Now that we’ve turned the corner into the New Year – though not quite leaving behind the lingering geo-political crises, turmoil in the markets, the health care morass and the housing/mortgage debacle, among other socio-economic woes – it might be timely to revisit some of our own basic themes here at the Securities Fraud Hotline, like banning mandatory arbitration of investor disputes AND returning to investors the right and choice to go to court (or an alternative forum independent of the brokerage industry) to have a judge and jury assess their grievances. Read the rest of this entry »

We previously posted that FINRA has imposed a $3 million fine against Morgan Stanley; the firm must also fork over a $9.5 million “Discovery Fund,” all to benefit customers in settlement of the firm’s failure in securities arbitration to produce emails ostensibly “lost” in the tragic World Trade Center attacks in 2001 (some of which “surfaced” years later). In fact, Wall Street’s email record retention has had a checkered track record at a number of firms. Several years ago for example in December 2002 the SEC, NASD and NYSE imposed an $8.25 million penalty against Deutsche Bank Securities Inc., Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., and U.S. Bancorp Piper Jaffray Inc. for failure to maintain and/or preserve email communications. Read the rest of this entry »

When Morgan Stanley Co.’s former affiliate, Morgan Stanley DW, Inc., withheld e-mail evidence from litigants for several years, on the shameless pretense that they were “lost” in the aftermath of the September 11, 2007 attacks on the World Trade Center in New York, it was estimated by FINRA that several thousand customers were affected. The suppression of important evidence may have potentially denied securities arbitration and court litigants the ability to recover on some or all of their claims filed in court or at the self-regulatory, industry run arbitrations such as those administered by FINRA and its predecessor dispute resolution forums (the NASD and NYSE). The failure to produce such evidence during the pendency of cases would also have had a profound effect on the amounts accepted in settlements. Read the rest of this entry »

Making Securities Arbitration Fair for Investors: NASAA, the North American Securities Administrators Association committed to investor protection, has come out strongly in favor of “prohibiting broker-dealers from requiring investors to accept mandatory arbitration clauses” and in support of passage of the “Arbitration Fairness Act of 2007,” which is pending in both the Senate (S.1782) and the House of Representatives (H.R. 3010) in the U.S. Congress. Read the rest of this entry »

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 »