Tuesday, October 19, 2021

Conflict Management for Terminated Financial Advisors

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[1] 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 independent 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. Our firm 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.


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[1] 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. (https://www.littler.com/publication-press/publication/form-u5-defamation-claims-rise-finra-be-prepared)

Thursday, October 14, 2021

The SEC Chair sets the Agency’s sights on Cryptocurrencies

 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. 

The SEC and its state counterparts presently apply the Howey[1]/Forman[2] 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 Cosgrove Law Group.

Author: Brian St. James


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[1] S.E.C. v. W.J. Howey Co., 328 U.S. 293, 66 S. Ct. 1100, 90 L.Ed. 1244 (1946) and 293,

[2] United Housing Foundation, Inc. v. Forman, 421U.S. 837, 95 S. Ct. 2051, 44 L. Ed. 2d 621 (1975)