Good Markets, More Broker Transitions

We have seen an uptick in financial advisors changing firms as the markets continue to improve. Wells Fargo Advisors just announced that it has hired nine financial advisors from Morgan Stanley, Merrill Lynch and RBC Capital Markets with $1.12 billion in assets under management.

Transitioning between firms is a important, and stressful time. Too many advisors do not seek the assistance of counsel when they change firms, despite the fact that there is significant sums of money and future business at stake. We represent advisors across the country in their transition efforts, including protocol compliance, promissory note negotiation, and review, advise and negotiation of employment agreements, promissory notes, transition payments, and everything in between.

Most of that work is done on a flat fee basis, at a reasonable cost. 

And it is certainly less expensive than hiring us to review the documents years later, when the advisor is looking to leave that same firm. Call us a212-509-6544 or email me at mja@sallahlaw.com

Wells Fargo Hires 9 Advisors Managing $1.12B 

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You Need Permission to Send Commercial Text Messages - 16.5 Million Dollar Settlement

Just like the rules for emails, you need to have permission to send commercial text messages or a prior business relationship. Papa John's learned that when a  customer calls on the phone to order a pizza, that is not permission to spam the customer's cell phone with text messages.

Papa John's Settles Text Spamming Suit for $16.5 Million

 

SEC, FINRA Warn Investors About Pump-And-Dump Stock Spam

The SEC and the Financial Industry Regulatory Authority (FINRA) issued a warning to investors about a sharp increase in e-mail linked to "pump-and-dump" stock schemes.

The investor alert entitled Inbox Alert - Don't Trade on Pump-And-Dump Stock E-mails notes that the latest McAfee Threats Report confirms a steep rise in spam e-mail linked to bogus "pump-and-dump" stock schemes designed to trick unsuspecting investors. These false claims could also be made on social media such as Facebook and Twitter as well as on bulletin boards and chat room pages.

"Investors should always be wary of unsolicited investment offers in the form of an e-mail from a stranger," said Lori Schock, Director of the SEC's Office of Investor Education and Advocacy. "The best response to investment spam is to hit delete."

"Spam e-mail is the bait used to lure people into making bad investment decisions. No one should ever make an investment based on the advice of an unsolicited email," said Cameron Funkhouser, Executive Vice President of FINRA's Office of Fraud Detection and Market Intelligence.

Pump-and-dump promoters frequently claim to have "inside" information about an impending development. Others may say they use an "infallible" system that uses a combination of economic and stock market data to pick stocks. These scams are the inbox equivalent of a boiler room sales operation, hounding investors with potentially false information about a company.

The attorneys at Sallah Astarita & Cox, LLC have decades of experience in stock fraud litigation. For more information contact us by email or visit our website at www.sallahlaw.com. For more information on this particular matter,  visit SEC, FINRA Warn Investors About Pump-And-Dump Stock Spam.

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SEC Charges Revlon with Misleading Shareholders in Going Private Transaction

The SEC charged cosmetics and beauty care manufacturer Revlon with violating federal securities laws when the company misled shareholders during a "going private transaction."

Going private transactions can occur in many forms and typically involve the company delisting and deregistering its stock and cashing out their shareholders so the company or a private equity firm can acquire all of the outstanding shares. An SEC investigation found that during a voluntary exchange offer to satisfy a significant debt to its controlling shareholder, Revlon engaged in "ring fencing" that deprived its independent board members from knowing critical information: the transaction's consideration had been deemed inadequate by a third party who evaluated whether current and former employees invested in Revlon common stock through the company's 401(k) plan could exchange their shares.

Revlon agreed to settle the SEC's charges and pay an $850,000 penalty.

"Going private transactions create opportunities for shareholder abuse and can have coercive effects on minority shareholders," said Antonia Chion, Associate Director in the SEC's Division of Enforcement. "By erecting informational barriers, Revlon kept critically important information from its board and, in turn, misled investors."

According to the SEC's order instituting settled administrative proceedings, controlling shareholder MacAndrews and Forbes (M&F) asked Revlon in 2009 to offer minority shareholders the option to exchange their common stock shares on a one-for-one basis for preferred shares with certain financial characteristics. The exchanged shares would then be provided to M&F to pay down Revlon's debt. The trustee administering Revlon's 401(k) plan decided that 401(k) members could tender their shares only if a third-party financial adviser made an "adequate consideration determination," which involved assessing whether the value of the preferred stock 401(k) members would receive was at least equal to the fair market value of the exchanged common stock shares. The third-party financial adviser ultimately found that the consideration offered in the transaction was inadequate for tendering 401(k) shareholders.

The attorneys at Sallah Astarita & Cox, LLC are available for consultation on going private transactions, as well as representing in claims involving misrepresentations in connection with such transactions. For more information contact us by email or visit our website at www.sallahlaw.com. For more information on this case, visit SEC Charges Revlon with Misleading Shareholders in Going Private Transaction.

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SEC Announces More Charges in Massive Kickback Scheme to Secure Business of Venezuelan Bank

The SEC charged the former head of the Miami office at brokerage firm Direct Access Partners (DAP) for his role in a massive kickback scheme to secure the bond trading business of a state-owned Venezuelan bank.

The SEC charged four individuals last month who enabled the global markets group at DAP to generate more than $66 million in revenue from transaction fees related to fraudulent trades they executed for Banco de Desarrollo Económico y Social de Venezuela (BANDES). A portion of this revenue was illicitly paid to the Vice President of Finance at BANDES, who authorized the fraudulent trades.

The SEC alleges that the managing partner of the global markets group was an integral participant in the wide-ranging fraudulent scheme that included sham arrangements to hide the kickback payments and route money to the BANDES official through shell corporations. The managing partner and others charged in the scheme deceived DAP's clearing brokers, executed internal wash trades, interpositioned another broker-dealer in the trades to conceal their role in the transactions, and engaged in massive roundtrip trades to pad their revenue.

"For a scheme this bold to succeed, it required the sneaky collaboration of several individuals including the head of the Miami office," said Andrew M. Calamari, Director of the SEC's New York Regional Office. "[The managing partner] and the others may have believed they were covering their tracks, but the SEC's exam and enforcement teams unraveled their fraud."

In a parallel action, the U.S. Attorney's Office for the Southern District of New York announced criminal charges against the managing partner.

The attorneys at Sallah Astarita & Cox, LLC  have decades of experience in securities fraud investigations and in defending white collar criminal cases. For more information contact us by email or visit our website at www.sallahlaw.com. For more information on this case, visit SEC Announces More Charges in Massive Kickback Scheme to Secure Business of Venezuelan Bank.

Former Mutual Fund Directors Agree to Settle Claims That They Failed to Properly Oversee Asset Valuation

The SEC announced a settlement in an enforcement proceeding against eight former directors of five Regions Morgan Keegan open- and closed-end funds that were heavily invested in securities backed by subprime mortgages. The proceeding, which began in December 2012, alleged that the directors failed to satisfy their pricing responsibilities under the federal securities laws.

Under the securities laws, fund directors are responsible for determining the fair value of portfolio securities for which market quotations are not readily available. In addition, fund directors must determine the methodologies to be used to fair value securities and must periodically reevaluate the appropriateness of those methodologies. The Commission made clear in Accounting Series Release No. 118 (Dec. 23, 1970) and In the Matter of Seaboard Associates Inc., Investment Company Act Release No. 13890 (April 16, 1984) that while fund directors may engage others to assist them to calculate fair values of these securities, they continue to be ultimately responsible to determine fair value in good faith.

The settled order finds that the eight directors failed to satisfy these responsibilities. Specifically, the directors delegated their fair valuation responsibility to a valuation committee without providing adequate substantive guidance on how fair valuation determinations should be made. The directors then made no meaningful effort to learn how fair values were being determined. They received only limited information about the factors involved with the funds' fair value determinations, and obtained almost no information explaining why particular fair values were assigned to portfolio securities. The limited information provided to the directors was particularly problematic because fair valued securities comprised a significant percentage of the funds' net asset values (NAVs) - in most cases above 60 percent.

The settled order finds that the valuation committee to whom the directors delegated the fair valuation responsibilities did not utilize reasonable procedures and often allowed the portfolio manager to arbitrarily set values. As a result, the settled order finds that the funds overstated the value of their securities as the housing market was on the brink of financial crisis in 2007. The SEC and other regulators previously charged Morgan Keegan and others, and the firms later agreed to pay $200 million to settle charges related to that conduct.

For more information regarding SEC enforcement actions and the defense of those accused, contact Mark Astarita at Sallah Astarita & Cox, LLC. For more information on this particular case, seeit Former Mutual Fund Directors Agree to Settle Claims That They Failed to Properly Oversee Asset Valuation.

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SEC Charges CBOE for Regulatory Failures

This is a twist that we haven't seen since the SEC went after the NASD. The SEC has charged the Chicago Board Options Exchange (CBOE) and an affiliate for various systemic breakdowns in their regulatory and compliance functions as a self-regulatory organization, including a failure to enforce or even fully comprehend rules to prevent abusive short selling.

CBOE agreed to pay a $6 million penalty and implement major remedial measures to settle the SEC's charges. The financial penalty is the first assessed against an exchange for violations related to its regulatory oversight. Previous financial penalties against exchanges involved misconduct on the business side of their operations.

Self-regulatory organizations (SROs) must enforce the federal securities laws as well as their own rules to regulate trading on their exchanges by their member firms. In doing so, they must sufficiently manage an inherent conflict that exists between self-regulatory obligations and the business interests of an SRO and its members. An SEC investigation found that CBOE failed to adequately police and control this conflict for a member firm that later became the subject of an SEC enforcement action. CBOE put the interests of the firm ahead of its regulatory obligations by failing to properly investigate the firm's compliance with Regulation SHO and then interfering with the SEC investigation of the firm.

According to the SEC's order instituting settled administrative proceedings, CBOE demonstrated an overall inability to enforce Reg. SHO with an ineffective surveillance program that failed to detect wrongdoing despite numerous red flags that its members were engaged in abusive short selling. CBOE also fell short in its regulatory and compliance responsibilities in several other areas during a four-year period.

"The proper regulation of the markets relies on SROs to aggressively police their member firms and enforce their rules as well as the securities laws," said Andrew J. Ceresney, Co-Director of the SEC's Division of Enforcement. "When SROs fail to regulate responsibly the conduct of their member firms as CBOE did here, we will not hesitate to bring an enforcement action."

For more information, visit SEC Charges CBOE for Regulatory Failures.

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FL Court Rules Statute of Limitations Apply in Arbitration

We finally have a ruling on the questionable argument that is often advanced that the statute of limitations does not apply in arbitration. The argument is premised on a contorted interpretation of a Florida statute and requires one to believe that an arbitration proceeding is not a "civil action or proceeding." Unfortunately, a lower court agreed with this argument, and ruled that the statute of limitations did not apply when a dispute was brought in arbitration, rather than court. The Florida Supreme Court reversed.

Every so often a claimant attempts to convince an arbitration panel that the statute of limitations does not apply to their claims. For better or worse, every type of legal claim has a statute of limitations. The Florida statute adopting limitation periods uses the phrase "civil action or proceeding." In an attempt to avoid the limitations period, some attorneys have argued that an arbitration is not a "civil action or proceeding." The argument continues to the illogical conclusion, that there is no statute of limitations for a claim that is brought in arbitration, and the only restriction is whether or not an arbitration forum will process an old claim.
Fortunately, the language used in the Florida statute is not used by a significant number of states, and in those states the door is not open to such wordsmithing. That door is also now shut in Florida, and we can expect it to be shut in other states where similar language is used.

The Florida Supreme Court put an end to this, and ruled that Florida's statute of limitations apply not only to court proceedings, but to securities arbitration cases between investors and their brokers. The ruling resolves this dispute and forces investors to file their claims in a timely fashion like everyone else.

While some in the press are calling this a significant blow to investors, this is nothing more than a court enforcing the law. Very few states use the phrasing that is used in the Florida statute, and this is not a significant change in arbitration practice.

The simple fact is, you need to pay attention to the statute of limitations, whether you are in court, or in arbitration.

The attorneys at Sallah Astarita & Cox have represented parties in hundreds of arbitrations in over 20 states. For more information regarding our securities arbitration representation, contact us by email or visit our website at www.sallahlaw.com. For more information on this case, visit
Florida court rules state time limits apply to securities arbitration

SEC, FINRA Issue Investor Alert On Pension or Settlement Income Streams

The SEC and FINRA issued an investor alert entitled Pension or Settlement Income Streams – What You Need to Know Before Buying or Selling Them. The investor alert informs investors about the risks involved when selling their rights to an income stream or investing in someone else’s income stream.  

The alert urges investors considering an investment in pension or settlement income streams to proceed with caution. Anyone receiving a monthly pension or regular distributions from a settlement following a personal injury lawsuit may be targeted by salespeople offering an immediate lump sum in exchange for the rights to some or all of the payments the person would otherwise receive in future. 

ypically, recipients of a pension or structured settlement will sign over the rights to some or all of their monthly payments to a factoring company in return for a lump-sum amount, which will almost always be significantly lower than the present value of that future income stream.

“Investors should always learn as much as possible before making an investment decision, and this is certainly true with respect to investing in pension or structured settlement income stream products,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy.   “This alert will help investors understand the costs as well as the potentially significant risks of these transactions.”

SEC, FINRA Issue Investor Alert On Pension or Settlement Income Streams; Release No. 2013-86; May 9, 2013

FINRA Wants Your Facebook Account

You read that right, just as the SEC is embracing social media, FINRA wants access to brokers' Facebook accounts.

We all know that an employer's demand for access to an employees Facebook account is illegal in many states, and probably illegal in all. It is simply an outrageous overreaching and an invasion of privacy. But such things do not seem to bother FINRA. FINRA is actively seeking to have its member firms exempted from the laws, all in the name of "investor protection."

According to this article on CNN.com, FINRA wants legislatures to exempt broker-dealers from the privacy ban, and allow firms access to the Facebook accounts of all registered representatives, to insure that they are not posting stock tips or other communications related to their business.

While FINRA denies that it does not want firms to conduct routine surveillance of Facebook accounts, it has declined to comment on specifics as to how it proposes such monitoring to work.

Imagine this - your boss has access to your Facebook account, which gives him access to all of your posts, all of your friends' posts, all of your pictures, likes, etc. Given the flagrant abuses by the firms of their access to business related emails, one can only imagine what they will do with Facebook accounts.

And then of course, since the firm has access, FINRA has access, and once FINRA has your Facebook account, so does the SEC.

So, FINRA wants to give your boss access to your Facebook account. Next they want to monitor your cellphone, your home phone, your personal email. After all, you might mention a stock while talking on your cellphone.

Hopefully this will be shot down before it gains any traction. Once again, brokers need that trade organization that they simply refuse to join, but there are other ways to prevent brokers from using Facebook for illicit purposes, the same methods that are currently in use for cellphones and email.

If anyone has run into an issue with their broker-dealer wanting access to their Facebook or other social media account, I would love to hear from you. All information will be kept strictly confidential. Call me at 212-509-6544 or email me at astarita@beamlaw.com.

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