012 after former President Barack Obama’s election.<a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftn4" name="_ftnref4" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 107%;">[4]</span></span><!--[endif]--></span></a>) President-Elect Joe Biden
is likely to nominate a new chairman before his inauguration on January 20<sup>th</sup>,
2021. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%;">SEC Commissioner, Allison Lee is positioned to become
the acting Chair until President Biden appoints a replacement for Jay Clayton<a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftn5" name="_ftnref5" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 107%;">[5]</span></span><!--[endif]--></span></a>. Possible appointments
include former SEC commissioner Kara Stein, Former commissioner Rob Jackson,
Preet Bharara, a former United States attorney for the Sothern District of New
York, Maxine Waters head of the House Financial Services Committee and, Gary
Gensler who is currently leading the financial policy transition team for the
future Biden administration<a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftn6" name="_ftnref6" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 107%;">[6]</span></span><!--[endif]--></span></a>. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%;">An appointment of a democratic chair will create a
democratic majority within the commission. Historically, democratic members of
the SEC rely heavier on enforcement than their republican counterparts. Gary
Gensler, for example, aggressively implemented regulations such as the
Dodd-Frank</span><span style="font-size: 12pt; line-height: 107%;"> </span>Act during
his tenure as chairman of the Commodities Futures Trading Commission <span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%;">(“CFTC”)<a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftn7" name="_ftnref7" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 107%;">[7]</span></span><!--[endif]--></span></a>. The appointment of a
democratic chair within the SEC will result in increased enforcement and
investigations. <o:p></o:p></span></p><p>
<span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">The main question
lies in where the priorities of enforcement will be. Over the previous 3-years, the SEC commission
focused more on deregulation and lowering business costs<a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftn8" name="_ftnref8" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 107%;">[8]</span></span><!--[endif]--></span></a>. A democratic commission will possibly shift
focus onto increased regulation, specifically on private markets. Additionally,
environmental, social, and corporate governance (“ESG”) disclosures are likely
to become a larger part of SEC enforcement in a democratic commission, particularly
regarding environmental disclosures. Democratic Commissioner Allison Herren-Lee
has advocated for standardized reporting for public companies regarding their
climate risk<a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftn9" name="_ftnref9" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 107%;">[9]</span></span><!--[endif]--></span></a>
efforts which could lead to another amendment to Regulation S-K. Regulation<i> </i>Best
Interest and Shareholder Proxy Voting are both expected to come under review with
a democratic commission<a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftn10" name="_ftnref10" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 107%;">[10]</span></span><!--[endif]--></span></a>. While these are just
theories about what could potentially happen, it is still not for certain. When
a new chair is nominated and confirmed, we will have a better idea of what to
expect from the SEC. Here at Cosgrove Law Group, LLC we will keep an eye on
future changes within the SEC and CFTC. </span>
</p><div><!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 107%;">[1]</span></span><!--[endif]--></span></span></a><span style="font-family: "Times New Roman",serif;"> Sorkin, A., Karaian, J., Merced,
M., Hirsch, L., & Livni, E. (2020, November 16). Trump's S.E.C. Chairman Is
Stepping Down. Retrieved November 30, 2020, from
<a href="https://www.nytimes.com/2020/11/16/business/dealbook/clayton-sec-stepping-down.html">https://www.nytimes.com/2020/11/16/business/dealbook/clayton-sec-stepping-down.html</a></span><span style="font-family: "Times New Roman", serif;"> </span></p>
</div>
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<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftnref2" name="_ftn2" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 107%;">[2]</span></span><!--[endif]--></span></span></a><span style="font-family: "Times New Roman",serif;"> Cox, J. (2020, November 16). Jay
Clayton says he will step down early as head of the SEC at the end of 2020.
Retrieved November 30, 2020, from
<a href="https://www.cnbc.com/2020/11/16/jay-clayton-says-he-will-step-down-early-as-head-of-the-sec-at-the-end-of-2020.html">https://www.cnbc.com/2020/11/16/jay-clayton-says-he-will-step-down-early-as-head-of-the-sec-at-the-end-of-2020.html</a></span><span style="font-family: "Times New Roman", serif;"> </span></p>
</div>
<div id="ftn3">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftnref3" name="_ftn3" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 107%;">[3]</span></span><!--[endif]--></span></span></a><span style="font-family: "Times New Roman",serif;"> Merle, R. (2019, March 28). SEC
chair to step down, clearing path for Trump to eliminate tough Wall Street
regulations. Retrieved November 30, 2020, from
<a href="https://www.washingtonpost.com/news/business/wp/2016/11/14/sec-chair-to-step-down-clearing-path-for-trump-to-eliminate-tough-wall-street-regulations/">https://www.washingtonpost.com/news/business/wp/2016/11/14/sec-chair-to-step-down-clearing-path-for-trump-to-eliminate-tough-wall-street-regulations/</a></span><span style="font-family: "Times New Roman", serif;"> </span></p>
</div>
<div id="ftn4">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftnref4" name="_ftn4" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 107%;">[4]</span></span><!--[endif]--></span></span></a><span style="font-family: "Times New Roman",serif;"> Press Release. (2012, November
26). Retrieved November 30, 2020, from
<a href="https://www.sec.gov/news/press-release/2012-2012-240htm">https://www.sec.gov/news/press-release/2012-2012-240htm</a></span><span style="font-family: "Times New Roman", serif;"> </span></p>
</div>
<div id="ftn5">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftnref5" name="_ftn5" title=""></a><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;">5</span></span><span style="font-family: "Times New Roman",serif;"> Schroeder, P., Price, M., &
Johnson, K. (2020, November 27). Factbox: The top contenders to run Biden's
financial agencies. Retrieved November 30, 2020, from <a href="https://www.reuters.com/article/us-usa-biden-wallstreet-regulators-factb/factbox-the-top-contenders-to-run-bidens-financial-agencies-idUSKBN28716L">https://www.reuters.com/article/us-usa-biden-wallstreet-regulators-factb/factbox-the-top-contenders-to-run-bidens-financial-agencies-idUSKBN28716L</a></span><span style="font-family: "Times New Roman", serif;"> </span></p>
</div>
<div id="ftn6">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftnref6" name="_ftn6" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 107%;">[6]</span></span><!--[endif]--></span></span></a><span style="font-family: "Times New Roman",serif;"> Schroeder, P., Price, M., &
Johnson, K. (2020, November 27). Factbox: The top contenders to run Biden's
financial agencies. Retrieved November 30, 2020, from <a href="https://www.reuters.com/article/us-usa-biden-wallstreet-regulators-factb/factbox-the-top-contenders-to-run-bidens-financial-agencies-idUSKBN28716L">https://www.reuters.com/article/us-usa-biden-wallstreet-regulators-factb/factbox-the-top-contenders-to-run-bidens-financial-agencies-idUSKBN28716L</a><o:p></o:p></span></p>
<p class="MsoFootnoteText"><span style="font-family: "Times New Roman",serif;"> </span><a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftnref7" name="_ftn7" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[7]</span></span></span></a> Miedema,
D. (2014, January 03). Swaps regulator Gensler: Banker turned Wall Street
scourge. Retrieved December 01, 2020, from
<a href="https://www.reuters.com/article/us-financial-regulation-gensler/swaps-regulator-gensler-banker-turned-wall-street-scourge-idUSBREA020OC20140103 " target="_blank">https://www.reuters.com/article/us-financial-regulation-gensler/swaps-regulator-gensler-banker-turned-wall-street-scourge-idUSBREA020OC20140103 </a></p></div>
<div id="ftn8">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftnref8" name="_ftn8" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[8]</span></span><!--[endif]--></span></a> Zanki,
T. (2020, October 20). 4 Ways A Biden Election Could Swing SEC Priorities.
Retrieved December 01, 2020, from <a href="https://www.law360.com/articles/1319347">https://www.law360.com/articles/1319347</a> </p>
</div>
<div id="ftn9">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftnref9" name="_ftn9" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[9]</span></span><!--[endif]--></span></a> Pisani,
B. (2020, November 12). What a Democrat-controlled SEC might look like and what
it would mean for markets. Retrieved December 01, 2020, from
<a href="https://www.cnbc.com/2020/11/11/what-a-democrat-controlled-sec-might-look-like-and-what-it-would-mean-for-markets.html">https://www.cnbc.com/2020/11/11/what-a-democrat-controlled-sec-might-look-like-and-what-it-would-mean-for-markets.html</a> </p>
</div>
<div id="ftn10">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/Dec%202020%20Blog%20Draft%20(Jay%20Clayton%20Resigns)%20%20(1).docx#_ftnref10" name="_ftn10" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[10]</span></span><!--[endif]--></span></a> Rasmussen,
P., & Tehrani, P. (2020, November 7). ANALYSIS: Four Spots Biden Is Likely
to Reverse SEC Deregulation. Retrieved December 01, 2020, from
<a href="https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-four-spots-biden-is-likely-to-reverse-sec-deregulation">https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-four-spots-biden-is-likely-to-reverse-sec-deregulation</a><o:p></o:p></p>
<p class="MsoFootnoteText"><o:p> AUTHOR: <a href="https://www.cosgrovelawllc.com/juliana-ness.html" target="_blank">Julianna M. Ness</a></o:p></p><p class="MsoFootnoteText"><strong style="background-color: white; box-sizing: inherit; color: #222222; font-family: adobe-garamond-pro, serif; font-size: 16px;">Please follow us on Twitter <a href="https://twitter.com/CosLawGroup" target="_blank">@CosLawGroup</a>, on LinkedIn at <a href="https://www.linkedin.com/company/cosgrove-law-llc/?viewAsMember=true" rel="noopener" style="background-color: transparent; box-sizing: inherit; color: #1b5477; text-decoration-line: none;" target="_blank">Cosgrove Law Group, LLC</a>, and on Facebook at <a href="https://www.facebook.com/CosLawGroup/" rel="noopener" style="background-color: transparent; box-sizing: inherit; color: #1b5477; text-decoration-line: none;" target="_blank">Cosgrove Law Group, LLC</a>. </strong></p>
</div>
</div><div style="mso-element: footnote-list;"><div id="ftn10" style="mso-element: footnote;">
</div>
</div>Sheila R. Carrollhttp://www.blogger.com/profile/01387299078586822726noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-28869981606944640552020-12-10T08:44:00.000-06:002020-12-10T08:44:02.241-06:00Missouri Securities Division Brings Action for Unregistered Investment Advice<p><span style="font-family: Times New Roman, serif;"><span style="font-size: 12pt;">Missouri’s Commissioner of Securities recently issued
an Order to Cease and Desist against a California resident that was allegedly
collecting fees to provide advice regarding stock selections. According to the
order, Yifel Lu (“Lu”), “…for compensation, provided unregistered investment
advice to individuals throughout the United States. Lu touted personal success
in the United States stock market in an internet chat room. When asked for Lu’s
advice, Lu instructed individuals to contact him on a separate phone/computer
application. Once alternative contact was established, Lu </span>proceeded<span style="font-size: 12pt;"> to require
clients to pay a fee of at least $300 for his advice. When the fee was agreed
upon, Lu instructed clients to deposit funds electrically into a PayPal
account.” </span></span><span style="font-family: "Times New Roman", serif; font-size: 12pt;"> </span></p><p><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: 0.5in;">Moreover, a Missouri
Resident initially met Lu in a public chatroom on Moonbbs “where Lu, using the username
“kyoraiden123,” touted his personal success in the United States stock market
and advertised stock-selection advice. Lu promised multiple stock tips with the
potential for high profit.”</span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">The
Enforcement Section is seeking disgorgement of the $300 fees and over $75,00 in
civil penalties. Food for thought. <o:p></o:p></span></p>David Cosgrovehttp://www.blogger.com/profile/14175865552240527846noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-915592699223637702020-10-12T14:08:00.002-05:002020-10-12T15:28:57.220-05:00Robinhood Brokerage app under SEC and FINRA investigations<p> <i>Author</i>: <a href="https://www.cosgrovelawllc.com/juliana-ness.html" target="_blank">Juliana M. Ness</a>, Cosgrove Law Group, LLC</p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%;">In early September of this year, Robinhood (a
brokerage app) became the subject of investigations by both the U.S. Securities
and Exchange Commission (“SEC”) and the Financial Industry Regulatory
Authority (FINRA)<a href="file:///C:/Users/Office%20Manager/Downloads/10.7.20-%20Robinhood%20SEC%20and%20FINRA%20investigations.docx#_ftn1" name="_ftnref1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a>.
Both regulators cite two central concerns regarding Robinhood. The first relates
to Robinhood’s practice of selling client orders to high-speed trading firms
such as Citadel Securities and Two Sigma Securities<a href="file:///C:/Users/Office%20Manager/Downloads/10.7.20-%20Robinhood%20SEC%20and%20FINRA%20investigations.docx#_ftn2" name="_ftnref2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></span></a>. The second relates to
trading outages that occurred on Robinhood’s platform in March of 2020, the
longest of which lasted 17 hours<a href="file:///C:/Users/Office%20Manager/Downloads/10.7.20-%20Robinhood%20SEC%20and%20FINRA%20investigations.docx#_ftn3" name="_ftnref3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[3]</span></span><!--[endif]--></span></span></a>. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%;">The SEC and FINRA investigations regarding Robinhood’s
practice of selling client orders to third parties mainly focuses on
disclosures. Robinhood did not have public disclosures regarding its
third-party relations until 2018. This
practice is one of Robinhood’s primary sources of income<a href="file:///C:/Users/Office%20Manager/Downloads/10.7.20-%20Robinhood%20SEC%20and%20FINRA%20investigations.docx#_ftn4" name="_ftnref4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[4]</span></span><!--[endif]--></span></span></a>. (Nearly 70% of Robinhood’s
income comes from high-speed trading.) The SEC investigation aims to determine
whether the lack of disclosure by Robinhood could be considered Civil Fraud<a href="file:///C:/Users/Office%20Manager/Downloads/10.7.20-%20Robinhood%20SEC%20and%20FINRA%20investigations.docx#_ftn5" name="_ftnref5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[5]</span></span><!--[endif]--></span></span></a>. If determined that
Robinhood’s actions were Civil Fraud, Robinhood may face an SEC fine upwards to
10 Million Dollars. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%;">The SEC and FINRA are also reviewing trading outages
within Robinhood’s platform. Robinhood’s defense to the investigation regarding
the March outages includes the discussion of extreme volume increases.
Robinhood claims that in March, high market volatility and a record number of
new accounts generated stress on the brokerage application’s infrastructure<a href="file:///C:/Users/Office%20Manager/Downloads/10.7.20-%20Robinhood%20SEC%20and%20FINRA%20investigations.docx#_ftn6" name="_ftnref6" style="mso-footnote-id: ftn6;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[6]</span></span><!--[endif]--></span></span></a>. The unusually high demand
for trading in March short-circuited Robinhood’s platform, causing the outage.
More than 400 complaints against Robinhood were filed in this year’s first
quarter, possibly sparking SEC and
FINRA interest. Yet the trading outages have not been resolved. A similar event
occurred in late August after stock splits from Apple and Tesla generated an
increased demand for trading. This resulted in service outages not only at
Robinhood but other brokerages such as Vanguard, Charles Schwab, TD Ameritrade,
and Merrill Lynch<a href="file:///C:/Users/Office%20Manager/Downloads/10.7.20-%20Robinhood%20SEC%20and%20FINRA%20investigations.docx#_ftn7" name="_ftnref7" style="mso-footnote-id: ftn7;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[7]</span></span><!--[endif]--></span></span></a>.
In June, Robinhood reported an astonishing 4.32 million new accounts. The app
continues to gain users, which puts it in a position for review by regulatory
agencies.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%;">The investigations into the outages also sparks an
important question--Is technological failure result responsibility of
brokerages when the failure resulted in possible investor losses? This question
becomes more complex regarding technical issues that relate to an increase in
user demand generating outages. Brokerages may not be able to reasonably
foresee these issues. Robinhood is also a new company, established in 2013, and
follows a business model different from most large brokerages. Since
Robinhood’s platform does not use financial advisors, how much responsibility
does the brokerage have when it comes to the service it provides to the client?
More investment applications similar to Robinhood are popping up, and regulators
are working on ways to better regulate this new trend. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 107%;"><o:p> </o:p></span></p>
<p class="MsoNormal"><o:p> </o:p></p>
<div style="mso-element: footnote-list;"><!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/10.7.20-%20Robinhood%20SEC%20and%20FINRA%20investigations.docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a> Brasseur,
K. (2020, September 01). Robinhood adds two CCOs amid reported SEC probe.
Retrieved October 07, 2020, from
https://www.complianceweek.com/grapevine/robinhood-adds-two-ccos-amid-reported-sec-probe/29391.article<o:p></o:p></p>
</div>
<div id="ftn2" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/10.7.20-%20Robinhood%20SEC%20and%20FINRA%20investigations.docx#_ftnref2" name="_ftn2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></span></a> Smith,
K. (2020, September 03). Robinhood Facing Multiple SEC Investigations Into Its
Business Practices. Retrieved October 07, 2020, from https://www.forbes.com/sites/advisor/2020/09/03/robinhood-investigation-sec-finra/<o:p></o:p></p>
</div>
<div id="ftn3" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/10.7.20-%20Robinhood%20SEC%20and%20FINRA%20investigations.docx#_ftnref3" name="_ftn3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[3]</span></span><!--[endif]--></span></span></a>Robinson,
M., Alexander, S., & Massa, A. (2020, September 03). Robinhood Probed by
SEC Over Payments From High-Speed Traders. Retrieved October 07, 2020, from
https://www.bloomberg.com/news/articles/2020-09-03/robinhood-probed-by-sec-over-payments-from-high-speed-traders
<o:p></o:p></p>
</div>
<div id="ftn4" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/10.7.20-%20Robinhood%20SEC%20and%20FINRA%20investigations.docx#_ftnref4" name="_ftn4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[4]</span></span><!--[endif]--></span></span></a> Gunderia,
E. (2020, September 03). Robinhood Under SEC Investigation. Retrieved October
07, 2020, from https://www.thestreet.com/streetlightning/stock-picks/secinvestigaton-robinhood-paymentforoderflow<o:p></o:p></p>
</div>
<div id="ftn5" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/10.7.20-%20Robinhood%20SEC%20and%20FINRA%20investigations.docx#_ftnref5" name="_ftn5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[5]</span></span><!--[endif]--></span></span></a> Gaus,
A. (2020, September 02). Robinhood Faces SEC Fraud Investigation: Report.
Retrieved October 07, 2020, from
https://www.thestreet.com/investing/robinhood-faces-sec-fraud-investigation-report<o:p></o:p></p>
</div>
<div id="ftn6" style="mso-element: footnote;">
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C. (2020, September 03). Robinhood Faces Investigations from SEC and FINRA -
Tech. Retrieved October 07, 2020, from
https://lawstreetmedia.com/tech/robinhood-faces-investigations-from-sec-and-finra/<o:p></o:p></p>
</div>
<div id="ftn7" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/10.7.20-%20Robinhood%20SEC%20and%20FINRA%20investigations.docx#_ftnref7" name="_ftn7" style="mso-footnote-id: ftn7;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[7]</span></span><!--[endif]--></span></span></a> Ongweso,
E., Jr. (2020, August 31). Tesla and Apple Stock Split, Investors Crash
Robinhood, Nothing Makes Sense. Retrieved October 07, 2020, from
https://www.vice.com/en/article/3azeeb/tesla-and-apple-stock-split-investors-crash-robinhood-nothing-makes-sense<o:p></o:p></p>
</div>
</div>Sheila R. Carrollhttp://www.blogger.com/profile/01387299078586822726noreply@blogger.com0tag:blogger.com,1999:blog-1945611301602507295.post-40380361923796814572020-09-28T15:26:00.002-05:002020-10-12T14:09:06.331-05:00SEC Amends Whistleblower Award Rules<p><i style="background-color: white; color: #222222; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13.2px;">Author</i><span style="background-color: white; color: #222222; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13.2px;">: </span><a href="https://www.cosgrovelawllc.com/juliana-ness.html" style="background-color: white; color: #4a91bd; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13.2px; text-decoration-line: none;" target="_blank">Juliana M. Ness</a><span style="background-color: white; color: #222222; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13.2px;">, Cosgrove Law Group, LLC</span></p><p>On Wednesday, September 23, 2020, the <a href="https://www.sec.gov/" target="_blank">Securities and Exchange Commission</a> (the “SEC”) amended rules within their Whistleblower
program. Their primary motivations behind these new amendments are to increase
efficiency, transparency, and provide greater clarity within their decade-old
program <a href="file:///C:/Users/Office%20Manager/Downloads/9.25.20-%20SEC%20Amends%20Whistleblower%20Award%20Rules%20(JMN).docx#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 11pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span></span></a>.
Since the inception of the program, The SEC has awarded nearly $523 million to
whistleblowers. These new changes directly affect award amounts, establishing new
criteria for whistleblower payouts, along with definitions to clarify the
program’s award process.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">The passed amendments assert the SEC’s authority in
determining award amounts for whistleblowers<a href="file:///C:/Users/Office%20Manager/Downloads/9.25.20-%20SEC%20Amends%20Whistleblower%20Award%20Rules%20(JMN).docx#_ftn2" name="_ftnref2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 11pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></span></a>.<span style="mso-spacerun: yes;"> </span>An action defined within the Dodd-Frank Wall
Street Reform and Consumer Protection Act (The Dodd-Frank Act) specifies that
the SEC should determine an award amount that lies within 10-30 percent of
monetary sanctions collected<a href="file:///C:/Users/Office%20Manager/Downloads/9.25.20-%20SEC%20Amends%20Whistleblower%20Award%20Rules%20(JMN).docx#_ftn3" name="_ftnref3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 11pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[3]</span></span><!--[endif]--></span></span></a>.
Since the development of the whistleblower program, the SEC has used this rule.
A proposed amendment in July of 2018 would have codified the SEC’s role in
determining award amounts (including downward adjustments<span class="MsoFootnoteReference">1</span>) within the Whistleblower program itself<span class="MsoFootnoteReference">2</span>. The SEC scrapped that proposal, claiming
that the stipulation is not necessary to add. Similarly, another proposal
enumerated in June of 2018<span class="MsoFootnoteReference">3</span> advocated
for caps on awards. The SEC also rejected this proposal due to controversy over
the idea of award caps. Critics of the proposal argued that caps would
disincentivize individuals from blowing the whistle on critical
violations.<span style="mso-spacerun: yes;"> </span><o:p></o:p></p>
<p class="MsoNormal">One of the amendments passed adds a presumption that
whistleblowers who qualify for awards below $5 Million will receive the maximum
statutory award amount. (30% of Monterey sanctions)<span class="MsoFootnoteReference">2</span> This amendment to rule 21F-6(b) aims at
creating more of an incentive for whistleblowers that would otherwise receive a
lower award amount. Other awards over $5 million will remain under the
determination of the SEC’s award criteria within Rule 21F-6. The enumerated
criteria include both positives and negatives that affect award amounts.
Examples of these criteria include but are not limited to the significance of
the tip, the extent of assistance, delay in reporting, and integrity with
compliance systems.<span style="mso-spacerun: yes;"> </span><o:p></o:p></p>
<p class="MsoNormal">The SEC also voted to clarify definitions of key terms
within the rules. Rule 21F-2 modifications were aimed at establishing a uniform
definition of “Whistleblower” in response to a 2018 Supreme Court decision.<span class="MsoFootnoteReference">1</span>,<a href="file:///C:/Users/Office%20Manager/Downloads/9.25.20-%20SEC%20Amends%20Whistleblower%20Award%20Rules%20(JMN).docx#_ftn4" name="_ftnref4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 11pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[4]</span></span><!--[endif]--></span></span></a>These
changes impact retaliation policies. Likewise, the SEC narrowed the scope of
“related actions” concerning whistleblower awards<span class="MsoFootnoteReference">1</span>. The changes within rule 21F-3 state that
any whistleblowers that pass on original information to another enforcement
agency may also receive a reward for the SEC if that information led to the
recovery of over 1 million in monetary sanctions<span class="MsoFootnoteReference">3</span>. The agencies included are the Attorney
General of the United States, an appropriate regulatory authority, a
self-regulatory organization, or a state attorney general in a criminal case<span class="MsoFootnoteReference">3</span>. This rule does not apply in cases where a
sperate whistleblower award from another enforcement agency is more
appropriate.<span style="mso-spacerun: yes;"> </span>In short, the definition
specifies that a whistleblower cannot obtain two separate awards for the same
information and reports. </p>
<p class="MsoNormal">The amendments take effect 30 days after publication in the
Federal Register.<o:p></o:p></p>
<div style="mso-element: footnote-list;"><br /></div><div style="mso-element: footnote-list;"><!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/9.25.20-%20SEC%20Amends%20Whistleblower%20Award%20Rules%20(JMN).docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a> Securities
and Exchange Commission. (2020, September 23). Press Release. Retrieved
September 25, 2020, from <a href="https://www.sec.gov/news/press-release/2020-219">https://www.sec.gov/news/press-release/2020-219</a><o:p></o:p></p>
</div>
<div id="ftn2" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/9.25.20-%20SEC%20Amends%20Whistleblower%20Award%20Rules%20(JMN).docx#_ftnref2" name="_ftn2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></span></a> Barbarino,
A. (2020, September 23). SEC Rule Asserts Authority To Adjust Whistleblower
Awards. Retrieved September 25, 2020, from
<a href="https://www.law360.com/assetmanagement/articles/1312156/sec-rule-asserts-authority-to-adjust-whistleblower-awards">https://www.law360.com/assetmanagement/articles/1312156/sec-rule-asserts-authority-to-adjust-whistleblower-awards</a><o:p></o:p></p>
</div>
<div id="ftn3" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/9.25.20-%20SEC%20Amends%20Whistleblower%20Award%20Rules%20(JMN).docx#_ftnref3" name="_ftn3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[3]</span></span><!--[endif]--></span></span></a> Zuckerman,
J., Stock, M., & Krems, K. (2020, September 24). SEC Adopts Amendments to
Whistleblower Rules that Will Strengthen Some Aspects of the Program But Also
Reduce Large Awards and Limit Protection Against Retaliation. Retrieved
September 25, 2020, from
<a href="https://www.natlawreview.com/article/sec-adopts-amendments-to-whistleblower-rules-will-strengthen-some-aspects-program">https://www.natlawreview.com/article/sec-adopts-amendments-to-whistleblower-rules-will-strengthen-some-aspects-program</a><o:p></o:p></p>
</div>
<div id="ftn4" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/Office%20Manager/Downloads/9.25.20-%20SEC%20Amends%20Whistleblower%20Award%20Rules%20(JMN).docx#_ftnref4" name="_ftn4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[4]</span></span><!--[endif]--></span></span></a> Wilson,
S., & Achilles, J. (2018, March 3). Four key takeaways from the Supreme
Court's decision in Digital Realty Trust, Inc. v. Somers, 138 U.S. 767 (2018):
Perspectives: Reed Smith LLP. Retrieved September 25, 2020, from
<a href="https://www.reedsmith.com/en/perspectives/2018/03/four-takeaways-from-supreme-court-in-digital-realty-trust-inc-v-somers">https://www.reedsmith.com/en/perspectives/2018/03/four-takeaways-from-supreme-court-in-digital-realty-trust-inc-v-somers</a><o:p></o:p></p>
<p class="MsoFootnoteText"><o:p> </o:p></p>
</div>
</div>Sheila R. Carrollhttp://www.blogger.com/profile/01387299078586822726noreply@blogger.com0