Periodically each year, FINRA publishes statistics on the types of arbitration claims that have been filed, adjudicated or otherwise resolved; the products at issue; and the legal theories most commonly asserted. Those statistics help identify where scrutiny is developing, areas for potential prophylactic measures, and how firms and advisors should respond when a complaint or claim arises. Through September, FINRA reported 2,010 arbitration filings, up 7% year over year. Customer cases increased 16% to 1,394; intra-industry filings fell 9% to 616, while FINRA closed 1,938 cases. Market volatility may be partially to blame for the uptick: when the tide goes out, you find out who has been swimming naked. The increase in customer filings gives firms reason to examine how they assess complaints before a statement of claim arrives. A well-supported response begins with an understanding of the account(s) and recommendation(s) at issue, as well as the customer’s actual losses. Counsel should test the claimant’s account against contemporaneous records before adopting the investor client’s narrative. That work also helps distinguish a claim warranting an early business resolution from one that should be defended, potentially through final hearings. Common stock led product categories with 334 customer cases, followed by private equities (152), options (113), mutual funds (110) and REITs (101). Private equities rose from 88 a year earlier. Structured products reached 65, while cryptocurrency, a growing product, reached 44 cases. Private investment disputes call for particular attention to the record of due diligence and the basis for the recommendation. Subscription documents matter, but the defense should also explain what the representative understood about the investment and why it fit the customer’s circumstances when recommended. Where liquidity or valuation becomes contentious, counsel should reconstruct what was known at the time and distinguish that evidence from hindsight. The same applies to more familiar…

Artificial intelligence is rapidly changing how attorneys research legal issues, draft documents, review evidence, and communicate with clients. Used properly, it can reduce time and expense. Used carelessly, it can invent legal authorities, produce incorrect advice or expose confidential client information. California has now made it clear that lawyers, not their software, are responsible for the results. On September 30, 2026, Governor Gavin Newsom signed Senate Bill 574 (SB 574), Chapter 858 of the Statutes of 2026. Effective January 1, 2027, the law establishes express statutory duties for California lawyers using generative artificial intelligence (AI), revises rules governing court filings, and restricts arbitrators’ reliance on AI. It permits the responsible use of AI; it does not permit lawyers to outsource their judgment. [1] A Lawyer Cannot Delegate the Practice of Law to AI New Business and Professions Code section 6068.1 states that an attorney may not delegate the practice of law to generative AI. That does not prohibit a lawyer from using AI to organize records, generate a draft, identify research questions or summarize testimony. It means the attorney must make the legal decisions, evaluate the evidence and take professional responsibility for advice and work product. The statute expressly preserves existing duties of competence and diligence. [1] For clients, that distinction is critical. An AI-generated contract provision or litigation strategy may look persuasive but it could overlook a controlling statute, a contractual exception or a material fact. The lawyer must determine whether it is actually correct and appropriate for the client’s objectives. Client Confidentiality: A New Statutory Safeguard Section 6068.1 restricts an attorney from entering confidential, personally identifying or other nonpublic information into an AI system unless access to that information is limited to the attorney and persons authorized by the attorney who are obligated to protect its confidentiality. The…

Since Bitcoin emerged in 2008, crypto assets have developed from an experimental payment technology into a significant market encompassing cryptocurrencies, stablecoins, tokenized securities, and other blockchain-based assets. Investor interest has expanded accordingly, including among private funds, registered investment companies, and clients of registered investment advisers.[1] The Securities and Exchange Commission’s (“SEC”) proposing materials recognize both Bitcoin’s 2008 origins and the substantial subsequent growth in investor demand. The regulatory framework has not developed at the same pace. Federal oversight has been divided among agencies applying statutes and regulations that generally predate blockchain technology. The SEC has concentrated on the federal securities laws, while the Commodity Futures Trading Commission, federal banking regulators, the Treasury Department, and state authorities have addressed commodities, banking, anti-money-laundering, and consumer-protection issues. Although these efforts produced enforcement actions and agency guidance, they did not establish a comprehensive custody framework for registered advisers and fund managers. Advisers have faced uncertainty over whether particular crypto assets are securities, whether institutions holding them qualify as permitted custodians, and whether control of cryptographic private keys constitutes custody under rules designed primarily for cash and traditional securities.[2] Why Crypto Custody Has Been Difficult The existing investment-adviser custody rule generally requires a registered adviser with custody of client funds or securities to maintain those assets with a qualified custodian, subject to certain exceptions. Qualified custodians ordinarily include banks, registered broker-dealers, registered futures commission merchants, and certain foreign financial institutions.[3] Crypto assets do not always fit comfortably within this structure. Control may depend on access to a private key rather than possession of a certificate or an entry on a traditional financial institution’s records. A lost or compromised key may result in permanent loss, while blockchain transactions may be difficult or impossible to reverse. There is also a practical shortage of eligible custodians for certain…

Your contract says you must give 30, 60, or 90 days’ notice before leaving your brokerage firm or registered investment adviser. The firm may also reserve the right to remove you from the office, cut off client contact and prevent you from starting at a competitor during that period. Can your employer enforce those restrictions in California? There is no categorical California rule making “garden leave” (as in, “go sit in the garden and wait out the time while we pay you and ravage your client list”) enforceable simply because the firm continues paying you. An ordinary notice obligation raises different issues from a clause that effectively keeps you out of your profession or prevents you from competing for clients after departure. The important questions are what the agreement requires, whether employment actually continues and what the firm seeks to enforce. For a financial advisor, these distinctions have immediate consequences. A month without client contact can affect relationships built over many years. Before agreeing to remain on garden leave—or assuming you can disregard the clause—you need to understand the contract and plan the transition. What “garden leave” means Garden leave generally describes a period after an employee gives notice but before employment ends. The employee remains employed and paid while the firm relieves the employee of duties, limits access to its systems or directs the employee to stay away from the office. Agreements may prohibit competitive work or client communications during that period. A mandatory notice clause can operate differently. It may simply require advance written notice while the advisor continues working. Or it may allow the firm to place the advisor on garden leave once notice is received. Some agreements combine notice, garden leave and restrictions that continue after employment ends. These terms should be read separately. A requirement…

California recently enacted two new statutes—section 16608 of the California Business and Professions Code and section 926 of the California Labor Code—targeting “stay-or-pay” contract terms requiring workers to pay money if they leave their employers. Under these new laws, for contracts entered into on or after January 1, 2027, it is unlawful to include such a term in any employment contract, or to require a worker to sign a contract containing one as a condition of employment or a work relationship. Subject to certain limitations, they prohibit any term that (1) requires the worker to pay an employer, training provider, or debt collector for a debt if the worker’s employment or work relationship with a specific employer terminates; (2) authorizes the employer, training provider, or debt collector to resume or start collecting a debt, or to end forbearance on it, upon that termination; or (3) imposes any penalty, fee, or cost on the worker upon that termination. Section 16608’s definitions are broad. “Debt” includes money, personal property, or any equivalent that is due or owing, or alleged to be due or owing, from a natural person. It expressly includes employment-related costs, education-related costs, and consumer financial products or services, “regardless of whether the debt is certain, contingent, or incurred voluntarily.” “Penalty, fee, or cost” includes, without limitation, replacement hire fees, retraining fees, quit fees, reimbursement for immigration or visa-related costs, liquidated damages, lost goodwill, and lost profit. “Employer” reaches parent companies, subsidiaries, divisions, affiliates, contractors, hiring parties, and third-party agents. “Worker” includes employees and prospective employees, as well as anyone permitted to work for an employer or to participate in another work relationship or training program. A contract that violates section 16608 is considered a restraint on engaging in a lawful profession, trade, or business and is therefore void under…

After a year of leadership turnover and public uncertainty about the direction of the SEC’s enforcement program, the Division of Enforcement has a new director, a new specialized unit, and a clearly defined enforcement agenda. For broker-dealers, registered representatives, registered investment advisers and other financial professionals, SEC enforcement leadership has articulated a consistent set of priorities: the Division intends to concentrate its resources on fraud, misappropriation, and investor harm rather than emphasizing case volume and aggregate penalties as measures of enforcement activity. Understanding what this shift looks like in practice is important for any financial professional who may face an SEC investigation, examination referral, or enforcement action. New Leadership: David Woodcock Takes Over the Division of Enforcement On April 8, 2026, the SEC announced[1] the appointment of David Woodcock as Director of the Division of Enforcement, effective May 4, 2026. Woodcock is a veteran of the securities enforcement bar. He previously served as Regional Director of the SEC’s Fort Worth Regional Office, where he oversaw investigations across nearly every major area of the enforcement program. He also created and chaired the SEC’s Financial Reporting and Audit Task Force, a cross-divisional initiative designed to improve detection and prosecution of accounting and financial statement fraud. Woodcock’s appointment followed a period of instability. His predecessor, Judge Margaret Ryan, resigned in March 2026 after approximately six months in the role. Acting Director Sam Waldon led the Division in the interim. Woodcock brings experience from both the government and private-practice sides of SEC enforcement proceedings. Before returning to the SEC, Woodcock was a partner at Gibson, Dunn & Crutcher LLP, where he chaired the firm’s Securities Enforcement Practice Group and focused on regulatory enforcement, internal investigations and corporate governance. He also served as a senior in-house attorney at Exxon Mobil Corporation and has taught securities…

Even the most carefully planned advisor transition presents risk. The former firm may seek emergency relief in court within days of the resignation, while the parties litigate liability, damages, and permanent relief in FINRA arbitration. The merits usually turn on a practical question: did the advisor or recruiting firm take, disclose, or use specifically identified information that qualifies as a trade secret? California law protects a firm's genuine trade secrets, but it also strongly protects lawful competition and employee mobility. A former firm cannot convert ordinary industry knowledge, public information, or an overbroad confidentiality clause into a noncompete. Departing advisors and recruiting firms therefore need a transition plan that respects both rules from the outset. What Counts as a Trade Secret The California Uniform Trade Secrets Act defines a trade secret as information that derives actual or potential independent economic value from not being generally known to persons who can obtain value from its disclosure or use, and that is subject to reasonable efforts to maintain its secrecy.[1] The federal Defend Trade Secrets Act enumerates substantially the same requirements.[2] A claimant must prove both value from secrecy and reasonable protection; confidentiality labels alone do not suffice. A financial-services client file can contain much more than names and telephone numbers. It may include holdings, net worth, liquidity needs, investment objectives, risk tolerance, tax concerns, family circumstances, pricing, product preferences, and anticipated transactions. A competitor with that information can identify receptive clients and tailor its approach without undertaking the time and expense required to develop the information independently. California courts have protected customer compilations that combine nonpublic commercial information with evidence of substantial development efforts and meaningful secrecy controls.[3] A list of names available from public sources presents a different case. When potential customers are readily identifiable or already known to the…

The U.S. Securities and Exchange Commission has proposed “Regulation Crypto Assets,” a new framework intended to make federal securities rules work more effectively for certain crypto-related offerings.¹ The proposal focuses on certain crypto-related investment contracts, which it calls “covered investment contracts.” Put simply, the term may apply when purchasers fund a crypto project and depend on its developers or managers to do significant work that could influence the value or usefulness of the crypto asset. Why Existing Securities Rules May Not Fit Crypto Well Many federal securities requirements were developed before Bitcoin and blockchain-based networks became widely used. Applying traditional offering rules to this type of project can create uncertainty about registration, disclosure, ongoing obligations, and later trading. According to the SEC, rules not designed for crypto may complicate transaction planning, slow capital formation, discourage innovation, and push some activity offshore.³ Regulation Crypto Assets attempts to strike a balance. It would make it easier for qualifying projects to raise money without completing a fully registered Securities Act offering, but it would still require investor disclosures and continued compliance with federal rules against fraud and market manipulation. Proposal Components Four features form the core of the proposal: two routes that could avoid Securities Act registration, a conditional investment contract safe harbor, and a “qualified purchaser” definition that would affect state registration and qualification requirements. The startup exemption would give early-stage crypto projects a temporary way to raise up to $5 million over as many as four years without registering the offering under the Securities Act. In exchange, the issuer would still need to make required public filings, give investors useful disclosures, and follow federal anti-fraud and anti-manipulation rules. The fundraising exemption would create a larger, two-tier path for crypto projects that need more capital. “Tier 1” would allow offerings up to…

Financial exploitation of older Americans is a growing problem, and the consequences can be devastating. A senior investor may spend decades building retirement savings only to lose a substantial portion of those assets in just weeks or months. The perpetrator may be a stranger running an investment scam, a caregiver, family member, new acquaintance, or even a trusted financial professional. Elder financial abuse can involve suspicious withdrawals, unauthorized transfers, investment fraud, or manipulation of a vulnerable investor. It could also involve a financial adviser ignoring an investor’s risk profile to “churn” their account to maximize the adviser’s own compensation. When money disappears from a brokerage account, an important question often follows: Could the brokerage firm have stopped it? The Financial Industry Regulatory Authority (“FINRA”) regulates U.S. broker-dealers and has established rules to help brokerage firms identify and respond to suspected financial exploitation. Those protections, and their limitations, can become important when determining whether the conduct of a broker, financial adviser, or brokerage firm warrants investigation. What Is Elder Financial Exploitation? FINRA Rule 2165 generally defines financial exploitation to include the wrongful or unauthorized taking or use of a protected person’s funds or securities. The definition also covers obtaining control of assets through deception, intimidation, or undue influence. The rule generally protects investors age 65 and older. It can also cover certain younger adults when a brokerage firm reasonably believes an impairment prevents the investor from adequately protecting their own interests. Warning signs of possible elder financial abuse may include: sudden or unusually large withdrawals; transfers to unfamiliar third parties; unexplained liquidation of long-held investments; abrupt changes in investment strategy; a new person trying to control communications with the financial adviser; an investor appearing confused about transactions; or transactions inconsistent with the investor’s financial circumstances or history. An unusual transaction does…

On July 24, 2026, Jay Lucas, the 71-year-old founder and managing partner of Lucas Brand Equity LLC, pleaded guilty in the U.S. District Court for the Southern District of New York to securities fraud, investment adviser fraud, wire fraud, and money laundering. According to the U.S. Attorney’s Office, Lucas admitted to orchestrating a years-long investment fraud scheme that raised more than $50 million from investors through false representations about how their money would be invested. Federal prosecutors said Lucas told investors their funds would be invested in early-stage health and wellness companies. Instead, according to the Department of Justice, he diverted much of the money to cover personal expenses, promote unrelated ventures, and make Ponzi-like payments to earlier investors. As part of his fundraising efforts, Lucas represented that the firm’s “core strategy is to invest in these small to mid-size emerging brands, provide value added services to differentiate them and catalyze growth to a sufficient scale for exit.” Prosecutors also said Lucas operated the firm alongside three private investment funds bearing his name and falsely claimed to have co-founded a well-known private equity firm—a claim that ultimately prompted counsel for the actual firm to send him a cease-and-desist demand. According to the Department of Justice, Lucas began misappropriating investor funds in 2017, using investor money to pay alimony, rent, costs related to a “vanity newspaper project” in his hometown, political consultants, and other personal expenses. The government’s case was further supported by internal communications in which Lucas’s own employees described his spending as “not spending on LBE,” “literally fraudulent,” and “a huge betrayal of investor trust and most likely illegal.” The Securities and Exchange Commission has filed a parallel civil enforcement action alleging that Lucas and Lucas Brand Equity defrauded hundreds of investors who invested more than $50 million in…

Shustak, Reynolds & Partners, P.C. secured a $650,000 settlement for a former NFL player client whose indexed universal life insurance investment had been wiped out when his policy lapsed for non-payment of premiums. Attorneys Erwin J. Shustak and Joseph M. Mellano handled the matter and obtained the full settlement in a matter of months, without filing suit. The result speaks to the value of a well-developed claim, pressed efficiently and strategically before a case is ever docketed. At the center of the dispute was an indexed universal life (“IUL”) insurance policy, a complex product that combines a death benefit with a cash value component whose returns are tied to the performance of external market indexes, such as the S&P 500, Nasdaq-100, and EURO STOXX 50. An IUL policy does not directly invest in stocks, bonds, or equities; instead, the insurer credits interest based on index movements, subject to insurer-adjusted caps and participation rates that limit the upside. These policies carry substantial risks and high costs, including cost-of-insurance charges and surrender charges that can erode cash value over time, and their performance is never guaranteed. Because they generate large upfront commissions, often 50-90% of the first premium, IUL products give agents strong incentives to market them over simpler, cheaper, and often more suitable alternatives. The firm’s client was sold the IUL policy as a straightforward, “set-it-and-forget-it” investment: he was told a one-time payment of $300,000 would grow to $11.5 million over 40 years while providing life insurance coverage. The policy, however,  required ongoing annual funding, and the insurer had structured it so that cash value returns were expected to cover the premiums—facts never disclosed to the client. When market performance fell short and the cash value could not carry the policy, it quietly lapsed for lack of funding, and the client’s…

Shustak Reynolds & Partners, P.C. recently secured a decisive arbitration victory on behalf of a firm client in a high-stakes dispute against his brother and two affiliated entities. The dispute centered on the respondents’ management and eventual divestiture of a large portfolio of non-performing mortgage loans, in which the firm’s client  held substantial fractional ownership interests acquired over more than a decade of investment. For our client, we asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty, contending respondents sold his loan interests without his knowledge or consent and, in certain instances, to entities secretly controlled by the individual Respondent. After Shustak Reynolds successfully petitioned the San Diego County Superior Court to compel arbitration, the matter proceeded to a three-day evidentiary hearing before a JAMS arbitrator in San Diego, California. Partner Paul Reynolds was hearing counsel throughout the arbitration, from the initial petition to compel arbitration through the multi-day evidentiary hearing and the extensive post-hearing motion practice that followed the arbitrator’s Interim Award. Mr. Reynolds built the case around a sophisticated theory distinguishing the contractual concept of loan “servicing” from the act of “selling” loan assets, supported by expert testimony on industry custom and practice, and he pressed this theory with the precision necessary to expose the respondents’ clandestine self-dealing scheme. Notably, the arbitrator specifically credited the reasonableness and efficiency of Shustak Reynolds’ case presentation, remarking  the matter was tried with the kind of careful preparation that made an otherwise complex, multi-claim dispute manageable within a compressed hearing schedule. The arbitrator’s Final Award reflects an outcome of significant magnitude and strategic success. The arbitrator found Respondents had breached their fiduciary duties to the firm’s client through a scheme of self-dealing, and awarded him $2,852,829.00 in compensatory damages,…

Shustak Reynolds & Partners, P.C. served as counsel to plaintiffs Neem International CV and ALJ Holdings, Ltd. in Neem International CV, et al. v. Vadim Shulman, et al., C.A. No. 2022-0187-LWW, a corporate governance and breach of fiduciary duty action decided by the Delaware Court of Chancery on December 31, 2025. The plaintiffs, two Series E-1 preferred stockholders of Pathway Genomics Corporation, a San Diego-based genetic testing company, brought direct and derivative claims against Vadim Shulman, a controlling stockholder and de facto director who seized control of the company's board and stripped Pathway of its assets to the detriment of its preferred stockholders. The litigation arose from Shulman's unauthorized extension of millions of dollars in convertible notes to the company, his direction that officers pledge substantially all of Pathway's assets as collateral without board approval, and his acquisition of those assets through a foreclosure sale in which he was the sole bidder. Partner Paul A. Reynolds led the plaintiffs' litigation strategy throughout this multi-year Delaware Chancery Court action, serving alongside Delaware co-counsel from Morris, Nichols, Arsht & Tunnell LLP and Wilks Law, LLC. The case proceeded through a five-day trial with sixteen fact and expert witnesses and a record of more than 500 joint exhibits and seventeen deposition transcripts, followed by post-trial briefing, oral argument, and supplemental submissions the Vice Chancellor requested on the authorization of the challenged notes and security agreements. Facing a threshold standing challenge arising from Pathway's void corporate status and thirteen counts spanning derivative and direct theories, Mr. Reynolds concentrated the trial presentation on the plaintiffs' direct claim for breach of their liquidation preference rights, a strategic focus that proved decisive once the derivative counts fell away, and he overcame defenses invoking board independence and the commercial reasonableness of the foreclosure process to secure a finding…

In a typical private credit transaction, a non-bank lender (often a specialized fund managed by an investment adviser) provides financing directly to a borrower, usually a middle-market company that may not have ready access to public bond markets or traditional bank loans. The borrower receives capital, and the lender (or the fund's investors) earns returns primarily through interest payments, origination fees, and other negotiated terms.

The Securities and Exchange Commission (“SEC”) has begun reshaping its regulatory agenda for 2026 with several initiatives that could significantly affect investment advisers, broker-dealers, private fund advisers, and other participants in the financial services industry. While the Commission has signaled an interest in reducing unnecessary regulatory burdens in certain areas, it also continues to pursue enhanced transparency and reporting where it believes additional oversight is warranted.

For nearly a decade, the Supreme Court has steadily reshaped the Securities and Exchange Commission's authority to seek disgorgement. Beginning with Kokesh v. SEC, 581 U.S. 455 (2017) and continuing through Liu v. SEC, 591 U.S. 71 (2020), the Court imposed meaningful limits on a remedy that had become a central feature of SEC enforcement. Many expected the Court to continue narrowing disgorgement in Sripetch v. SEC, 608 U.S. ___, No. 25-466, slip op. at 13 (June 4, 2026). Instead, the Court unanimously preserved one of the SEC's most important enforcement tools.

Financial exploitation of older Americans has become one of the most serious investor-protection problems in the United States. Criminals increasingly target retirement accounts, brokerage accounts, mutual fund holdings, bank accounts, annuities, trust assets, and other accumulated savings using fraud, coercion, social engineering, impersonation, artificial intelligence, romance scams, cryptocurrency schemes, and abuse of positions of trust.

You open your mailbox and find an envelope from the Securities and Exchange Commission. Inside is a subpoena directing you to appear for sworn testimony. Your heart races. What does this mean? Are you in trouble? What should you do next? If you are an individual investor, a financial advisor, or any financial professional who has received a notice from the SEC, you are not alone. SEC investigations touch thousands of people each year, including many who are witnesses rather than targets. This blog post explains what to expect during an SEC on-the-record testimony or deposition and offers practical tips to help you prepare for your appearance.

The FINRA arbitration forum remains the primary venue for resolving disputes between investors and the broker-dealers and investment advisers who serve them. Over the past twelve months, the forum has produced several landmark awards that captured the attention of the financial services industry, while simultaneously launching the most comprehensive review of its arbitration rules in decades. For broker-dealers and investment advisers navigating this environment, understanding the current state of play is essential to managing risk, evaluating litigation exposure, and preparing for a regulatory landscape that may look markedly different by the end of 2027.

The International Chamber of Commerce (ICC) remains the world's leading institution for the administration of international commercial arbitrations. On June 1, 2026, the ICC's revised Arbitration Rules took effect. While many of the revisions codify practices that had already developed in ICC proceedings, several changes are significant and will affect the strategy, cost, and efficiency of future arbitrations.