Monday, March 2, 2015

New Arbitrator Rule - Customer and Firm Attorneys are No Longer Public Arbitrators

The SEC has approved a FINRA rule proposal which will dramatically change the composition of arbitration panels. For years attorneys who solely represent customers have been complaining that there are too many arbitrators with ties to the securities industry. From there, the argument assumes that those arbitrators will violate their duty, their obligations, and their oaths, and rule in favor of the brokerage firm involved in the dispute.

This argument is on its face outrageous, and an affront to the thousands of arbitrators who serve on arbitration panels. Coupled with the fact that customers win a significantly higher percentage of cases in FINRA arbitrations than they do in court, the argument is also specious, and self-serving.

There were hundreds of comment letters submitted, most of them from attorneys who spent their entire careers representing customers - for a percentage of the recovery. Their own bias in the process is clear, and there were many commentators who argued if we are going to assume that a former industry employee or attorney is biased, shouldn't we be assuming that attorneys who spend their time suing firms are also biased?

Let me repeat - I do not agree with this bias argument for a second. I have appeared before hundreds of arbitrators, and with a rare exception, I have found that FINRA arbitrators are dedicated to their role in the process, and are a fair and unbiased as anyone could possibly expect. I have appeared before one or two who seemed to be biased, but I have also appeared before judges who appeared to be biased.

Regardless, FINRA modified its rule proposal, and the SEC approved it. Industry employees are not public arbitrators. Attorneys who represent industry participants, and attorneys who represent customers against industry participants are also not public arbitrators.

Good for the goose is good for the gander? I suppose, but now we have the problem of a lack of qualified arbitrators. Think about it, at the urging of the customer attorneys, FINRA has just lessen the odds of having an attorney who has knowledge of the securities laws as an arbitrator in securities cases.

These attorneys can still serve as arbitrators, if the customer decides to use an industry panel. We will have to see how this plays out, but we can expect to see an increased cost for all parties, as the need for expert witnesses will substantially increase going forward
The rule approval is available at
The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We are all now considered to be non-public arbitrators, despite our decades of experience in securities arbitrations, Fortunately, our expertise is still available to our clients - brokers, advisers, and the truly aggrieved investor. For more information call 212-509-6544 or send an email.

SEC News: Insider Trading, Pyramid Schemes, Fraudulent Deception

Charges Against Atlanta Man Accused of Insider Trading in Advance of Tender Offer
An Atlanta resident has been accused of insider trading in the stock of a technology company by exploiting nonpublic information he learned from the friend of a company executive.

An investment adviser to several alternative mutual funds faces charges for maintaining millions of dollars of the funds’ cash collateral at broker-dealer counterparties instead of the funds’ custodial bank.  The violations were uncovered during an SEC examination of the firm and the funds it manages.

Fraud Charges Announced Against Purported Hedge Fund Manager
A purported hedge fund manager in New York City has been charged with stealing money from his investors.

SEC Halts Colorado-Based Pyramid Scheme
Fraud charges and an emergency asset freeze have been announced against two operators of a Colorado-based pyramid and Ponzi scheme that promises investors extraordinary returns of 700 percent through a purported “triple algorithm” and “3-D matrix.”

New York-Based Brokerage Firm and CEO Charged With Committing Fraud During CDO Liquidation Auctions

A New York City-based brokerage firm and its CEO has been charged with fraudulently deceiving other market participants while conducting auctions to liquidate collateralized debt obligations (CDOs).

Brothers-in-Law in Louisiana Charged With Insider Trading
Insider trading charges have been filed against a former Fortune 500 company executive and his brother-in-law whom he allegedly tipped with nonpublic information ahead of the company’s merger.

Tuesday, February 24, 2015

Stifel Confirms Acquisition of Sterne Agee

After weeks of speculation, St. Louis-based Stifel Financial announced it has entered a definitive merger agreement to acquire Birmingham's Sterne Agee Group Inc. in a $150 million deal. Sterne Agee brings 730 financial advisers and independent representatives that manage more than $20 billion in client assets.

For more information, see St.Louis-based Stifel Financial to acquire Sterne Agee

Monday, February 23, 2015

With 100% Success Rate, SEC's Use of In-House Judges Questioned by Commissioner Piwowar

The SEC's increased use of administrative proceedings as the forum for its enforcement actions has come under fire in recent months, with many of the respondents in those cases filing lawsuits arguing (unsuccessfully) that administrative proceedings are actually unconstitutional.

In a speech on Friday SEC Commissioner Michael Piwowar acknowledged that as a matter of "fairness," the SEC should draft guidelines to establish "which cases are brought in administrative proceedings and which in federal courts."

For more information, go to SEC's Piwowar Seeks Guidelines Governing When SEC Will Bring Cases as APs . (Hat tip to Securities Docket for alerting us to the speech.


The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including SEC and FINRA investigations, insider trading cases, securities arbitrations and class actions, nationwide. For more information call 212-509-6544 or send an email.

Friday, February 13, 2015

SEC Commissioner Agrees - FINRA's CARDS Proposal is Nuts

FINRA, a non-governmental, private entity, is pushing to force brokerage firms to deliver details of every transaction in every brokerage account, including yours, to it, every day.  The concept, known as CARDS, is simply mind boggling. FINRA already has access to trade data of every trade done every day, and if is so desired, it could have it in real time, for every transaction on every exchange.

FINRA also has the ability to compel brokerage firms to provide data on any transaction, any account, at any time.

Commissioner Piwowar called the CARDS program a solution in search of a problem. And he is 100% correct.

Still waiting for FINRA to explain 1)why it needs this data, and 2) how it is going to prevent hackers from accessing it, and using the data to trade, or engage in identity theft.

MIT says you cannot protect the information, hackers will figure out the identities of the account holders, even without names and social security numbers. The WSJ previously reported about the MIT findings - Metadata Can Expose Person’s Identity Even Without Name - New Analytic Formula Identifies People Without Names, Account Numbers

FINRA needs to stop putting the country's personal financial information at risk simply to make it's job easier...assuming CARDS makes its job easier. FINRA claims that having all of that account information and transaction information will enable it to spot suitability issues. Isn't that what is suitability rules are designed to do? Isn't that what its exam teams are taught to spot? Is the small percentage of trades which are possibly unsuitable, engaged in by an insignificant percentage of brokers, worth risking the financial and data security of every person in this country who maintains a brokerage account?

Has FINRA lost its collective mind?

For more information, go to US SEC's Piwowar says skeptical of FINRA's data collection proposal | Reuters

The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including SEC and FINRA investigations, insider trading cases, securities arbitrations and class actions, nationwide. For more information call 212-509-6544 or send an email.

Thursday, February 12, 2015

SEC News - Unregistered Stock, Insider Trading Charges, Accounting Violations

Seal of the U.S. Securities and Exchange Commi...Stock-Based Lender Charged With Selling Billions of Penny Stock Shares as Unregistered Broker-Dealer

A Chicago-area company that provides stock loans using equities as collateral, its two co-founders, and its former chief operating officer have been charged with selling more than nine billion shares of penny stocks through purported stock-based loans, block trades, and other transactions without registering with the SEC as a broker-dealer as required under the federal securities laws
A stock research analyst, a corporate insider, and two others have been charged for their involvement in a California-based insider trading ring that generated nearly $750,000 in illegal profits by trading in advance of four corporate news announcements.

AChicago-area alternative energy company, its former CEO, and its CFO are facing charges for accounting and disclosure violations that prevented investors from knowing that reduced business from two significant customers had caused substantial declines in the company’s long-term financial prospects.

Saturday, February 7, 2015

FINRA Proposes Increased Adjournment Fees for Arbitration

FINRA is filing a proposed rule change to amend Rules 12214, 12601, 13124 and 13601 to require that parties give more advance notice before cancelling or postponing a hearing, or be assessed a higher late cancellation fee if such notice is not provided.

For more information, go to SR-FINRA-2015-003 - FINRA


The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities arbitration, having represented parties in well over 750 arbitrations, nationwide. For more information call 212-509-6544 or send an email.

Friday, February 6, 2015

Filing Tax Returns Electronically? Be careful and read this

TurboTax Temporarily Halts E-Filing In All States Amid Fraud Concerns

Up to 18 states are reporting significant upticks in fraudulent activity and there may be a common thread: tax preparation software.

The State of Alabama Department of Revenue released a statement yesterday about fraud concerns, saying only, “The fraudulent filings originate from data compromised through a third-party commercial tax preparation software process and were detected through ADOR’s fraud detection systems.” They were quick to assure taxpayers, however, that “[o]ur systems have not been compromised.” Just two weeks into tax season, however, the number of suspicious returns in the state has already hit 16,000, all of which were “filed suspected of fraud from the third-party commercial tax preparation software.”

Be careful out there.