Tuesday, July 29, 2014

SEC Adopts Money Market Fund Reform Rules

The SEC adopted amendments to the rules that govern money market mutual funds.  The amendments make structural and operational reforms to address risks of investor runs in money market funds, while preserving the benefits of the funds.
Today’s rules build upon the reforms adopted by the Commission in March 2010 that were designed to reduce the interest rate, credit and liquidity risks of money market fund portfolios.  When the Commission adopted the 2010 amendments, it recognized that the 2008 financial crisis raised questions of whether more fundamental changes to money market funds might be warranted. 
The new rules require a floating net asset value (NAV) for institutional prime money market funds, which allows the daily share prices of these funds to fluctuate along with changes in the market-based value of fund assets and provide non-government money market fund boards new tools – liquidity fees and redemption gates – to address runs. 

“Today’s reforms fundamentally change the way that money market funds operate.  They will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system,” said SEC Chair Mary Jo White.  “Together, this strong reform package will make our markets more resilient and enhance transparency and fairness of these products for America’s investors.”
For more information, visit: SEC Adopts Money Market Fund Reform Rules

Morgan Stanley to Pay $275 Million for Misleading Investors in Subprime RMBS Offerings

The SEC charged three Morgan Stanley entities with misleading investors in a pair of residential mortgage-backed securities (RMBS) securitizations that the firms underwrote, sponsored, and issued.
Morgan Stanley agreed to settle the charges by paying $275 million to be returned to harmed investors.
In an asset-backed securities offering, federal regulations under the securities laws require the disclosure of delinquency information for the mortgage loans serving as collateral.  An SEC investigation found that Morgan Stanley misrepresented the current or historical delinquency status of mortgage loans underlying two subprime RMBS securitizations that came against a backdrop of rising borrower delinquencies and unprecedented distress in the subprime market.

“The delinquency status of mortgage loans in an RMBS securitization is vital information to investors because those loans are the primary source of funds by which they potentially can recover and profit from their investments,” said Michael Osnato, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit.  “Morgan Stanley understated the number of delinquent loans behind these securitizations during a critical juncture of the financial crisis and denied investors the full extent of the facts necessary to make informed investment decisions.”

Considering a Move? Now Might Be The Time

Changing firms can be a challenging and stressful time. We have spent decades helping advisers change firms, dealing with restrictive covenants, garden leaves, old promissory notes, new promissory notes, injunctions and more. None of it is fun for the adviser, but all of it is manageable with proper planning and the right team in place.

We are seeing indication that recruiting is up the market is encouraging for advisers looking to change firms. According to Financial Planning.com, the high end of the wealth management market is a very, very good place to be right now. Valuations for advisory firms with over $500 million in assets under management are expected to escalate in the wake of this month's Boston Private Bank and Trust's $60 million acquisition of Banyan Partners -- made at what sources say was a valuation of nine times EBITDA. The high-profile sale is also expected to goose interest from well-capitalized financial companies seeking to pick off independent RIAs that have hefty assets, wealthy clients and a steady fee-based revenue stream.

And it is not just the high end. We represent advisers with all manner of revenue streams - you just need to find the right fit, or if you are up to the task - start your own RIA. Need an assist - email me.

For more information visit Valuations to Surge After Banyan Deal?


The attorneys at Sallah Astarita & Cox include veteran securities employment lawyers, inhouse counsel and outside counsel to wirehouses and small shops. We have decades of experience in representation of securities professionals in their employment matters, including promissory note litigation, restrictive covenants, negotiations of new deals, and employment injunction proceedings, nationwide. For more information call 212-509-6544 or send an email.

Monday, July 28, 2014

Dispute Resolution Statistics - June 2014

FINRA has released the Dispute Resolution Statistics for June 2014. To view, click here.

FINRA Creates Another Useless "Gotcha" Rule on Expungements

It is interesting how regulators can sometimes create an issue that really doesn't exist, and then create a rule to address that non-issue.

LogoFINRA has been up in arms, alleging that brokers and firms are conditioning the settlement of a customer dispute on a customer's consent to an expungement of the complaint from a broker's record. However, in all of the customer cases I have been involved with, I have never seen anyone offer to pay a customer for an expungement, or condition a settlement on an expungement. The reality is that most customers and their attorneys couldn't care less about the expungement - they obtained a settlement, and want to go about their lives. For most, the expungement doesn't affect them at all.

The reality is that FINRA has made it extremely dificult to obtain an expungement, even where the customer does not object. And it doesn't matter if the customer consents - the process is the same for all expungements.

FINRA has already made the process extremely difficult by limiting the instances where there can be an expungement, AND forcing the arbitrators to hold a hearing to determine that the grounds exist, AND requiring the arbitrators to make specific findings of the existence of the conditions and then refusing to enforce its own arbitrators' decision unless the broker gets a court order.

This is a system designed to make it extremely difficult for brokers who are wrongly accused to get those accusations off of their record. Now the creation of yet another rule.

Having a rule to address an event that rarely, if ever occurs, is either a waste of energy, or a plan to give Enforcement the ability to make inquiries into the details of private settlement agreements. How does FINRA intend to enforce this rule? How many investigations are we going to see into the conditions of a settlement? Can you imagine FINRA sending out 8210 requests for every settlement, requiring brokers and firms to verify that there were no conditions or offers regarding expungement. Or, and FINRA is perfectly capable of, are they doing to stick their regulatory noses into customer settlement agreements by creating a new arbitration rule requiring all settlement agreements to contain attestations by the member and the customer that the rule has not been violated? And how are they going to enforce THAT rule.

Richard Ketchum, FINRA Chairman and Chief Executive Officer is quoted as saying said, "This rule will ... [protect] the integrity of the CRD system and disclosure of material information to investors." Nonsense. FINRA's CRD system is loaded with defamatory and incorrect information, and this rule change does not address the problems with CRD in the least. It just makes it more difficult for brokers to prevent defamatory information from being published about them.

FINRA should spend more time addressing its own arbitrator disclosures, and area which is riddled with errors, omissions and outright false disclosures.

For more information - SEC Approves FINRA Rule to Prohibit Conditioning Settlements on Expungement - FINRA

--- 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 and representation of investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

SEC Charges Seattle Firm and Owner With Misusing Client Assets for Vacation Home and Vintage Automobile

The SEC charged the owner of a Seattle-based investment advisory firm with fraudulently misusing client assets to make loans to himself to buy a luxury vacation home and refinance a rare vintage automobile.  
An SEC investigation found that the owner of the firm used assets from the portfolio of a senior citizen client to fund $3.1 million in personal loans without telling her or obtaining her consent.  The loans were not in the best interest of the client and significantly favored the owner, who provided no collateral, had no set pay-off dates, and paid most of the interest at the prime rate (which banks typically provide their most credit-worthy customers).  He also improperly directed an investment fund managed by his firm to make more than $4.5 million in loans and investment purchases to facilitate personal real estate deals and fend off claims from disgruntled clients.  He diverted more than $500,000 from the fund to pay settlements to disgruntled clients.
The owner and the firm, who eventually paid back the diverted funds and personal loans, agreed to settle the SEC’s charges and pay more than $340,000 in disgorgement and prejudgment interest to the individual client and the investment fund, representing ill-gotten gains that the owner retained even after he paid back the loans.  He and his firm also agreed to pay a $250,000 penalty, and he will be barred from the securities industry for at least five years.  The firm will wind down its operations with oversight from an independent monitor.

“Investment advisers have a fiduciary duty to act in the best interest of advisory clients and disclose all material conflicts of interests,” said Jina L. Choi, director of the SEC’s San Francisco Regional Office.  “[This man] instead took advantage of his clients and misused more than $8 million of their assets for his own personal gain.” 
For more information, visit:

Friday, July 25, 2014

SEC Charges Self-Described Bankers, Dishonest Brokers, and Microcap Company Executive in Pump-And-Dump Scheme

The SEC charged individuals who pocketed millions of dollars running an elaborate pump-and-dump scheme involving shares of a medical education company in Pennsylvania and two other microcap stocks. 

The SEC alleges that the stock market manipulation ring included two self-described bankers, a pair of dishonest brokers, and a corrupt company executive who issued misleading press releases.  The SEC today suspended trading in one of the microcap companies before they could illegally profit further.

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, the CEO and president of a purported merchant banking firm  teamed up with brokers and the CEO of a medical education company to inflate the price of the company’s stock and profit at the expense of the brokers’ customers.  They acquired 3 million restricted shares of the company's stock following its reverse merger into a public shell company in May 2013, and improperly flooded the market with the shares as though they were unrestricted.  They then engaged in a promotional campaign to hype the stock issuing materially misleading press releases that were sometimes edited.  
For more information visit:

Thursday, July 24, 2014

James Robertson to Lead BNY Mellon Wealth Management in New Jersey

English: BNY Mellon Center (Philadelphia)
BNY Mellon Wealth Management has promoted a company veteran to the position of market leader for the firm's New Jersey region.

James Robertson will develop and execute the wealth manager's overall strategy in New Jersey, which is the fifth largest state in millionaire households, according to research firm Spectrum.Robertson will coordinate the day-to-day activities of New Jersey portfolio managers, wealth directors and private bankers and bolster the BNY Mellon brand throughout the region, the wealth manager said in its announcement this week.

He will be based in Madison, N.J.

More information is available here

SEC Charges Penny Stock Company CEO and Purported Business Partner for Defrauding Investors With False Press Releases

The SEC charged a serial con artist and a penny stock company CEO with misleading investors in a supposed vaccine development company by issuing false press releases portraying it as a successful venture when it was in fact a failing enterprise.

The SEC alleges that this individual teamed up with another CEO to defraud investors with extravagant claims about the microcap company’s revenue and other benefits flowing from a “shared revenue agreement” with an electricity provider supposedly operated by the individual.  However, his entity was a complete sham.
“[These men] misled investors by widely mischaracterizing a worthless thinly-traded microcap issuer as a growing success with lucrative new business opportunities,” said Andrew M. Calamari, director of the SEC’s New York Regional Office.  “Crooked penny stock promoters like [them] and their unscrupulous sidekicks, often company CEOs, must be held accountable to the investing public for the misinformation they so freely disseminated into the marketplace.”
According to the SEC’s complaint filed against these individuals and their companies in federal district court in Manhattan, one of them also spearheaded a separate scheme around the same time in 2010 involving another microcap company that similarly issued a rapid-fire series of press releases with bogus information.  Those press releases touted a purported partnership with his phony power company to own and operate solar energy farms across the country.  In reality, the microcap issuer was in dire financial straits and lacked the financial or logistical capability to commercially produce a product of any kind let alone break ground on energy farms.  The company continues to have no operations, customers, or revenues. 

For more information, visit: 

Wednesday, July 23, 2014

SEC Charges Investor Relations Executive With Insider Trading While Preparing Clients’ Press Releases

The SEC charged a partner at a New York-based investor relations firm with insider trading on confidential information he learned about two clients while he helped prepare their press releases. 
The SEC alleges that the partner sold his shares in Misonix Inc. upon learning that the company was set to announce disappointing financial results.  The SEC further alleges that the partner bought stock in Clean Diesel Technologies Inc. when he learned about the company’s impending announcement of positive news, and he profited when its stock price nearly doubled.  The partner’s illicit profits and avoided losses from insider trading in both companies totaled $11,776. 
The partner, who lives in Brooklyn, N.Y., and works at Cameron Associates, agreed to settle the charges by paying disgorgement of $11,776, prejudgment interest of $1,492, and a penalty of $11,776, for a total of $25,044. 

For more information, visit: 

Thursday, July 17, 2014

FINRA Announces Arbitration Task Force

FINRA announced today the formation of a 13-member Arbitration Task Force to consider possible enhancements to its arbitration forum to improve the transparency, impartiality and efficiency of FINRA's securities arbitration forum for all participants.  

Hopefully they ultimately solicit comments from those of us who are representing brokers in the process, rather than relying on a "task force" comprised of professors, customer attorneys and in-house counsel.

For more information, see FINRA Announces Arbitration Task Force - FINRA

Tuesday, July 15, 2014

Citigroup 7 Billion Dollar Mortgage Backed Securities Settlement

Citigroup Inc. (C) agreed to pay $7 billion in fines and consumer relief to resolve government claims that it misled investors about the quality of mortgage-backed bonds sold before the 2008 financial crisis. The bank took a $3.7 billion charge in the second quarter ended June 30 to cover the cost of the settlement.

Citigroup was among lenders including Bank of America Corp. investigated by the Justice Department for allegedly misrepresenting the quality of mortgage-backed bonds as home prices plummeted in 2006 and 2007. JPMorgan Chase & Co. (JPM), the biggest U.S. bank, agreed in November to pay $13 billion to resolve similar federal and state probes

For more information, Citigroup Reaches $7 Billion Mortgage-Bond Settlement - Bloomberg


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 and brokers nationwide. For more information contact Mark Astarita at 212-509-6544 or email us.