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Will a broker-dealer be liable when a financial advisor employed by the firm solicits investments as part of a fraudulent scheme, where the firm specifically prohibited the advisor from soliciting the investment, the fraudulent investment was made away from the firm, and the investors never became customers of the firm?  The Eleventh Circuit recently answered that question with a resounding “maybe,” and clarified that the employer could be liable in negligence if it knew or…
The FINRA Dispute Resolution Task Force issued its final report last week, making certain recommendations designed to improve the arbitration process. More notably, however, the Task Force reported that it was unable to reach agreement on a number of more controversial issues, reflecting deep divisions among practitioners in this area.…
The SEC recently approved FINRA’s proposed new rule changes to the definitions of public arbitrator (FINRA Rules 12100(u) and 13100(u)) and non-public arbitrator (FINRA Rules 12100(p) and 13100(p)), after receiving over 300 comment letters in addition to two letters from FINRA responding to the comment letters.  The new rule significantly limits the pool of potential public arbitrators by, chiefly, permanently disqualifying any person who worked in the financial industry from being a public arbitrator.  FINRA…
On January 13, 2015, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) announced its 2015 examination priorities for investment advisers, broker-dealers and transfer agents.  These priorities emphasize the importance of transparency and seek to identify, through enhancements in technology, potential illegal activity by focusing on the following key areas. Protecting Retail Investors and Investors Saving for Retirement OCIE noted that retail investors are more dependent than ever on their own investments for retirement and…
Recently, the SEC approved FINRA’s proposed new Rule 3110(e) relating to background investigations of registered persons.  FINRA Rule 3110(e), which replaces NASD Rule 3010(e) and goes into effect on July 1, 2015, streamlines and clarifies the rule language by providing that “each member shall ascertain by investigation the good character, business reputation, qualifications and experience of an applicant before the member applies to register that applicant with FINRA and before making a representation to that…
At the recent Columbia Law School Conference, “Hot Topics: Leading Current Issues in Securities Regulation and Enforcement,” SEC Commissioner Kara M. Stein’s keynote address focused on a number of transparency and disclosure issues regarding municipal securities, private equity and exchange traded funds. Municipal Securities Commissioner Stein highlighted the importance of municipal finance to the growth of the nation and noted that ordinary investors now own over 70 percent of the municipal securities market, either directly…
Like Prince Charming searching for the foot that fit the glass slipper, Justice Scalia recently issued a statement advising that he and Justice Thomas would be receptive to granting certiorari to a petition properly presenting the issue of whether, in a criminal context, a court should grant deference to an administrative agency’s statutory interpretation.  And, like the townspeople who lined up to offer their own feet for consideration, lawyers across the country undoubtedly will offer…
In the recent decision, Goldman Sachs & Co. v. Golden Empire Sch. Fin. Auth., 764 F.3d 210 (2d Cir. 2014), the Second Circuit held that nearly-identical forum selection clauses in broker-dealer agreements between the broker-dealers/underwriters of auction rate securities (“ARS”) and the public financing authorities who issued the ARS superseded the Financial Industry Regulatory Authority, Inc. (“FINRA”) rule mandating arbitration between a customer and member.  In so holding, the Second Circuit potentially has opened an…
During discovery in an SEC administrative and cease-and-desist proceeding instituted in December 2012 (pursuant to Sections 9(b) and 9(f) of the Investment Company Act of 1940)[1] the SEC Division of Enforcement (DOE) inadvertently produced 11 privileged e-mails to the respondents.  This is noteworthy because the production included an e-mail forwarding a whistleblower complaint from the SEC Tips, Complaints, and Referrals (TCR) system.…
In yet another large recovery for the DOJ, on December 6, 2012, DFB Pharmaceuticals, and its subsidiary, Healthpoint Ltd., agreed as part of a settlement to pay up to $48 million to resolve allegations that Healthpoint caused false claims to be submitted to Medicare and Medicaid for an unapproved drug, Xenaderm.  This settlement resulted from allegations against Healthpoint in a multi-defendant whistleblower action brought under the qui tam, or whistleblower, provisions of the False Claims…