Conflicts of interest involving arbitrators in securities fraud arbitration and other investment misconduct cases can potentially undermine the integrity of the process and the ability of defrauded investors to recover for their losses. An extreme example was the recent filing of a court case that created news over the alleged failure of an NASD arbitrator to disclose potential conflicts, as reported in “Arbitrator in Citigroup Case Accused of Conflicts of Interest,” New York Times (Feb. 23, 2006). Read the rest of this entry »

The Street needs to clean up its act if it wants to maintain the accounts and serve the best interests of its smaller asset based clientele, now handled in many cases by impersonal phone call centers rather than by neighborhood branches. A few years ago most of the major brokerage firms decreed that their registered representatives were spending too much time on accounts with relatively low assets. Some firms even refused to pay its brokers commissions on accounts that traded with less than $50,000 or $100,000. The media duly chronicled the problems inherent in this shift in attitude at the expense of the smaller investor: “Wall Street Snubs Small Accounts,” the Wall Street Journal, February 17, 2005; “NASD probes Merrill Lynch ‘Call Centers,’” Wall Street Journal, October 18, 2005; and “Even Small Brokerages Shun Average Investors,” Crains New York Business, February 27, 2006. Read the rest of this entry »

Today, according to its press release, the NASD fined Merrill Lynch, Pierce Fenner & Smith Inc. $5 million for “supervisory failures, registration violations, impermissible sales contests and other violations” stemming from abuses at its New Jersey and Florida so-called “Financial Advisory Centers”(FAC). The NASD also prohibited Merrill Lynch from staging FAC personnel sales contests for three years, and ordered the firm “to retain, at its own expense, an independent consultant to recommend corrective measures to firm policies and supervisory and compliance procedures and systems for the FAC. Until those corrective measures are implemented, Merrill Lynch must impose special supervisory procedures, including monitoring calls between FAC personnel and its customers.” Read the rest of this entry »

Investor Access to Broker Information: Room for Improvement

In the NASD website’s section on “Common Investor Problems and How to Avoid Them,” the NASD cautions investors to “Make an informed decision before agreeing to allow the broker to use discretion in buying or selling your investments”; and “Before you make an investment, be prepared, do your homework, and don’t be caught off-guard. Investigate thoroughly any potential investment before you make it, as well as the broker and securities firm that are recommending it to you.” Read the rest of this entry »

This week The New York Times quoted the Securities Industry Association’s support for a consolidation of the enforcement departments of self-regulatory organizations, including the NASD and NYSE. The SIA even wants the right to have a seat on the board of this single market regulator. Read the rest of this entry »

Brokers Win $14 Million Arbitration Award

Merrill Lynch lost a $14 million arbitration in which the firm was found to have defamed three of its brokers, causing economic and other injury, by making public in an industry filing (and elsewhere) the ostensible reasons for their termination of employment by Merrill. Merrill stated in defense of its actions that such reporting is in “the best interests of investors, who deserve clear explanations as to why a financial advisor was terminated” (as reported in the Wall Street Journal on January 6, 2006). As it turns out, the termination of employment in this case was wrongful, according to the arbitrators. Nevertheless, investors have a right to access full and accurate information about their brokers. Read the rest of this entry »

According to the November 28 report appearing in InvestmentNews.com on a recent U.S. Chamber of Commerce study, in securities fraud class action settlements “undiversified small investors recover only two cents of every dollar lost to fraud.” We are not surprised. Read the rest of this entry »

As reported in multiple news services, the international implications of the collapse and bankruptcy of Refco Inc. intensified in October 2005, just two months after its IPO. Austrian authorities were looking into the circumstances surrounding the $350 million euros loan by Austrian bank BAWAG to a company controlled by former Refco CEO Phillip Bennett, just before Refco’s Chapter 11 filing. It was also reported that Venezuelan securities authorities were investigating the fallout to local businesses there. Moscow-based hedge fund VR Group and related entities were reported to be one of the largest unsecured creditors of Refco, along with BAWAG and Wells Fargo. Read the rest of this entry »