Securities America – A leopard with the same spots.

Yes, I have a few miles on me and more than my share of gray hair (although my driver’s license says it’s brown). But that sometimes gives me a good perspective. 7 years ago, my law partner and I handled a customer case against Securities America. At the time we handled the case, Securities America was a subsidiary of American Express Financial Advisors, itself a subsidiary of American Express.

The case involved a stolen identity for the broker, failure to supervise by the firm and giant damages award to our clients, including attorneys’ fees. One of the witnesses in the case was the head of compliance for Securities America, David O. Spinar. His underlings conducted an “audit” of the branch in question that I described as a “drive-by.” The arbitrators seemed to agree with that assessment.

Mr. Spinar is in the news. He apparently had misgivings about Securities America’s marketing of Medical Capital Associates and its affiliate products. Investment News reports that he voiced his concerns about the lack of audited financials. Interestingly enough, Mr. Spinar saw this as a warning sign. In the case we handled some years ago, there were plenty of red flags, but no one seemed to notice, until it was too late.

So it looks like Mr. Spinar, who no longer works for Securities America, will be in the witness chair again. At least, this time, American Express won’t see its name in the headlines. But Ameriprise, the spinoff that has since merged with H&R Block Financial, is likely to be fighting many battles to come.

But you have to ask yourself, what was Securities America doing selling this crap anyway? The Medical Capital Associates saga will likely continue for some time. Stay tuned.

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

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Lack of funds is no excuse – FINRA

I call it the “30-day rule.” Way back when, arbitrators issued awards and FINRA, then known as the NASD and New York Stock Exchange, really didn’t pay attention once the award was entered. The prevailing party, if owed money, was left to the courts to enforce the award through a motion to confirm the arbitration award. And the prevailing party was left to its collection devices.

Then, things changed. The regulators got interested. FINRA created a rule that required that the award or settlement be satisfied within 30 days of issuance. The “or else” was a summary suspension of the firm’s or broker’s license. This was accomplished through a Rule 9554 proceeding, essentially a “show cause” hearing.

One of the defenses that FINRA had been allowing is the “I can’t pay” defense. A firm or broker could demonstrate that there was a “bona fide inability to pay” and continue to be a broker, defeating the application for a suspension.

All that is changing now. Effective July 2, 2010, if a firm or broker receives a 9554 notice, advising that their license will be suspended, the registrant’s inability to pay is no longer a valid defense. FINRA has issued Regulatory Notice 10-31 explaining its position. Essentially, a loser in an arbitration now has three choices, pay (in one lump or over time), move to vacate the award or file for bankruptcy. If you can’t pay, FINRA says you can’t play.

This makes sense. Why should a broker continue in this business if they can’t honor a properly issued arbitration award? This flies in the face of the FINRA precept of highest standards of commercial honor and just and equitable principles of trade. Sometimes FINRA and I don’t see eye to eye. This time we do.

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

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Enron’s Skilling gets another bite at the apple (not an iPhone)

Today the Supreme Court vacated the criminal conviction of Jeffrey Skilling stemming from the collapse of Enron. Some of you may remember that Skilling served as the CEO of Enron until August 14, 2001. Less than 4 months after his departure, Enron spiraled into bankruptcy. On May 26, 2006, following a 4-month trial and nearly 5 days of deliberation, the jury found Skilling guilty of 19 counts, including honest-service wire fraud, money-or-property fraud, and securities fraud.

The Supreme Court vacated Skilling’s conviction because it found the “honest-services” wire fraud statute, 18 U.S.C. § 1346, to be void for vagueness. The Court held that the honest-services fraud statute is limited to schemes involving bribes and kickbacks. Since the government did not allege that Skilling solicited or accepted side payments from a third party in exchange for making the misrepresentations about Enron’s fiscal health, the Court determined that Skilling did not commit honest-service fraud and vacated his conviction.

Don’t worry, the Supreme Court did not give Skilling a get out of jail free card. So your 401k is still safe (at least for the time being). A new trial is likely in the works. The case has been remanded to the Fifth Circuit Court of Appeals for further proceedings.

That’s the Enron-free view of one other Lawyer from Jupiter, Palm Beach County, Florida. He’s James Duffy.

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Another Fraudulent Investment Scheme – In My Own Backyard

I can’t believe it. The SEC announced that it charged an investment adviser in Palm Beach Gardens, Florida with fraud for running a Ponzi scheme. Here is the Litigation Release.

OK, listen up. The release says that this “adviser” claimed to be making returns of 8% per month. Huh? Have we not learned anything? Surprise! They were lying.

Let’s repeat this again. If an investment return is too good to be true, they are going to steal your money. If you think that you’ve discovered the only investment adviser on the planet who can consistently deliver returns that are 30% better than the market, you are going to lose your money, your house, your dog and everything else you own.

That’s the angry view of one lawyer from Jupiter, Palm Beach County, Florida. My name is Marc Dobin.

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No surprise here – 300 reps in limbo as Finra shuts down Jesup & Lamont Securities

You will recall that I have discussed the behavior at Jesup & Lamont in two prior postings. And it didn’t take long for the predicted result to occur. On Friday, FINRA shut down Jesup & Lamont Securities Corp., a principal unit of Jesup & Lamont, Inc.

You can read about it here. I don’t take joy in seeing these 300 brokers losing their livelihood. I don’t take joy in the stress caused to the unwitting customers of the firm. I only get to say “I was right.” Frankly, these 300 brokers will be better off working someplace where management seems to have a clue on how to run a brokerage firm.

I said this in a prior posting – don’t pull on Superman’s cape.

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

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FINRA proposes an increase in the arbitrator list.

In the “old” days, there was an arbitrator list. Then the rules changed and there were two lists. Then there were three lists. As it stands now, if a party gets an arbitrator list from FINRA, each of the three sub-lists has eight names on it.

Under the current rules, each party is permitted to strike four names from each of the three lists. So, mathematically, the parties could end up striking all 24 names on the list. When this occurs, FINRA dives back into the pool and chooses three arbitrators that no party selected. This is supposedly random, but my experience shows very little randomness to it.

FINRA has proposed a change. They want to send out lists with ten names on each sub-list, but continue to give the parties only four strikes. In a two-party case, that would, theoretically, leave two names. Also theoretically, these could be the two people on each sublist that the lawyer disliked slightly less than the four that were stricken. In other words, the parties could end up agreeing on arbitrators that they still don’t like, but not as much as the four they each struck.

This is intended, I believe, to remove some of the administrative burden on FINRA staff. If they are guaranteed to have two arbitrators left on all three sub-lists, in most cases, then they don’t have to go back into the pool for new arbitrators. In theory, this might work. What it may also do is remove what appears to be the lack of randomness when the parties strike all the names. At least two names will remain and the parties will not be surprised by the designation to the panel.

I think this is a bit of “the devil you know is better than the devil you don’t know.” Like I said, at least the panel will have names ranked by a party, in most cases. I can’t even decide if this is a good or bad thing. I think it’s good. Only time will tell.

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

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Scott Rothstein gets 50 years. Some victims will get life.

The press has reported that Scott Rothstein received a sentence of 50 years. Unfortunately, what he did to some of his victims will result in a life sentence.

Rothstein is a thief. He ruined peoples’ lives. He stole from innocents. In a profession that works hard to avoid the image of “ambulance chasers” Rothstein hurt the public trust that much more. Even before he was arrested, he represented all that could be bad – the flashy cars, the houses, the flaunting of power and wealth.

His letter to the judge exposed him for who he was. A jealous man envious of those around him who were doing better than he was. Spare me. Is that an excuse to steal? But it is a life lesson about greed and personality. Don’t worry about the toys owned by the person next door or the car next to you coddling its driver. Think about how you can improve your own situation with the tools you possess, not take from others.

Scott Rothstein had a law license, not a license to steal. He used that license to benefit himself and hurt others. This is a sad day for the legal profession as one who did not deserve to be a lawyer has brought shame on a noble calling.

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

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Mr. Madoff’s new roommate? Another Ponzi allegation in the press.

Investment News reports that adviser Kenneth Starr has been arrested. At this point we’re almost desensitized to news such as this. Another Ponzi scheme, more victims, more pain. What else is new?

The twist here is that the victims were “celebrities” (whatever that means. When a guy who can’t dance is a celebrity because of the number of hits on Youtube, it makes you wonder what the word really means.) The other twist is that the victims apparently gave the money manager power of attorney! Not very cautious, these celebrities. I guess they really didn’t care what happened to their money.

The one thing in the article that bothered me most was the term used by the US Attorney to describe some of these victims. He said that anyone could be a victim, including “sophisticated celebrities.” Spare me. Among the victims were a jeweler who was convicted of falsifying records in 2008. And Sylvester Stallone – that’s right folks, Rocky Balboa (although I preferred his character in Demolition Man). Just because you may qualify as a “celebrity” doesn’t make you “sophisticated.” In fact, giving this guy the right to sign your name may be a sign of exactly the opposite.

By the way, if you click here you will see that Bernie Madoff is not scheduled to get out until the year 2139. And I thought reaching 50 was an accomplishment.

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

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