FINRA doctored documents given to SEC; punished with a wristslap.

It’s all over the news, at least that section of the web that I frequent, that FINRA employees changed documents before handing them over to the SEC.  The Reuters story by Suzanne Barlyn and Sara Lynch can be found here.

My firm and I have done document productions to FINRA in the past.  They frequently require “certified” copies of documents from my clients.  Sometimes they require “certified” copies of documents that we obtain from another branch of FINRA.  Apparently, my clients and my firm can’t be trusted to not alter documents.

But FINRA production to the SEC?  Apparently that’s exempt from notions of honesty and fair play.  But even more ironic is the penalty.  FINRA has to hire a consultant and take steps to improve its practices.  If one of my clients altered documents before sending them to FINRA, the discovery would likely result in my client’s permanent suspension from the securities industry.  I have seen draconian responses to much less.

Is it any wonder that the public does not trust our current regulatory system.  Bernie Madoff made the SEC look bad.  FINRA is altering documents that should have been innocuous.  And nothing significant happened other than more lawyers gained employment.

On the other hand, I had a client who changed some customers’ phone numbers in the firm’s database.  That client was suspended from the industry and will have a permanent CRD mark.  Does that seem fair?

 

 

 

 

 

 

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Citigroup Pays $285 Million Fine But Doesn’t Admit Wrongdoing?

This concept has always fascinated me. A company such as Citigroup pays a huge fine but says “we didn’t do anything wrong.”

In this case, Citigroup agreed to pay the fine for allegedly piecing together a sweetheart transaction where it made money no matter which way the market went.  Here’s how it goes — Citigroup took a bunch of really crappy mortgages and put them together in a shiny box called “Class V Funding III”.  This shiny box was “diversified” among lots of crappy mortgages.  I guess the theory was if you put enough crap in one investment it magically smells less like a pile of crap.

So, of course, on the front end Citigroup makes money foisting this shiny box of crap on institutional investors (who should have known better, by the way).  Citigroup made $34,000,000 dollars polishing crap and making it look and smell pretty.  (Mythbusters did an episode where they polished crap and made it shiny.  Maybe that was inspiration.)  But Citigroup wasn’t alone, they had help from Credit Suisse in picking which crap to go into the shiny box.

What Citigroup didn’t tell the 14 institutional investors (who should have known better) was that their institutional trading desk was taking a short position against the very pieces of crap in the shiny box.  Within months of taking possession of the shiny box, it started to lose its sheen and shimmer and started to smell like its contents.  But Citigroup didn’t need to worry, because it made money on structuring the deal and took investment positions to profit when the deal fell apart.

According to the SEC, Citigroup made $160,000,000 on the transaction, first creating the shiny box then betting against it.  The fine paid includes the $160,000,000 plus interest plus penalties.  I wonder if the traders who made bonuses when this deal paid off handsomely got to keep them.

I love this business.  That’s the amused view of one Lawyer from Jupiter, Florida.

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Representing a Cantor in a Restrictive Covenant Lawsuit

In case you don’t scour the Internet looking for my name everyday (I don’t think my mother does either, so don’t feel bad), you probably noticed that the blog was quiet this summer. I took a long vacation. In fact, this summer was the first time in forever that I took two weeks away from the office. It was strange.

I came back to work invigorated and looking forward to the second half of the year. In late August, my friend and tennis partner, Cantor Bruce Benson (founder of the Institute for Jewish Living), was sued by my former synagogue (and his former employer) for an alleged violation of the restrictive covenant in his contract. While the contract attached to the complaint had a section entitled “Non-Compete” it was really a restriction on employment.

Anyway…the temple sought an injunction to prevent Cantor Bruce from, among several things, holding High Holiday services. There was a hearing on the injunction two days before Rosh Hashanah started. The court did not stop Rosh Hashanah services and ordered the parties immediately to mediation. A confidential settlement was reached at mediation, so I can’t discuss the terms.

But if you want to read about two of the most interesting days of my professional life, you can look here, here, and here.

Jane Musgrave at The Palm Beach Post did a great job covering the story. I don’t know if I’m going to add a practice area
of representing clergy members, but it sure was interesting.

That’s the New Year’s view of one lawyer from Jupiter, Palm Beach County, Florida.

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Florida’s rule disqualifies stockbrokers with old offenses.

In May of last year, the State of Florida amended its registration rules regarding the criminal histories of stockbroker applicants. The amendment assigns year values for specified crimes. Those year values then disqualify an applicant according to its terms.

For instance, if an applicant has committed a specified felony, the disqualification period is for 15 years from the date of the plea or finding. If other crimes are committed at different times, then additional 5 year periods can be tacked on. It appears that the entire disqualification period can only be reduced by a maximum of 3 years.

So what this means is that the felony drug possession as a senior in college could delay a new broker’s application for 15 years and could possibly be used to deny registration anyway. Further, it appears that a new U-4 filing will give the State of Florida a new shot at currently registered representatives. So brokers changing firms with otherwise ancient and forgotten criminal histories could end up with big problems.

The interesting thing is that a broker who is already registered and has a specified crime in his/her past would not lose his/her license. It is only on the submission of a new U-4 that this new part of the registration rule would apply. This could make for some very uncomfortable situations.

So the most important thing for currently registered brokers to keep in mind is that, if there is a felony in their past, they need to keep this rule in mind if they are thinking about changing firms. And if there is a question about any potential disqualification, they need to get help in interpreting the rule very carefully.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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Latest FINRA Securities Arbitration Statistics Released

Statistics and percentages can be fun. (Cue groans here) Sometimes it can be interesting to dig deeper into the statistics and see what else they might mean. Each month, FINRA releases arbitration statistics for the month ending one month prior. So this month’s statistics analyze arbitrations through the end of July.

The report has the usual stuff — number of new arbitration cases filed, number of cases closed, etc. But dig a little deeper and there are some interesting figures. For instance, New arbitration case filings through July are down 12% over 2010. But they’re down 35% over 2009. This is likely a function of the reaction to the 2008 meltdown and the wave of cases that followed.

Here’s something else. If you total the new cases through July for 2009, 2010 and 2011, that equals 10,724. The number of cases closed during that same time period is 9,795, leaving an overhang of about 1,000 cases.

Another interesting statistic is the “How Arbitration Cases Close” analysis. An average of less than 20% of cases have gone to final hearing in the last 5 years. An average of 50% of the cases settle through direct communication between the parties (but the report does not specify how much the cases settled for). And, at most, 10% of cases settle through mediation. It is not clear if the “Direct Settlement” category includes cases settled through non-FINRA mediation but I suspect that the mediation category includes FINRA and non-FINRA mediation.

So what can we take away from this? First, if the numbers hold, a litigant is just more likely to settle a case than have it go to hearing, by a large margin. There is a less than one in five chance of going to hearing. And more than three-fourths of all cases never see a hearing.

What would be interesting is to pair these figures up with the “win” figures that are also tracked. The only problem with that, of course, is that the claimed damages may not be based in any sort of supportable logic.

That’s the view of one Lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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SunTrust television commercial makes me laugh.

OK, so I’m easily entertained. I still laugh when David Letterman has the sneezing monkey.

But this commercial caught my eye. In the wake of mergers of banks, both voluntary and shotgun, SunTrust‘s message rings true. They just better hope that they don’t merge and end up with the same problem Chase Investment Services has had in litigation.

Still keeping my old family, I’m Marc Dobin.

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Chase Investment Services loses another non-solicitation arbitration

Loyal readers (who may be wondering if I had lost interest in the blog) will recall that Chase Investment Services lost an arbitration to Morgan Keegan and Todd Rozzo in March of this year. Chase tried to enforce a contract against a former WaMu broker, Rozzo, and his new employer, Morgan Keegan. My firm represented Morgan Keegan.

It turns out that there was a very similar case in Seattle, Washington. Chase, again, went for an injunction. Chase, again, acted as if the world was going to end if the brokers were allowed to talk to their clients. Chase, again, initiated an arbitration against the former brokers. And Chase, again, lost the arbitration.

Maybe Chase will get the message that I have detected. Absent some horrific set of circumstances, such as bad acts by the departing brokers or raiding, arbitration panels do not get excited about the run-of-the-mill changing of jobs. For Chase to behave like a child complaining about not getting his/her way is just bad business. Brokers change firms. Chase needs to get over it.

This does not mean that, in the right set of circumstances, an arbitration panel won’t award damages. It simply means that it has to be something more egregious than simply changing jobs. Having the manager and several brokers leave at the same time could be sufficient. Deleting data on a computer system could be sufficient. There are any number of bad acts that could lead to liability. But if a broker leaves “clean”, the likelihood of a firm prevailing in an arbitration is pretty slim.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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Amazing Chutzpah – Securities America asks reps to “pinky swear” reports InvestmentNews

So when is a contract not a contract? Or is it a contract? In a bizarre move, Securities America has asked its representatives to sign pledges of loyalty to the firm. The real question in my mind is this – which has more legal validity, the loyalty letter or a “pinky swear”? Perhaps they’re the legal equivalent.

Investment News reports that a letter went out to the sales force and is essentially asking for a pledge to stay. What happens to those brokers who don’t sign? What happens to supervisors whose brokers don’t sign? If a broker leaves, will Securities America pursue him/her for breach of a “pinky swear”?

Who came up with this idea? What will happen if these scenarios occur? 1) a broker is fired for not signing the pinky swear or 2) a broker claims breach of contract because they signed the pinky swear and was later fired for other than compliance reasons. Hmmmm. This won’t keep me up at night, but I’m thinking that this was a retail-side idea and not vetted by lawyers.

That’s the under-90 degree view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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Wall Street Never Learns

When I was a young punk, just a few years out of New York Law School, Janney Montgomery Scott fired an analyst named Marvin Roffman. What offense did Mr. Roffman commit? None, said Janney.

Mr. Roffman disagreed. He said he was fired because he said negative things about the Trump Taj Mahal project, in particular its bonds. He said that the Trump Organization threatened Janney and that he was fired as a result of higher-level corporate interaction. He filed an arbitration and, in one of those rare perfect coincidences, the Taj Mahal filed for bankruptcy just before the arbitration. This was 20 years ago, but I think it was the week that the arbitration was supposed to start.

I remember calling the lawyer representing Mr. Roffman, Scott Vernick, and encouraging him, telling him that his case got a whole lot better. Mr. Roffman, I am sure, was able to testify that he not only was fired for giving his opinion, but that he was right in having the opinion. He was awarded $750,000.

Fast forward to today. An article by Jesse Eisinger in the New York Times Dealbook blog describes the treatment of David Maris by Bank of America. The article describes how Maris opined that a company’s financial statements were unreliable and that shareholders should sell.

Guess what? He was fired. According to BofA, he was not fired because of his sell opinion, but for other reasons. Right. Just because BofA is in Charlotte, doesn’t mean they’re not trying to sell the Brooklyn Bridge.

By the way, Maris turned out to be right. The company settled with the SEC due to inaccurate financial statements. Looks like another arbitration where an analyst will say “I was right and they fired me for it.”

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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Aaron Rents computers, and spies on its customers?

I found this shocking. Aaron Rents, a leading renter of furniture, computers and office stuff, is involved in controversy related to computers it rents. Similar to a controversy last year, where a school district in Pennsylvania was turning on laptop webcams remotely, Aaron’s was apparently doing something similar.

Here’s a new twist, I think. At least one article I read stated that the remote capability was hardwired into the computer. This means that a user would probably not even be able to tell that the computer could spy on him or her. It supposedly could be deactivated with a wand.

This raises all kinds of issues, in my humble opinion. Would this be a violation of the Florida Unfair and Deceptive Trade Practices Act? Does it constitute an invasion of privacy. What Federal laws might have been violated? What other Florida state laws might have been violated? These are all interesting questions that will ultimately get sorted out.

But in the meantime, I remain amazed once again. That’s all from this Lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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