Investor Rights: FINRA’s launch this month of Regulatory Notice 07-55, with its pointed incorporation by reference to Notice to Members 97-19, begs at least two questions: what has been the efficacy of oversight and enforcement in the ensuing 10 years, when investors have seen their fair share of sales practice abuses, and what will be done going forward to ensure oversight of sales practice abuses before investors are harmed? After all, the guidance offered in NTM 97-19 in 1997 was based on supervisory and compliance rules, actually then in effect, governing the supervision by financial services/brokerage firms of registered persons with a negative disciplinary background. Read the rest of this entry »

Investor Protection: The antecedents to FINRA Regulatory Notice 07-55, reviewed in our last posting, go back more than ten years. In 1997 the NASD (now FINRA) released Notice to Members 97-17, a far-reaching by-product of The Joint Regulatory Sales Practice Sweep (Sweep), which was a 1994 initiative involving the staffs of the NASD, the New York Stock Exchange, the SEC and representatives of the North American Securities Administrators Association (NASAA). This “working group” was formed to review the sales practice activities of selected registered representatives, and the hiring, retention, and supervisory practices under existing NASD and NYSE rules of the brokerage firms employing them. Read the rest of this entry »

Investor Protection: FINRA’s issuance of Regulatory Notice 07-55 once again reminded member firms of their solemn obligations under FINRA rules to conduct “extensive, thorough and diligent investigation of an applicant’s background” to determine, among other things, “whether a prospective employee is subject to a statutory disqualification or whether he or she may present a regulatory risk for the firm and customers.” As will be explained, this wasn’t the first such warning. Read the rest of this entry »

Another “sure fire” investment deal has victimized unwary investors, both senior citizens and others. A Detroit area money manager, Edward May, was sued by the SEC for allegedly conducting a massive investment fraud that involved as many as 500 to 1,200 investors, bilking them of from $74 to $250 million. Mr. May and his firm, E-M Management Co. LLC, allegedly sold shares in fictitious Las Vegas casino and resort telecommunications deals. We have recently seen the promotion of similar investment vehicles promoted heavily to senior investors involving the sale of securities in the form of interests in limited liability companies (”LLCs”). Read the rest of this entry »

As reported on November 5 in Investment News, the brokerage industry weekly, litigation of hedge fund fraud cases is on the up tick, thanks to the surge in new hedge funds. Quoting Morningstar, Inc.’s director of hedge funds and alternative investments, the article reports there are currently around 10,000 to 12,000 hedge funds, over a five-fold increase since 2002, with assets of anywhere from $5 million to $10 million in small funds and over $1 billion in the mega hedge funds. Meanwhile, the hedge funds have managed to stay for the most part unregulated by the governmental authorities despite bills pending in Congress. Read the rest of this entry »

Ted Eppenstein testified before the U.S. Congress House Judiciary Committee, Subcommittee on Commercial and Administrative Law on October 25, 2007 at hearings on H.R. 3010, the “Arbitration Fairness Act of 2007,” in support of restoring to investors the right to go to court to adjudicate their grievances, and in support of the formation of an independent arbitration forum outside Read the rest of this entry »