Expensive changes are coming to FINRA’s expungement request. Under revised, proposed rules submitted by FINRA, expungements requests soon will be more limited, and will be more expensive in light of a revised fee schedule FINRA recently submitted for approval by the SEC. Changes to FINRA expungement rules have been expected for more than two years since FINRA first proposed them. [...]

UBS Financial Services is reportedly facing an onslaught of filed and threatened investor claims after its Yield Enhancement Strategy (“YES”) options portfolio plummeted. The YES strategy was marketed and sold primarily to wealthy investors as a bond portfolio “enhancement.” The strategy purportedly incorporated a “defined maximum loss,” limited to the premiums investors paid. [...]

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, injecting more than $2 trillion in emergency stimulus funds into the economy. The initial bill included approximately $350 billion in loan money to be distributed to businesses through the Paycheck Protection Program (PPP). The overwhelming demand for these emergency PPP loans, which can be forgiven under certain circumstances, prompted Congress to release an additional $310 billion in loan funds in late April. With the economy grinding to a halt and wild market volatility, many small to medium-sized RIA firms were eligible for and received a portion of the $670 billion in outstanding PPP loans. Do these loans constitute a “material fact” that must be disclosed via the Form ADV? [...]

On June 5, 2019, the SEC adopted a new rule under the Securities and Exchange Act of 1934, which requires broker-dealers and their representatives to act solely in the “best interest” of their retail clients when making investment recommendations. Among other things, “Regulation Best Interest”–or “Reg BI”–imposes new conflict-of-interest rules and requires broker-dealers to establish, maintain, and enforce policies reasonably designed to identify, and fully and fairly disclose, any such conflicts to investors. [...]

Although COVID-19 has upended many aspects of American life and our economy, the SEC advises that the novel coronavirus will not delay implementation of Reg BI. On June 5, 2019, the SEC adopted a new rule under the Securities and Exchange Act of 1934, which requires that broker-dealers and their representatives act solely in the “best interest” of their retail clients when making investment recommendations. [...]

FINRA rule 2010 is a sweeping provision that mandates brokers and licensed persons subject to FINRA’s jurisdiction maintain “high standards of commercial honor”. One of the most common violations of that rule, which are aggressively pursued by both employing firms and FINRA, is the prohibition against modifying, completing or altering, in any way, a signed client account document or other form. A recent case illustrates the risk to licensed persons who modify, complete or alter those forms and documents- even if they do so at the client’s request or for the client’s benefit and particularly during the coronavirus pandemic. [...]

The past several weeks (which have felt like years) have turned the financial industry on its head. The market has seen unprecedented declines, followed by unprecedented increases as Congress shored up a $2 Trillion–with a T–economic bailout package. That staggering figure represents approximately 10% of the entire country’s annual gross domestic production. Just one of many unprecedented steps the government, and society, have taken to curb the damage caused by the virus. [...]

In February 2020, the Securities and Exchange Commission (SEC) issued an alert, cautioning investors to be wary of scams tied to the Coronavirus pandemic. It is common for fraudsters to use the latest news developments to lure investors into scams. Nothing has been more prevalent on the news over the past several weeks than Coronavirus/Covid-19. [...]

On March 25th, Murphy’s law took full effect when Morgan Stanley’s order entry and order status systems ground to halt, blocking financial advisors and clients from viewing account information and entering trades. The firm later reported that “multiple applications are experiencing latency or may be unstable.” Some clients reported problems accessing their accounts online; others reported seeing incorrect account values and balances. [...]

This is a reminder to registered investment advisers about the requirements surrounding your Form ADV annual amendment filing. For most registered advisers,[1] the deadline to file the firm’s Form ADV is rapidly approaching. According to Rule 204-1 of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), registered advisers are required to file an annual amendment to Form ADV Parts 1 and 2 “annually, within 90 days of the end of your fiscal year.” [...]

The California Consumer Privacy Act (“CCPA”), which took effect on January 1, 2020, significantly changes businesses’ legal obligations in collecting and maintaining consumers’ personal data. Importantly, the CCPA does not apply to all California businesses. The law applies only to non-governmental, for-profit entities that “[do] business in the State of California” and (a) have gross adjusted annual revenues in excess of $25,000,000; (b) annually buy, sell, or receive personal data of 50,000 or more consumers, households, or devices; or (c) derive more than half of their annual revenue from selling consumers’ personal information. [...]

A lot of noise has been made about the new Form CRS, but what exactly does it mean for registered investment advisers? On June 5, 2019, the Securities and Exchange Commission (the “SEC”) adopted Form CRS and new rules, as well as amendments to its forms and rules, under both the Investment Advisers Act of 1940 (“Advisers Act”) and the Securities Exchange Act of 1934 (“Exchange Act”). While changes to the Exchange Act were substantive, for purposes of this article, only changes to the Advisers Act and subsequent additional requirements to investment advisers registered with the SEC will be discussed. Below is a “Q&A” of some of the more common questions being asked about Form CRS. [...]

Investment opportunities come in all shapes and sizes – from traditional 401(k) contributions and Registered Investment Advisor (RIA) firms to hedge funds and venture capital start-ups. Any investment opportunity comes with its own specific set of legal challenges that may jeopardize both novice and seasoned investors alike. Anyone, however, can navigate the uncertain investment landscape and avoid costly legal pitfalls with input from financial professionals and experienced legal counsel. [...]

Each year, the Securities and Exchange Commission (SEC) publishes a list of its examination priorities for the coming year. Similar to the 2019 list, the SEC’s list for 2020 includes enhanced focus areas related to investment advisers, investment companies, broker-dealers and municipal advisors. Specifically, the SEC pledges to focus its resources on examining RIAs that have never been examined, including newly formed RIAs as well as those already in operation. The RIA examinations will include those RIAs advising retail investors as well as private funds. Broker-dealer examinations will focus on issues pertaining to the implementation of new regulations, including regulation “Best Interest,” or Reg BI. [...]

A FINRA arbitration panel has denied J.P. Morgan Securities’ request for a permanent injunction preventing its former broker, Eric Weiss, from contacting clients with whom he worked at the firm. Weiss left J.P. Morgan for Raymond James earlier in 2019. Soon after he resigned, J.P. Morgan sued in Indiana federal court seeking an emergency temporary restraining order (TRO) barring Weiss from contacting clients until FINRA’s arbitration division conducted a full hearing on the dispute. [...]

Last week, a panel of FINRA arbitrators ordered UBS Financial Services Inc. to pay over $11 million to a former supervisor, including $7.5 million in punitive damages, for defaming him on his Form U5 and thus preventing him from obtaining alternative employment. Mark Munizzi worked as market-operations supervisor in UBS’s Chicago office. In February 2018, the market dropped sharply, and two accounts Munizzi oversaw lost significant value. UBS fired Munizzi in April of that year. UBS asserted that Munizzi had failed to respond to a notification of margin calls on the two accounts; Munizzi said he was provided no such notification. UBS also said that Munizzi had failed to properly supervise the risks of an uncovered options strategy and lied during an internal review of the incident. [...]

Last week, a FINRA arbitration panel took the extraordinary step of ordering the parties to an arbitration to request dissolution of a temporary restraining order (TRO) imposed by a district judge in Nevada. On November 12, 2019, Edward Jones had secured a TRO and injunction preventing former broker Mike Peterson from contacting his former clients. Edward Jones argued that after running the company’s Henderson, Nevada office for 13 years, Peterson had decamped for rival Ameriprise, contacted at least 11 former customers using Edward Jones’s confidential client data, and sent transfer paperwork to at least 15 former customers. [...]

In June 2019, the SEC adopted a new rule under the Securities and Exchange Act of 1934 requiring broker-dealers and their representatives to act solely in the “best interest” of their retail clients when making investment recommendations. The so-called “Regulation Best Interest,” or “Reg BI” imposes a new standard of conduct on broker-dealers and their registered representatives beyond the existing suitability obligations and, according to the SEC, will align the expected standard of conduct with retail customers’ reasonable expectation that the financial professionals with whom they work will, in fact, act in their best interest. [...]

Anyone who has been through it remains dumbfounded. Those about to experience it are sure to become flabbergasted. I am talking about a bankruptcy trustee’s ability to claw-back your hard-earned money because you were paid by the “wrong payor.” Some of you may be aware of a bankruptcy “preference claim” which occurs when one of your customers files for bankruptcy and the bankruptcy trustee seeks to force you to give back any payments from your customer during the 90 days preceding the bankruptcy, i.e. the Preferential Transfer ( 11 USC 547). The principal underlying “preference claims” is that all creditors should be treated equally and payments to any particular creditor made within 90 days of the bankruptcy is considered unfair, unless a valid defense is available, to the other creditors who may not have received any payment. This concern over financial abuse goes back to England’s Elizabethan era and the unscrupulous insolvent person giving away their money to friends or relatives rather than true creditors. [...]

The SEC recently announced a series of new enforcement actions against EB-5 regional centers participating in the U.S. Citizenship and Immigration Services (USCIS) EB-5 Immigrant Investor Program. The EB-5 program allows certain foreign nationals to invest funds in the U.S. through USCIS-approved “regional centers.” If, after two years, those investors can demonstrate their investments are generating jobs in the United States, they may be approved for permanent residency status. With the high and growing demand for permanent U.S. residency and the rapid expansion of wealth in Asia and elsewhere around the world comes the perfect opportunity for bad actors to commit fraud. [...]