Thursday, December 12, 2013
Monday, December 9, 2013
The reality is that the wirehouses would prefer that individual advisers did not exist, so that they could put the commission side of the ledger into the profit column. While that is not going to happen, the firms are moving in that direction. Decreasing commissions, making it impossible to remove false U-5 filings, increased and defamatory BrokerCheck disclosures all have the effect of reducing broker mobility and advancement.
We see these issues every day in our practice - gimmicks to reduce compensation and to increase hurdles, increasing the use of the "zero compensation" for small account policy, bogus terminations in order to avoid bonus payments, or stealing profitable books of business, abusive partnership agreements, and false U-4 and U-5 disclosures. We continue to fight these abuses on behalf of our financial professional clients, but that is one fight at a time, and not a fight that every professional can afford to mount.
And there are the changes that cannot be economically challenges - because the cost to an individual professional is relatively small, but the benefit to the firm is in the millions of dollars. While by no means the worst offender, Morgan Stanley is the latest. It has announced its 2014 compensation plan. In the second amendment in three years following the Smith Barney acquisition, Morgan Stanley is raising revenue bands by 10% for advisors bringing in under $2.5 million. A $1 million producer, for example, would now have to make $1.1 million to attain the same 44% payout.
Fee based account payouts will be decreased by an ‘investment services fee’ of 5 basis points, or 0.05%, on assets held in fee-based accounts. The fee will apply to new money as of 2014. We expect to see that "fee" applied to all accounts by 2015.
Watch for a similar announcement from WeWells, Merrill and UBS.
For more detail see Morgan Stanley Raises the Bar with 2014 Comp Plan
The attorneys at Sallah Astarita & Cox include veteran securities litigators, former SEC Enforcement Attorneys and brokerage firm attorneys. We have decades of experience in securities employment matters, having represented hundreds of professionals for over 30 years. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.
In 1999 FINRA adopted what it called a Discovery Guide, a series of lists of documents which were presumptively discoverable in specific classes of cases. The Discovery Guide was overhauled in 2011. FINRA has announced another Discovery Guide amendment, which will be effect for cases filed after December 2, 2013.
The Guide, which is often controversial, was an attempt to streamline the discovery process, but in doing so, it shifted the burden of proof in a discovery dispute from the party making the request, to the party receiving the request. Customers complained that their financial records had to be turned over to the other side in every case, firms complained about turning over internal policy documents, personnel files and similar documents.
The reality is that as time went on, the process did become streamlined, and while a Guide will never remove discovery disputes, many category of documents have been removed from such disputes. There is no doubt that there are some individual items in the Guide that are troublesome, but in those instances, the parties have the ability to file and objection and make an argument to the Chair of the arbitration panel.
Last week FINRA made two new additions to the Discovery Guide - one for electronic discovery, and the other for product cases. The first should not bee too controversial, and conforms to the way these issues aer handled in practice. The second is going to create some issues, as it vastly expands the discovery obligations of broker-dealers in cases where a particular product or security is at issue - such as the Lehman Note Cases against UBS, or the Auction Rate Securities case, or any of the private placement cases of recent years.
The guide’s introduction states that electronic files are documents within the meaning of the guide and that arbitrators decide any disputes that arise about the form in which a party produces a document. FINRA amended the guide to provide that parties are encouraged to discuss the form in which they intend to produce documents and, whenever possible, to agree to the form of production. The provision requires parties to produce electronic files in a “reasonably usable format.” The term reasonably usable format refers, generally, to the format in which a party ordinarily maintains a document, or to a converted format that does not make it more difficult or burdensome for the requesting party to use in connection with the arbitration.
The guide instructs arbitrators who are resolving contested motions about the form of production, to consider the totality of the circumstances, including, among other matters, the following three factors:
- for documents in a party’s possession or custody, whether the chosen form of production is different from the form in which a document is ordinarily maintained;
- for documents that must be obtained from a third party (because they are not in a party’s possession or custody), whether the chosen form of production is different from the form in which the third party provided it; and
- for documents converted from their original format, a party’s reasons for choosing a particular form of production; how the documents may be affected by the conversion to a new format; and whether the requesting party’s ability to use the documents is diminished by a change in the documents’ appearance, searchability, metadata or maneuverability.
FINRA amended the guide’s introduction to add guidance on product cases. Product cases are unique customer cases that differ from other customer cases in several ways. The amended text provides that a product case is one in which one or more of the asserted claims centers around allegations regarding the widespread mismarketing or defective development of a specific security or specific group of securities. It enumerates some of the ways that product cases are different from other customer cases, including that:
- the volume of documents tends to be much greater;
- multiple investor claimants may seek the same documents;
- the documents are not client specific;
- the product at issue is more likely to be the subject of a regulatory investigation;
- the cases are more likely to involve a class action with documents subject to a mandatory hold;
- the same documents may have been produced to multiple parties in other cases involving the same security or to regulators; and
- documents are more likely to relate to due diligence analyses performed by persons who did not handle the claimant’s account.
Tuesday, November 26, 2013
The Securities and Exchange Commission today announced fraud charges against a Detroit-based investment advisory firm and a portfolio manager for deceiving the trustees of a money market fund and failing to comply with rules that limit risk in a money market fund’s portfolio. Money market funds seek to maintain a stable share price by investing in highly safe securities. Under the federal securities laws, a money market fund may only invest in securities determined by the fund’s board of trustees to present minimal credit risk.
The SEC’s Enforcement Division alleges that Ambassador Capital Management and Derek Oglesby repeatedly made false statements to trustees of the Ambassador Money Market Fund about the credit risk in the securities they purchased for its portfolio. Trustees also were misled about the fund’s exposure to the Eurozone credit crisis of 2011 and the diversification of the fund’s portfolio.
“Money market fund managers must not hide the ball from a fund’s board,” said George S. Canellos, co-director of the SEC’s Enforcement Division. “Ambassador Capital Management and Oglesby weren’t truthful about whether securities in the portfolio threatened to destabilize the fund, and they failed to operate under the strict conditions designed for money market fund managers to limit risk exposure and maintain a stable price.”
The enforcement action stems from an ongoing analysis of money market fund data by the SEC’s Division of Investment Management, in this case a review of the gross yield of funds as a marker of risk. The performance of the Ambassador Money Market Fund was identified as consistently different from the rest of the market. Upon further examination by the SEC’s Office of Compliance Inspections and Examinations, the matter was referred to the Enforcement Division’s Asset Management Unit for investigation.
For more information - SEC.gov | SEC Announces Fraud Charges Against Detroit-Based Money Market Fund Manager
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 the defense of enforcement actionsand representation of investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.
Friday, November 22, 2013
The SEC alleges that Sam Miri, who worked in the communications division at Marvell Technology Group, tipped confidential information about the company’s financial performance to former Galleon Management portfolio manager Ali Far. He used the nonpublic information provided by Miri to trade Marvell securities on behalf of hedge funds that he founded after leaving Galleon. Far and Spherix Capital, who were among those earlier charged by the SEC in the Galleon matter, earned hundreds of thousands of dollars in illicit profits based on Miri’s tips.
In exchange for the illegal tips, Far arranged four quarterly payments to Miri totaling approximately $10,000. Miri, who lives in Palo Alto, Calif., has agreed to settle the SEC’s charges by paying more than $60,000 and being barred from serving as an officer or director of a public company.
According to the SEC’s complaint filed in federal court in Manhattan, Miri tipped Far in May 2008 with inside information about Marvell’s plans to announce a permanent chief financial officer after a string of interim chief financial officers. With an earnings announcement scheduled for later that month, Miri also revealed confidential information about Marvell’s sales revenue and profitability as well as projections of future earnings potential. In the days leading up to the announcement, Spherix Capital hedge funds purchased approximately 300,000 shares of Marvell common stock. When the stock climbed more than 20 percent after Marvell announced its quarterly financial results and new CFO on May 29, Far’s hedge funds reaped approximately $680,000 in ill-gotten gains.
The SEC’s complaint charges Miri with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Miri agreed to pay $10,000 in disgorgement, $1,842.90 in prejudgment interest, and a $50,000 penalty. Miri also agreed to be barred from serving as an officer or director of a public company for five years. Without admitting or denying the charges, Miri agreed to be permanently enjoined from future violations of these provisions of the federal securities laws. The settlement is subject to court approval.
For more information visit http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540396057
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 the defense of enforcement actions. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.
The SEC alleges that Gary C. Snisky of Longmont, Colo., primarily targeted retired annuity holders by using insurance agents to sell interests in his company Arete LLC, which posed as a safe and more profitable alternative to an annuity. Investors were told their funds would be used to purchase government-backed agency bonds at a discount, and Snisky as an institutional trader would use the bonds to engage in overnight banking sweeps.
However, Snisky did not purchase bonds or conduct any such trading, and he misappropriated approximately $2.8 million of investor funds to pay commissions to his salespeople and make personal mortgage payments.
In a parallel action, the U.S. Attorney’s Office for the District of Colorado filed criminal charges against Sinsky.
According to the SEC’s complaint filed in federal court in Denver, Snisky raised at least $3.8 million from more than 40 investors in Colorado and several other states. Beginning in August 2011, Snisky recruited veteran insurance salespeople who could sell the Arete investment to their established client bases that owned annuities. The majority of investors in Arete used funds from IRAs or other retirement accounts.
The SEC alleges that Snisky described Arete as an “annuity-plus” investment in which, unlike typical annuities, investors could withdraw principal and earned interest with no penalty after 10 years while still enjoying annuity-like guaranteed annual returns of 6 to 7 percent. Snisky emphasized the safety of the investment, calling himself an institutional trader who could secure government-backed agency bonds at a discount and save middleman fees.
Snisky’s sales pitch was so convincing that even one of his salespeople personally invested retirement funds in Arete. The SEC alleges that Snisky created and provided all of the written documents that the hired salespeople used as offering materials to solicit investors. Snisky also showed salespeople fraudulent investor account statements purporting to show earnings from Arete’s investment activity.
Following an initial influx of investors, Snisky organized at least two seminars where he met with investors and salespeople. He introduced himself as the institutional trader behind Arete’s success, and encouraged investors to spread the word. Snisky hand-delivered fraudulent account statements to investors attending the seminars to mislead them into believing their investments were performing as promised.
The SEC’s complaint against Snisky seeks a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, and a financial penalty. As always, investors are left on their own to recover their losses, as the SEC does not pursue individual investor claims.
For more information visit SEC.gov | SEC Charges Colorado Man in Scheme Targeting Elderly Investors
The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.
I remember the day that Dow reached 10,000, and it doesn't seem that long ago, but yesterday the Down closed above 16,000 for the first time. Press reports say that economic data pointed to a slowly improving labor market and subdued inflation is responsible for the rise in the markets. Financial shares led the market to its first day of gains after three sessions of losses. Although investors remain unsure about the timing of the Federal Reserve's scaling back of its $85 billion per month in bond buying, some say the market will weather the eventual pullback in that stimulus.
For more information visit Dow ends above 16,000 for first time, boosted by data
Last month, Adobe announced hackers stole login information for some 38 million of its customers. This month estimates have run as high as 150 million users.
Many Internet companies are now notifying their users to change their password. As we all know, despite the risk, we use the same password at different sites. If the hackers have your email address and password at Adobe, maybe they have your email address and password for Facebook, or LinkedIn, or Evernote, or Dropbox, or............the possibilities are endless.
You need to change your passwords. To make this a bit easier, you can check if your account was one of the ones obtained by the hackers - press reports say that if you have an account at Adobe, your information was stolen, it is that bad.
Information on how to find out if you were includes is at http://www.zdnet.com/find-out-if-your-data-was-leaked-in-the-adobe-hack-7000023065/
Change your passwords!
For more information visit After Adobe Hack, Other Sites Reset Passwords - Digits - WSJ
Tuesday, November 19, 2013
For more information - JPMorgan $13 billion mortgage settlement expected Tuesday
Court Can Require Social Media Records To Be Produced, But Request Should Be Narrowly Tailored