Thursday, October 19, 2017

FINRA Considering Rule Changes for Non-Attorneys In Arbitration

FINRA Requests Comment on the Efficacy of Allowing
Compensated Non-Attorneys to Represent Parties in

FINRA Rules do not prohibit non-attorneys from representing parties in arbitrations, although some states do have such a prohibition. While there are some representatives who provide competent advise to parties, there have been a number of issues over the years regarding these non-attorneys.

FINRA is now reviewing this policy and is seeking comment from members and interested parties regarding the use of non-attorneys in arbitrations.

The Regulatory Notice discussing the issue is 17-34.

Interested parties can submit their comments using
the following methods:
0 Emailing comments to

Read the entire notice before submitting a comment, and please note that the Comment Period Expires December 18, 2017

Wednesday, October 18, 2017

SEC Announces 2017 Government-Business Forum to Be Held at University of Texas at Austin

The Securities and Exchange Commission today announced it is partnering with the Herb Kelleher Center for Entrepreneurship, Growth, and Renewal at the McCombs School of Business at The University of Texas at Austin to host the SEC’s annual Government-Business Forum on Small Business Capital Formation on November 30.  This annual forum provides a platform to highlight additional measures to improve small business capital formation and address whether unnecessary, duplicative, or outdated regulations can be eliminated or reduced.

“The annual Government-Business Forum on Small Business Capital Formation provides the opportunity to hear directly from small businesses about their experiences interacting with investors and our regulatory system in a very important segment of our capital markets,” said Chairman Jay Clayton. “As a hub for innovation, Austin is a fitting place for this discussion. I look forward to the forum’s recommendations and will carefully consider them as we work to fulfill the SEC’s mission.”

The morning session will feature a panel discussion exploring how capital formation options are working for small businesses, including small businesses in Texas.  Participants will then work in groups to formulate specific policy recommendations.  Information on the panel participants and the full agenda will be announced in November and available on the forum webpage.

The forum will begin at 9 a.m. Central Time and will be open to the public. It will be held in the AT&T Executive Education and Conference Center on the campus of The University of Texas at Austin.  The opening remarks and panel discussion will be webcast live.  The breakout group sessions will not be webcast but will be accessible by teleconference for those not attending in person.  Anyone wishing to participate in a breakout group either in person or by teleconference must register online by November 27.

The online registration will soon be available on the forum webpage.

Members of the public are invited to suggest recommendations or topics to be discussed at the forum by calling the SEC’s Office of Small Business Policy at (202) 551-3460.

SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Tuesday, October 17, 2017

Rio Tinto, Former Top Executives Charged With Fraud

The Securities and Exchange Commission today charged mining company Rio Tinto and two former top executives with fraud for inflating the value of coal assets acquired for $3.7 billion and sold a few years later for $50 million.

The SEC’s complaint, which was filed in federal court in Manhattan, alleges that Rio Tinto, its former CEO Thomas Albanese, and its former CFO Guy Elliott failed to follow accounting standards and company policies to accurately value and record its assets.  Instead, as the project began to suffer one setback after another resulting in the rapid decline of the value of the coal assets, they sought to hide or delay disclosure of the nature and extent of the adverse developments from Rio Tinto’s Board of Directors, Audit Committee, independent auditors, and investors.

“As alleged in our complaint, Rio Tinto’s top executives allegedly breached their disclosure obligations and corporate duties by hiding from their board, auditor, and investors the crucial fact that a multi-billion dollar transaction was a failure,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.

“Rio Tinto and its top executives allegedly failed to come clean about an unsuccessful deal that was made under their watch.  They tried to save their own careers at the expense of investors by hiding the truth,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.

Based on the complaint’s allegations, Rio Tinto plc, Rio Tinto Limited, Albanese, and Elliott are charged with violating the antifraud, reporting, books and records and internal controls provisions of the federal securities laws.  The SEC seeks permanent injunctions, return of allegedly ill-gotten gains plus interest, and civil penalties from all the defendants, and seeks to bar Albanese and Elliott from serving as public company officers or directors.

According to the SEC’s complaint, in 2011, Rio Tinto acquired coal assets in Mozambique shortly after disclosing huge losses associated with its previous large-scale acquisition of Alcan.  Both acquisitions took place under Albanese’s leadership.  The second acquisition was also unsuccessful as it was based on the incorrect assumption that Rio Tinto could inexpensively mine, transport, and sell large quantities of high-quality coal, chiefly using barges for shipping.  The SEC’s complaint alleges that the project suffered setbacks almost immediately, as Rio Tinto, Albanese, and Elliott learned that there was less coal and of lower quality than expected, and that Mozambique had rejected its barge application. The complaint alleges that the drop in quantity and quality of coal, coupled with the lack of infrastructure to transport it, significantly eroded the value of the acquisition.

The complaint alleges that after already impairing Alcan twice, Rio Tinto, Albanese, and Elliott knew that publicly disclosing its second failure and rapidly declining value would call into question their ability to pursue the core of Rio Tinto’s business model to identify and develop long-term, low-cost, and highly-profitable mining assets.  Instead, they concealed the adverse developments, allowing Rio Tinto to release misleading financial statements days before a series of U.S. debt offerings.  Rio Tinto raised $5.5 billion from U.S. investors, approximately $3 billion of which was raised after May 2012, when executives at Rio Tinto Coal Mozambique had already told Albanese and Elliott that the subsidiary was likely worth negative $680 million.  The complaint alleges Albanese then repeated and reinforced the false positive outlook for the project in public statements.

The alleged fraud continued until January 2013, when an executive in Rio Tinto’s Technology & Innovation Group discovered that the coal assets were being carried at an inflated value on Rio Tinto’s financial statements.  After an internal review allegedly triggered by the executive’s report to Rio Tinto’s Chairman, Rio Tinto announced that Albanese had resigned and the company reduced the value of the coal assets by more than $3 billion, or more than 80 percent.  After a second reduction, Rio Tinto sold the Mozambique subsidiary for $50 million, billions of dollars below the acquisition price.

The SEC’s investigation was conducted by D. Mark Cave, Jeffrey Weiss, and George Spanos and supervised by Melissa Hodgman.  The SEC’s litigation will be conducted by Mr. Cave, Dean Conway, and Gregory Miller, and supervised by Bridget Fitzpatrick.  The SEC greatly appreciates the assistance and collaboration of the U.K. Financial Conduct Authority and the Australian Securities & Investments Commission.

SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Friday, October 13, 2017

State-level fines and penalties hit 5-year high

State-level fines and penalties hit 5-year high

"The SEC has begun to work with the Department of Labor on a fiduciary rule proposal to harmonize the standards of conduct for advisors and broker-dealers, Jay Clayton, the agency's chairman, told members of the House Financial Services Committee.

Clayton's comments suggest that after months of collecting and reviewing comments on what a uniform fiduciary standard should look like, the commission is now moving forward on shaping a rule, marking the next stage in what figures to be a contentious process."

More Morgan Stanley Questionable Terminations

 Our readers may have missed this article, since the headline does not point out the problem. AdvisorHub has an article regarding a shakeup in the Morgan Stanley offices in Virginia. Apparently there is another shift in Branch Office Managers.

However, the article also references that the broker was discharged for “management loss of confidence related to sales practice concerns including delays in converting accounts to fee-based platforms.”

What? Not moving your accounts to fee based accounts quickly enough is grounds for termination?

Unfortunately, we are seeing more and more of this lately. We understand the benefits of fee based accounts, FOR SOME CLIENTS. In fact, we have been advising clients for years to move to a fee based model.

However, there are numerous types of accounts that do not benefit from that model - in fact, any account that does not trade on a regular basis probably doesn't benefit from the model, unless the broker is providing ongoing advice which would be paid for by the fee based model.

But that is not the point. Morgan Stanley is using the move to fee based portfolios as a reason for termination, and it is not just the broker in this article. "Management loss of confidence" is the new termination reason, and it is simply not enough to support a termination.

Of course, the firms don't care, they want assets, and arbitration panels do not take this scam seriously. Firms are doing this to steal assets, plain and simple. 

This is something of an industry wide issue, and always has been, at least with the wirehouses. A BOM actively recruits brokers from another firm, promises them all sorts of things, and claims that they can't put it in writing. The brokers rely on the BOM's promises, transition to the firm, and start moving their accounts.

Then the BOM is replaced, and the new BOM claims no knowledge of the oral promises, leaving the broker with no remedy.

The solution of course is to get it in writing, or don't move, but that doesn't happen.

Now we are seeing a variation. Management has a "loss of confidence" in something. Moving accounts to fee based, explaining charges, whatever. Is the next termination reason management's loss of confidence in a broker's ability to write neatly?

Senior Morgan Stanley Broker in Virginia Leaves Amid Branch Manager Shuffle - AdvisorHub:

Thursday, October 12, 2017

SEC Announces Whistleblower Award of More Than a Million Dollars

The Securities and Exchange Commission today announced that a whistleblower has earned an award of more than $1 million for providing the SEC with new information and substantial corroborating documentation of a securities law violation by a registered entity that impacted retail customers.   

“Today’s award reflects the impact that whistleblower information can have in uncovering violations that harm the retail investor,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  “We welcome high-quality information about potential securities-law violations from those in and outside a company.”

More than $162 million has been awarded to 47 whistleblowers.  By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.  Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. 

Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.  No money is taken or withheld from harmed investors to pay whistleblower awards.   

For more information about the whistleblower program and how to report a tip, visit

SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Millennials Suffering From Financial Anxiety | PLANADVISER

Millennials will make up 75% of the work force by 2025, and $30 trillion in wealth may pass down to them, according to projections by Wells Fargo Asset Management. However, the firm also found that many in that group are still financially dependent and are seeking help to overcome anxieties about money.

 A recent survey by Wells Fargo found the Millennial generation’s top 3 financial intimidators include saving for the future, knowing how to invest money and sticking to a budget. However, 77% lack a financial adviser. Of this group, 39% said they wanted one.

Read the full article - Millennials Suffering From Financial Anxiety | PLANADVISER: "

Wednesday, October 11, 2017

Lawyers Charged With Assisting a Microcap Fraud Scheme

The Securities and Exchange Commission today charged two lawyers it alleges helped facilitate a microcap fraud scheme involving undisclosed “blank check” companies secretly bound for reverse mergers.

In complaints filed in the U.S. District Court for the Southern District of Florida, the SEC alleges that James M. Schneider of Hillsboro Beach, Florida, and Andrew H. Wilson of Nevada City, California, contributed to a fraud involving at least 22 undisclosed blank check companies. Such companies have no operations, making them attractive targets for those seeking reverse mergers for use in pump-and-dump schemes.  Despite claims of legitimate business plans, separate management, and independent shareholders, the 22 companies and their securities were secretly controlled by Steven Sanders, along with Daniel P. McKelvey or Alvin S. Mirman, and sold in reverse mergers.  The SEC previously filed an enforcement action against Sanders, McKelvey, and Mirman, who were separately convicted of related criminal charges and sentenced to prison.

The U.S. Attorney’s Office for the Southern District of Florida today filed related criminal charges against Schneider.    

“Lawyers are critical gatekeepers when it comes to protecting the integrity of our capital markets,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “Schneider and Wilson failed as gatekeepers and as our complaints allege, played a crucial role in facilitating a wide-ranging microcap fraud.”

According to the SEC’s complaints, the scheme required the blank check companies to have shares available for sale in the open market.  Schneider and Wilson allegedly provided legal opinion letters falsely stating that the companies’ shares were validly issued or free to be resold publicly.  The SEC alleges that Schneider knowingly prepared at least 40 false opinion letters and referred numerous buyers to the shell companies’ secret owners. The SEC alleges that Wilson provided at least five opinion letters that unlawfully allowed restricted securities of at least three issuers to be sold to the public.  The SEC alleges that Wilson opined that the shares were unrestricted when he knew or should have known that Sanders and McKelvey secretly controlled them.

The SEC alleges that Schneider violated the registration and antifraud provisions of federal securities laws and related SEC rules, and that he aided and abetted the antifraud violations by Sanders, McKelvey, and Mirman.  The SEC charged Wilson with registration violations.   It is seeking to have the defendants return their allegedly ill-gotten gains, pay civil penalties, be barred from the penny-stock business, and other relief.

The SEC’s investigation, which is continuing, has been conducted by Jeffrey T. Cook in the Miami Regional Office.  The case is being supervised by Eric R. Busto, and the SEC’s litigation will be led by Christine Nestor.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida and the Federal Bureau of Investigation’s Miami Field Office.

SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

SEC Files Charges in Snack Company Investment Scam

The Securities and Exchange Commission today charged three individuals who defrauded investors in a company that falsely claimed to be developing a caffeinated chocolate snack and nearing an acquisition by Monster Energy or Coca-Cola Co.

The SEC’s complaint alleges that Lisa Bershan and her husband, Barry Schwartz, together with business associate Joel Margulies, falsely promised investors that after being acquired, Starship Snack Corp. investors would get a one-to-one exchange of Starship shares for Monster or Coca-Cola shares. According to the SEC’s complaint, Bershan and Margulies also falsely claimed that investors had “no down-side risk” and Bershan personally guaranteed that investors could get their investment back with 5 percent interest if the shares failed to appreciate over a year.

According to the SEC’s complaint, Starship had no agreement with Monster Energy or Coca-Cola , and Bershan and Schwartz used investor funds as their own personal piggy bank, spending them to rent and decorate a New York City apartment, and on travel, meals, and other personal expenses.   

“As alleged in our complaint, investors trusted Bershan, Schwartz, and Margulies, but that trust was misplaced,” said Lara S. Mehraban, Associate Regional Director of the SEC’s New York Regional Office.  “The defendants constantly reassured their investors with lies, all the while taking their money and spending it on themselves.” 

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against the three defendants.

The SEC’s complaint, filed in federal court in Manhattan, charges Bershan, Margulies, and Schwartz with violating antifraud provisions of the federal securities laws and a related SEC antifraud rule. The SEC is seeking to have the defendants return their allegedly ill-gotten gains plus interest, pay penalties, and be subject to permanent injunctions. 

The SEC’s investigation was conducted by Cynthia A. Matthews, Kerri Palen and Thomas P. Smith Jr., and the litigation will be led by Ms. Matthews and Richard Hong.  The case is being supervised by Ms. Mehraban.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.  

SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

SEC Proposes Rules to Implement FAST Act Mandate to Modernize and Simplify Disclosure

The Securities and Exchange Commission today voted to propose amendments to modernize and simplify disclosure requirements for public companies, investment advisers, and investment companies and to implement a mandate under the Fixing America's Surface Transportation (FAST) Act. The proposed amendments would make adjustments to update, streamline or otherwise improve the Commission's disclosure framework.

"The FAST Act has given the Commission the opportunity to update our rules, simplify our forms, and utilize technology to make disclosure more accessible," said SEC Chairman Jay Clayton. "An effective disclosure regime provides investors with the information necessary to make informed investment choices without imposing unnecessary burdens of time and money on issuers, and today's action moves embodies that goal."

The proposal reflects changes based on recommendations in the staff's FAST Act Report and amendments developed as part of a broader review of the Commission's disclosure system. 

*  *  *

Fact Sheet

FAST Act Modernization and Simplification of Regulation S-K

SEC Open Meeting

October 11, 2017


The Commission will consider whether to propose amendments to modernize and simplify certain disclosure requirements in Regulation S-K, and related rules and forms, in a manner that reduces the costs and burdens on registrants while continuing to provide all material information to investors. The amendments are also intended to improve the readability and navigability of disclosure documents and discourage repetition and disclosure of immaterial information. 


Among other things, the proposed amendments would:

  • Revise rules or forms to update, streamline or otherwise improve the Commission’s disclosure framework by eliminating the risk factor examples listed in the disclosure requirement and revising the description of property requirement to emphasize the materiality threshold;
  • Update rules to account for developments since their adoption or last amendment by eliminating certain requirements for undertakings in registration statements;
  • Simplify disclosure or the disclosure process, including proposed changes to exhibit filing requirements and the related process for confidential treatment requests and changes to Management's Discussion and Analysis that would allow for flexibility in discussing historical periods; and
  • Incorporate technology to improve access to information by requiring data tagging for items on the cover page of certain filings and the use of hyperlinks for information that is incorporated by reference and available on EDGAR.

The proposal also includes parallel amendments to several rules and forms applicable to investment companies and investment advisers, including proposed amendments that would require certain investment company filings to include a hyperlink to each exhibit listed in the exhibit index of the filings and be submitted in HyperText Markup Language (HTML) format.


As mandated by the FAST Act, in November 2016 the staff published a report on modernizing and simplifying the disclosure requirements in Regulation S-K.  The report provided specific and detailed recommendations on modernizing and simplifying Regulation S-K in a manner that reduces costs and burdens on companies while still providing all material information.  The FAST Act also requires that the Commission issue a proposal to implement the recommendations in the report.   

What's next?

If approved, the Commission will seek public comment on the proposed rules for 60 days. 

SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

FINRA gets nod to streamline competency exams | On Wall Street

" A newly approved FINRA rule could result in more hiring within the industry.

The SEC has approved FINRA’s proposal to streamline competency exams, eliminating past redundancies and offering greater opportunity for new and returning advisors.

The changes will go into effect on Oct. 1, 2018, and advisors just getting into the industry and firms looking to bring in new advisors will feel the impact."

For more information see FINRA gets nod to streamline competency exams at On Wall Street

Tuesday, October 10, 2017

Walter Jospin, Regional Director of the SEC’s Atlanta Office, to Leave the Agency

The Securities and Exchange Commission today announced that Walter E. Jospin, Regional Director of the agency’s Atlanta office, is leaving the agency.  Mr. Jospin will remain in his position until his successor is selected.

“Walter and I met many years ago and I was taken with his wisdom, expertise, and care.  He has brought those and many other fine characteristics to the Commission,” said SEC Chairman Jay Clayton.  “We all are grateful that Walter re-entered public service after a distinguished career in the private sector, and his contributions to the Atlanta office and the Commission have been exemplary.”

Since February 2015, Mr. Jospin has led a staff of approximately 100 attorneys, accountants, compliance examiners, and other specialists involved in compliance inspections and the investigation and prosecution of SEC enforcement actions in the Atlanta region.  Under Mr. Jospin’s supervision, the Atlanta office brought charges involving investment advisers, financial and disclosure fraud, insider trading, and those targeting retail investors, including:

Also under Mr. Jospin’s watch, the Atlanta office’s exam staff has increased collaboration with enforcement and generated substantial referrals, including those that led to several of the actions referenced above.

“Walter has been an insightful and innovative leader of the Atlanta office, and the office and the Enforcement Division have benefited from his experience and sound judgment,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “He has led the Atlanta office to great success, and he will be sorely missed.”

“Walter’s work to implement positive changes in Atlanta and across the national examination program will have lasting impact,” said Pete Driscoll, Acting Director of the Office of Compliance Inspections and Examinations.  “It has been a privilege to work with Walter.”

Mr. Jospin added, “Serving as Director of the Atlanta Regional Office has been an extraordinary opportunity, second only to working as an SEC enforcement lawyer early in my career.  Both experiences have given me the chance to work with smart, talented people committed to the Commission’s mission.  The SEC is an outstanding agency, and I will miss my wonderful colleagues.  It has indeed been an honor to lead the Atlanta office.”

Mr. Jospin joined the SEC from the law firm of Paul Hastings LLP, where he was a long-time partner in the Atlanta office with a practice focusing on securities enforcement, internal investigations, corporate transactions, and corporate governance.  Mr. Jospin previously worked in the SEC Enforcement Division from 1980 to 1983 in the Atlanta office.  He graduated from the Wharton School at the University of Pennsylvania and from the Emory University School of Law.

SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.