The Tennessee Court of Appeals recently held that a trustee's signature of brokerage account agreement containing a pre-dispute arbitration clause did not bind the trust's minor beneficiary. The Court held that an "all powers allowed by law" clause in the trust agreement did not authorize the Trustee to enter a pre-dispute arbitration agreement. Instead, another more specific clause providing the "Trustee may settle, by compromise, arbitration or otherwise any and all claims" limited the grant of that authority only to claims that have arisen. See Tenn. Code Ann. § ...
This week the SEC's Office of Compliance Inspections and Examinations ("OCIE") announced a second-round of cybersecurity examinations, continuing its initiatives on the issue. The move follows the SEC's: March 2014 roundtable of regulators and industry representatives; April 2014 Risk Alert announcing a sweep exam to identify risks and issues; and February 2015 summary observations from that sweep. In this second round of exams, OCIE will engage in more testing directed at firms' implementation of key controls and procedures, especially:
In a strongly-worded public statement last week, SEC Commissioner Gallagher chided the Commission for "cutting off the noses of CCO's to spite its face." Explaining his dissent in two recent enforcement actions imposing sanctions on investment-advisor Chief Compliance Officers, the Gallagher accused the Commission and its Enforcement staff of wrongly blurring the lines between the CCO's (staff) function of administering compliance programs and the business-line obligation to implement them (through supervision). Gallagher is "especially worried" about creating ...
The Financial Industry Regulatory Authority ("FINRA") recently filed a proposed rule change with the Securities and Exchange Commission ("SEC") to amend Rules 12214 and 12601 of the Code of Arbitration for Customer Disputes ("Customer Code") and Rules 13214 and 13601 of the Code of Arbitration Procedure for Industry Disputes ("Industry Code") (collectively, "Codes") to require that parties to an arbitration to provide more advance notice before cancelling or postponing a hearing or pay a higher cancellation fee if advance notice is not provided. These changes are ...
The Securities Exchange Commission announced June 18 the first major wave of underwriter sanctions under its Municipalities Continuing Disclosure Cooperation ("MCDC") Initiative. The SEC sanctioned 36 municipal underwriting firms a total of about $9 million. The SEC's Enforcement Division announced the MCDC Initiative in March 2014 as part of the Commission's increased focus on municipal markets. The Initiative aims to improve compliance with regulations requiring municipal-issuers to periodically update their financial disclosures - and did so by asking issuers and ...
In a ruling that may signal the end to much of the litigation over mortgage-backed securities, New York's highest court held limitations for breach of warranty litigation over portfolio loans run from the MLSA closing date and not from breach of the contractual repurchase obligation. Many investors have argued that a sponsor's obligation to repurchase non-conforming loans constitutes a separate "springing" obligation 150 days after notice of a non-conforming loan (60 for cure, then 90 for repurchase). The Court rejected that notion, in favor of its long-standing preference ...
Deutsche Bank, a German lender agreed to plead guilty and pay $2.5 billion to settle with regulators in the United States and the United Kingdom in connection with criminal charges that it rigged and manipulated the London interbank offered rate ("Libor"). Regulators announced the settlement Thursday, April 23, 2015. According to the regulators Libor is a benchmark for interest rates that apply to trillions of dollars of financial contracts. (Eyk Henning, "Deutsche Bank to Pay $2.5 billion to Settle Libor Investigation With U.S., U.K. Authorities," Wall Street Journal (April 23 ...
We've all done it: Read the docket description in the notice of electronic filing ("NEF") and have your paralegal download the order and add it to the pleadings file. But you have to read the order: The clerk's mis-description in an NEF could cost your client its appeal. Three of the four post-verdict JMOLs in the patent litigation were confidential, so were filed with motions for leave to seal them. The fourth JMOL wasn't. The first three NEF's read "Order granting motion for leave to file sealed documents" (referring only to the Doc. No. of the motion to seal). Then the court docketed ...
Addressing the annual meeting of the Compliance & Legal Division of the Securities Industry and Financial Markets Association, Manhattan U.S. Attorney Preet Bharara stressed the importance of industry compliance and legal personnel as gatekeepers in risk avoidance and loss prevention. Bharara started with a nod to the "necessity and importance" of corporate prosecutions as drivers of change for persistent and systemic problems. Noting the CommerzBank deferred prosecution agreement among other recent cases, he repeated his now-annual refrain that corporate ...
On February 20, 2015, Chairwoman of the United States Securities and Exchange Commission ("SEC"), Mary Jo White, spoke at the 2015 SEC Speaks Conference in Washington, D.C. During her speech, Chairwoman White addressed a number of topics in providing an overview of the SEC's activities and initiatives during 2014.
In particular, Chairwoman White commented on reforms made with respect to U.S. money market funds via the promulgation of new SEC rules in July 2014. Under these new rules, institutional prime money market funds will be required to maintain a floating net asset value ...
In a previous blog, we explained that the Supreme Court was considering whether a defendant merely has to allege jurisdictional facts or provide evidence regarding the amount in controversy when removing a case. On December 15, 2014, the Supreme Court answered the question. In Dart Cherokee Basin Operating Co., LLC v. Owens, No. 13-719, 2014 WL 7010692 (U.S. Dec. 15, 2014), the Court held that, pursuant to 28 U.S.C. § 1446(a), a defendant's notice of removal need include only a plausible allegation that the amount in controversy exceeds the jurisdictional threshold. The notice need ...
The Alabama Court of Civil Appeals released a slip opinion on May 16, 2014 addressing enforcement of a nonsolicitation agreement against a licensed securities broker. See G.L.S. & Associates, Inc., and G.L. Smith & Associates, Inc. v. Keith Rogers, No. 2130322 (Ala. Civ. App. May 16, 2014) (Slip Opinion). The defendant (Rogers) worked for a securities firm (GLSA) and had an employment agreement that contained a nonsolicitation provision which prohibited Rogers from soliciting GLSA's clients for a period of two years after termination of employment. Rogers resigned from his ...
The American Commodity Futures Trading Commission (CFTC), British Financial Conduct Authority (FCA), and Swiss Financial Market Supervisory Authority (FINMA) announced fines of $3.4 billion against five global banks on Wednesday, November 12th, 2014. The five banks were UBS ($799 million), Citigroup ($668 million), JP Morgan Chase ($662 million), the Royal Bank of Scotland ($634 million), and HSBC ($618 million). Of the total fine, $1.77 billion came from the FCA, $1.475 billion came from the CFTC, and $138 million came from FINMA. All of the banks had set aside funds as reserves ...
Last week the Fifth Circuit weighed in on how inartfully crafted arbitration and forum-selection clauses might trump one another. Together with recent decisions from the Second and Ninth Circuits - each with cert petitions pending - the issue seems poised for Supreme Court determination. Forum-Selection vs Arbitration Pending Supreme Court? The Second and Ninth Circuits held that a subsequent contractual forum-selection clause requiring all disputes to be resolved in a specified federal-court trumps FINRA's base requirement that FINRA member firms must arbitrate upon a ...
The Class Action Fairness Act of 2005 ("CAFA") outlines the federal courts' diversity jurisdiction over class actions. Among other things, it increased the amount in controversy to $5 million (28 U.S.C. § 1332(d)(2), (6)), and rather than complete diversity, only requires one plaintiff be diverse from one defendant (28 U.S.C. § 1332(d)(2)). In a recent case, the issue arose as to whether the defendant merely had to allege jurisdictional facts to support removal of the matter to federal court, or whether it had to submit evidence to support, for instance, the amount in controversy ...
State or local government entities, special tax districts, hospital districts and other municipal bond issuers face a December 1 deadline to respond to the SEC Enforcement Division's "Municipalities Continuing Disclosure Cooperation Initiative." The MCDC Initiative is part of regulatory and enforcement emphasis on the municipal-securities world resulting from Dodd-Frank. Municipal issuers are supposed to make continuing-disclosure filings of events affecting their outstanding bond issues (financial statements, ratings changes, tax shortfalls, etc.) like SEC ...
Twenty-seven European markets are transitioning to a T + 2 settlement cycle today, October 6, 2014. Until today, those markets settled transactions three days after the transaction date; beginning today, securities settlements will occur two days after the transaction date. The move puts Europe ahead of the United States, as the US has a T + 3 settlement date for most of its securities transactions. By shortening the cycle, the European Commission seeks to standardize settlement procedures across all of the affected European markets and to shorten the time needed to observe and ...
In my last blog post on interpleader actions, we explored the benefits a financial services firm can obtain from filing an interpleader action. An interpleader action protects the holder of assets (such as a bank account, brokerage account or life insurance policy proceeds) when there is a dispute between two or more parties claiming ownership. The holder, or stakeholder, can file an interpleader action to deposit the assets (the "res") into court to allow the competing claimants to litigate over the ownership of the property, allowing the stakeholder to be discharged from further ...
When a member or shareholder of a company or corporation sustains a loss, is that member's loss directly compensable by a direct suit? Or does the member have to bring a derivative suit on behalf of the corporation? While it may sound like an easy question, the inquiry involved to arrive at the answer can be confusing. Recently, the Third District Court of Appeals in Florida shed some light on the analysis. In Dinuro Investments, LLC v. Camacho et al., 2014 WL 3290609, ---So.3d--- (Fla. 3d DCA July 9, 2014), the plaintiff and the two defendants established an LLC to develop real property. The ...
The United States Supreme Court clarified the duty of prudence that employee stock ownership plan fiduciaries owe to plan participants in its June 25, 2014 decision Fifth Third Bancorp v. Dudenhoeffer 134 S.Ct. 2459 (U.S. 2014). The "presumption of prudence" no longer exists and employee stock ownership plan fiduciaries are subject to the same standard of prudence and liability as any ERISA fiduciary, aside from the duty to diversify. The United States Supreme Court addressed the "presumption of prudence" for employee stock ownership plan ("ESOP") fiduciaries. ESOPs are a type of ...
Almost every proposed corporate merger is met with a shareholder suit against the acquiring company, merger target and the target's board of directors in which the shareholders assert that the board breached its fiduciary duties by failing to maximize the value of the company and disseminated proxy statements that contained inadequate disclosures. In a recent case - Dent v. Ramtron International Corp., CIV.A. 7950-VCP, 2014 WL 2931180 (Del. Ch. June 30, 2014) - the Delaware Court of Chancery dismissed such a shareholder suit, and in doing so provided a detailed explanation of the ...
Earlier this week, the U.S. Supreme Court released its decision in Halliburton Co. v. Erica B. John Fund, Inc., (U.S., No. 13-317)( Halliburton II), and for a second time vacated a decision by the Fifth Circuit on whether the case should proceed as a class action. The plaintiff in the Halliburton case alleges that defendants made misrepresentations that were designed to inflate Halliburton's stock price in violation of § 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. In Halliburton II, in seeking reverse the lower court's ...
Financial services firms oftentimes can find themselves in the unenviable position of being in the middle of a dispute over money or property held by their clients. If two or more parties assert competing claims to the ownership of assets held at a financial institution, the institution with custody of the account-the "stakeholder"-can initiate a complaint in interpleader to allow a court to determine the rightful owner of the assets and obtain a discharge from further liability. Here is how an interpleader action operates and how it can protect the stakeholder: When a ...
Overpayment audits of physicians are common place and, indeed, should now be expected. When conducting such audits, Medicare auditors often include not only random sampling as an audit technique but have also extrapolated the results of that random sampling to arrive at overpayment claims that can be much larger. But is extrapolation legal? In a public payor (i.e., Medicare) audit, the answer is yes. For example, the Medicare Managed Care Manual not only requires that Medicare Advantage plans develop auditing systems, it specifically recognizes that auditors may extrapolate the ...
The Financial Industry Regulatory Authority ("FINRA") has, in recent months, increased its regulatory focus on investor awareness regarding closed-end funds ("CEFs"). In October of last year, FINRA issued an Investor Alert entitled "Closed-End Fund Distributions: Where is the Money Coming From." The alert sought to educate investors about CEFs and, specifically, about the sources of the periodic guaranteed distributions that make CEFs attractive to investors. This alert followed on the heels (relatively speaking) of six-figure fines levied against Merrill Lynch and UBS in ...
Rahman v. Kid Brands, Inc., 2013 WL 6038246 Shah Rahman, the plaintiff and appellant, brought a federal securities class action in March 2011 against defendant Kid Brands, Inc. and against individual defendants Bruce Crain, Guy Paglinco and Raphael Benaroya, officers of Kid Brands. In the Second Amended Complaint, Rahman alleged that the defendants mislead investors in Kid Brands by artificially inflating its stock price and issuing deceptive public financial reports and press releases dealing with Kid Brands' compliance with custom laws and Kid Brands' overall financial ...
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