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 »

In today’s online issue of Bloomberg.com, the financial journalist Susan Antilla quotes Ted Eppenstein, the securities arbitration lawyer, on the precipitous decline in securities regulatory fines and enforcement actions in 2006 by the NASD, NYSE and SEC.
Read the rest of this entry »

Notice to all participants in customer-member disputes adjudicated at FINRA, the Financial Industry Regulatory Authority: the following investor profile is FINRA’s definitive portrait of the typical, unsophisticated investor: Read the rest of this entry »

When the SEC (Securities and Exchange Commission) filed an amicus brief with the U.S. Supreme Court in early 2007, arguing for a more stringent legal standard to plead and prove the element of intent in federal statutory investment fraud cases filed in court (under the Private Securities Litigation Reform Act of 1995 (PSLRA)), it took investors and their advocates by surprise. While the industry’s goal may be to protect big business from lawsuits, it shouldn’t be the overriding consideration when legitimate investment fraud claims are at stake, whether asserted in court or arbitration. Read the rest of this entry »

Novel issues of arbitrator conflicts of interest in securities arbitration cannot be redressed fully by the current rules of procedure at the self-regulatory organizations (SROs) such as the NASD (National Association of Securities Dealers) and the NYSE (New York Stock Exchange). Just some of these issues include: Read the rest of this entry »

The $15 million SEC fine against Morgan Stanley & Co. for repeated and flagrant e-mail production failures in hundreds of securities arbitration cases points to a larger problem that mere penalties by the regulators cannot remedy. How do we know that sanctions, however drastic they may seem, will not serve to prevent future violations in securities arbitration: because experience has shown that the industry goes back to business as usual until the next time it is caught. A glaring case in point is Refco, the giant trading firm that spectacularly collapsed in a blaze of fraud and corruption at the end of 2005 after over a decade of slaps on the wrist by the regulators. Read the rest of this entry »