A pair of FINRA Rule revisions designed to protect seniors from financial exploitation become effective February 5. The Rules require member firms to request "Trusted Contact Person" information and impose short account-disbursement holds upon reasonable suspicion of financial exploitation.
FINRA Rule 2165 applies to retail accounts held by a "Specified Adult," defined as at least 65 years old, or otherwise impaired and unable to protect her own interests. The Rule allows a 15-day temporary hold on disbursements from an account upon reasonable suspicion of financial ...
On January 12, the US Supreme Court agreed to review the constitutionality of the SEC's administrative law judges.
On November 29, 2017, the SEC did an abrupt about-face, telling the Court it now regards its ALJs as inferior officers and no longer would defend the lower-court decisions against Lucia. The next day, the SEC itself ratified the appointments of its ALJs. Nevertheless, the Commission argued that the Court should grant cert, appointing an amicus to defend the D.C. Circuit's opinion and considering the "for-cause" removal requirement for current ALJs.
It remains to be seen ...
The Sixth Circuit recently affirmed that failure-to-supervise claims against a brokerage firm over outside business activities it knew nothing about nevertheless were arbitrable under FINRA Rule 12200(2) as "arising in connection with the business activities of the member" firm.
The firm's representative worked together with an outside financial advisor and others to divert a firm customer's assets from an outside bank account to a fraudulent outside business activity. The customers' funds transferred into the brokerage account, out to a bank account and from there to the ...
FINRA recently published its 2018 Annual Regulatory and Examination Priorities Letter, which identifies opportunities for firms to improve their compliance, supervisory and risk management policies or programs. The Letter includes areas that FINRA will focus their efforts on in 2018, and can be a template for upcoming examinations. While certain topics continue to appear on the annual letters, new topics are also included in the 2018 letter. As part of the ongoing initiative, FINRA will continue to provide resources for firms to improve in these areas, including measures to ...
On February 5, 2018, FINRA will enact two rules to assist brokers with addressing financial exploitation of the elderly. Statistically, the elderly have a 1 in 20 chance of being a victim of financial exploitation. [Financial Exploitation of Older Adults: A Population-Based Prevalence Study, Journal of General Internal Medicine (2015)]. As financial abuse, especially of the elderly, continues to be a concern, the SEC approved FINRA's request to amend FINRA rule 4512 ("Customer Account Information"), found here, and approved new rule 2165 ("Financial Exploitation of Specified ...
Implemented in September, the Securities Exchange Commission's ("SEC") Cyber Unit has brought its first enforcement action against an "Initial Coin Offering" ("ICO") called PlexCoin. ICOs, which are listed on digital exchanges, are designed to raise money through the issuance of digital tokens. Generally, coins or tokens entitle investors certain rights related to a venture underlying the ICO, such as a right to profits, shares of assets, rights to use certain services provided by the issuer, and/or voting rights. The SEC recently hinted that an ICO's digital coins are ...
On November 29, the SEC did an about-face and admitted its ALJs are "inferior officers" (not merely employees) subject to the Constitution's Article II appointment provisions. The Solicitor General's brief on behalf of the Commission sided with the argument of its opponent, Raymond Lucia; DOJ urged the Supreme Court to resolve a circuit split by ruling against the SEC's litigation position below and overturning the prior decision by the Court of Appeals for the DC Circuit.
The next day, the Commission took formal action ratifying the appointment of its ALJs, thus complying with the ...
Morgan Stanley announced October 30 that it would exit the Protocol for Broker Recruiting, as part of strategy "to refocus [recruiting] resources on existing talent."
Adopted in 2004, the Protocol is a broad industry covenant-not-to-sue meant to establish basic free-fire rules for recruiting among its 1500 or so signatories. For years, firms recruited heavily from one another to boost assets under management [sometimes called "prisoner exchanges"], using techniques like front-money bonuses paid through wasting promissory notes. The Protocol was instituted to reduce the ...
The Tennessee Supreme Court recently held that Tennessee's Trust Code and broad trust-instruments authorize a Trustee's execution of a pre-dispute arbitration clause. That isn't a per se breach of fiduciary duty, but the Court left that door slightly ajar. Moreover, a third-party relying on it will have to litigate whether it binds a non-signatory beneficiary.
The Guardian of tragically injured minor child sued the Trustees and financial advisors (and their firms) for breach of fiduciary and other duties in depletion of the child's personal-injury-proceeds Trust. The ...
Cut, paste and forward ‒ just as the boss instructed. But Lorenzo's email to two clients was misleading, so the SEC filed an enforcement action. The ALJ held Lorenzo liable for violating anti-fraud provisions and imposed a C&D plus a $15,000 penalty. The full Commission reviewed the case de novo and imposed a permanent industry bar along with the $15,000 fine.
On appeal, a split panel of the D.C. Circuit affirmed on liability but remanded to the Commission for reconsideration of the penalty. The majority held Lorenzo was not a "maker" of a Rule 10b-5(b) "false statement," but his ...