Financial Advisor Legal Information Center

9 Proven Strategies for Defending an SEC Investigation

Defending an SEC Investigaton Facing an SEC investigation can be a daunting challenge for any individual or organization and defending an SEC investigation takes experience and knowledge. The SEC is a formidable regulatory body with the authority to scrutinize financial activities, and being prepared for such an inquiry is crucial. In this article, we will delve ...

FINRA Rule 8210 – Avoiding Enforcement Proceedings

By Mark J. Astarita, Esq. FINRA Rule 8210 FINRA Rule 8210 (Provision of Information and Testimony and Inspection and Copying of Books) is the starting point of virtually every FINRA enforcement proceeding, as it gives FINRA the authority to request documents and testimony from firms, registered persons and, in FINRA’s view, other persons and entities related to ...

SEC 2024 Examination Priorities for Broker-Dealers

The SEC‘s Division of Examinations prioritizes examinations of certain practices, products, and services that it believes present potentially heightened risks to investors or the integrity of the U.S. capital markets. They have announced the 2024 examination priorities. Here is a summary of the Broker-Dealer priorities for 2024. We summarized the priorities for Investment Advisors, here. Broker-dealers are ...

Attorney for Broker Transitions – The Recruiting Protocol

Just about every securities broker is aware of the existence of the Protocol for Broker Recruiting (the “Broker Protocol”). Unfortunately, too many brokers think they understand the Protocol, and move forward with a transition without the assistance of experienced counsel. That leads to a motion for an injunction in court, with a companion arbitration case for an ...

Enhancing Investor Education and Protection in World Investor Week 2023

Introduction The Securities and Exchange Commission (SEC) has announced its commitment to emphasizing the significance of investor education and protection during the World Investor Week (WIW) 2023, which is scheduled from October 2nd to October 8th. The ever-evolving landscape of technologies and digital tools has revolutionized the investment landscape, making it more accessible and efficient. However, ...

Hire a Securities Defense Attorney to Respond to an SEC Subpoena

Facing a subpoena can be a daunting experience for individuals and businesses involved in securities-related matters. The SEC wields substantial authority to investigate potential violations of securities laws, and responding to a subpoena demands a keen understanding of the legal process and regulations. However, I often see individuals who decide to respond by using a ...

SEC Proposes Rule Amendments to the Broker-Dealer Customer Protection Rule

July 12, 2023 —The SEC has proposed amendments to Rule 15c3-3 (the Customer Protection Rule) to require certain broker-dealers to increase the frequency with which they perform computations of the net cash they owe to customers and other broker-dealers (known as PAB account holders) from weekly to daily. Net cash owed to customers and PAB ...

JPMorgan, Ex-Broker Agree to Non-Solicit Truce in TRO Battle

Less than a week after it filed for a temporary restraining order against a broker who jumped to Morgan Stanley, JPMorgan Chase & Co. and the broker have agreed to a stipulated injunction, according to a court filing earlier this week. As part of the order, Brett A. Jacobson agreed that he would not solicit the ...

What Does a Securities Lawyer Do?

Mark J. Astarita, Esq. is a nationally recognized securities attorney, representing clients in securities investigations, arbitrations and litigation matters across the country. You can contact him at 212-509-6544 or by email at mja@sallahlaw.com While securities law is itself a specialized field of law, there is more than one type of securities lawyer. There are transactional securities ...

An SEC Subpoena, or a FINRA OTR. Now what?

When the SEC Comes Calling – 2023 Update By Mark J. Astarita, Esq. WHILE BROKERS OFTEN BECOME upset or even angry when they are named in customer arbitration, nothing strikes fear in the hearts of licensed individuals as much as receiving an SEC subpoena or a FINRA 8210 request. The situation can arise in a number of ways, ...

Customer Claims in Arbitration

I have been representing customers and brokers in securities arbitration matters since 1982. In those 35 years I have handled over 700 securities arbitration cases. Since securities arbitration is such a large part of my practice, I also survey all of the arbitration awards that are entered in matters across the country, write columns for investors and brokers on the topic, and stay well informed on developments in this unique area of law. Today, FINRA administers virtually all of the securities arbitration disputes in this country, with the AAA and JAMS handing the remainder. From my work, and my review of the statistical summaries published by FINRA it is clear that investment disputes fall into very well-defined categories. Naturally, the type of cases that are filed is a function of the market. Not only are there fewer arbitrations when the markets are doing well, economic factors create different types of claims. For example, when Internet stocks fell in April 2000, the arbitration forums saw a significant increase in arbitration filings, and the emergence of a new category of claim, for over-concentration, or failure to diversify. As the markets improved in 2003, through 2007, we saw a sharp decrease in the number of arbitration ...

Expungement of Customer Complaints

You can remove derogatory reports from your CRD Report. Call 212-509-6544 to discuss the process with a securities law attorney. The problems associated with FINRA‘s CRD Disclosure System are well known to visitors to SECLaw.com, as we have written about the issue a number of times. The concept of disclosing every allegation, justified or not, against a registered person, to anyone who cared to ask, is unheard of in our system of justice. The addition of BrokerCheck, where the information is available to anyone with an Internet connection has made the situation intolerable. For that reason, we are often asked to file an expungement request with FINRA, to remove unwarranted items from the CRD system The interests of investor protection overrode the concepts of fundamental fairness and due process for brokers, and today there is full disclosure of every wart, pimple and untrue allegation made against a broker. Not fair to the broker, but of a theoretical benefit to the investing public. Part of the problem are customer arbitrations. Customers can file an arbitration against a broker for anything, at virtually no cost to the customer. They can say anything they want, it doesn’t cost them anything, and there is no penalty for ...

Insider Trading – The Legal and Illegal

  Insider trading laws have a significant impact on the stock market and the conduct of investors. I have been representing investors and financial professionals in insider trading investigations and proceedings for over 30 years. It all started in the late 1980s when my then-partner and I represented a financial printer in an investigation that lasted for years and ended in a three-week SEC federal court proceeding. Since then, my current partners and I have represented registered representatives and investors from all walks of life in dozens of investigations and enforcement proceedings. We have won a few, but our best work is when we are able to avoid an enforcement proceeding from even starting. The insider trading laws and court decisions have changed dramatically over the decades, with the SEC and the courts expanding the scope of the theory of insider trading beyond all reasonable bounds. However, it is this concept that we need to deal with, and we have had a great deal of success in defending potential defendants – because the investigation gets closed before a case is filed. Illegal insider trading is a serious securities law violation that carries potential civil and criminal penalties. Civilly, the penalties can be as large ...

Introduction to Blue Sky Laws

Mark Astarita, Esq. is a nationally recognized securities attorney who represents investors, financial professionals, issuers and financial firms in a wide variety of matters involving federal and state securities laws. He can be reached at mja@sallahlaw.com. The state securities laws and the regulatory scheme has not changed much since 2001 when I published the first version of this Blue Sky Law introduction. While the SEC directly, and through its oversight of the FINRA and the various Exchanges, is the main enforcer of the nation’s securities laws, each individual state has its own securities laws and rules. These state rules are known as “Blue Sky Laws”. What Are Blue Sky Laws? Blue sky laws are state regulations established as safeguards for investors against securities fraud. The laws, which may vary by state, typically require sellers of new issues to register their offerings and provide financial details of the deal and the entities involved. As a result, investors have a wealth of verifiable information on which to base their judgment and investment decisions. Why “Blue Sky” laws The origin of the term is a bit unclear, but the first use of the term that we are aware of is in an opinion of Justice McKenna of the United States ...

Federal Securities Law, a Securities Lawyer Guide

The SEC, FINRA, the States, and much more Introduction The history of securities regulation and federal securities law is well beyond the scope of this work, and the reader is commended to any one of a number of books in the area. One of the best-known, and often cited treatises on the topic is Loss and Seligman, Securities Regulation, a multi-volume treatise on the subject, published by Little Brown & Co in New York City. A single-volume version is also available and can be ordered online. For purposes of this article, it is sufficient to note that the federal securities laws are in reality a myriad of rules and regulations of 55 different regulatory agencies, including the Securities Commission in each of the fifty States, the District of Columbia, Puerto Rico and Guam, as well as the Securities and Exchange Commission, the Financial Industry Regulatory Authority, and any of the regional exchanges of which he or his firm is a member. The complex regulatory landscape governing the securities industry can be likened to a convoluted maze of similar and sometimes overlapping regulations. In practice, this intricate web of rules and agencies can be daunting to navigate, leading to a level of regulatory oversight that might seem overwhelming. This multifaceted system, consisting ...

Understand What is a Security?

A security is a form of ownership in an entity. While some believe that in order to be a security the instrument must be traded on a market, the legal definition of a security is much broader. The definition is important, because if the instrument is a security, then the federal and state securities laws apply to the purchase and sale of that instrument. We define and explain the different types of securities

Finders Explained – Be Careful

A question I am often asked is what is the definition of a finder, or questions that lead to that question. The issue arises when an unregistered person or entity introduces investors to an issuer and seeks to obtain payment based on the investment made by the investor. The problem is, that in many instances, the introducing party is acting in a manner that requires registration as a broker or a dealer, and thus must be registered in order to accept compensation for the introduction to the investor. The issues of finders and compensation are currently a “hot” topic for securities regulators, and the issue is in great flux today. It is, therefore difficult to describe finders in a general way that is helpful because the answer in a particular case will turn on the particular facts. One small factual change, and the answer changes. General Definition of a Finder Addressing the issue GENERALLY, he does not have to register if the finder is only a finder. Being a finder means that he only introduces; he does not discuss, negotiate, or get involved in the transaction. However, the SEC may take a different view of “discuss” or “get involved” than you do. Statutes and ...

Cold Calling Rules

Compliance with securities regulations is only the beginning By Mark J. Astarita, Esq. Introduction Cold calling is a method of marketing a service or product by calling prospective clients “cold” – that is, without an introduction, to determine if the potential client has a need for, or interest in, the caller’s product. Cold calling has a long history in the brokerage community, and while having a poor reputation, is a legitimate and valuable marketing tool for brokerage firms, and provides a legitimate source of information for customers, provided the tool is not abused. However, there have been abuses, inside and outside the brokerage industry, of the cold calling procedure. Most of the complaints regarding the procedure have arisen outside the industry, and relate to the time of day that the calls are made, the use of automated dialers and similar technological “advances” in the telecommunications industry, as well as outright fraud. While these complaints have focused on non-brokerage industry firms and practices, the regulations regarding same effect the brokerage industry. The Basic Regulations and Rules In accordance with the Telephone Consumer Protection Act of 1991, the Federal Communications Commission (FCC) issued a cold-calling rule. The rule establishes procedures to eliminate unwanted telephone solicitations to residences ...

Churned or Traded?

Churning claims dominated the securities arbitration landscape in the 2000’s, but have declined over the years, as the trading mania waned. As the markets improved, we have begun to see a resurgence of churning claims again. The common perception among the general public is that a customer who trades his or her account on a regular basis is a broker’s dream. While the commissions generated by such activity might very well enhance a broker’s payout, the activity could very easily turn into a broker’s nightmare if not carefully monitored. Churning Churning is excessive trading in a customer’s account by a broker taken in the context of the customer’s financial situation and investment objectives. While no one test is available to determine if an account has been churned, churning requires three elements, first, excessive trading, and second, control of the account by the Registered Representative, and three, intent to defraud the customer. The intent element is difficult to prove, but will typically be proven by establishment of the first two elements. The problem with customers who trade heavily with a retail broker is that the broker may later be subjected to a claim for churning, if the trading does not turn out to be profitable. ...

Responding to a Wells Notice

By Mark Astarita Being the subject, target, or even a witness in an SEC or a FINRA investigation is not a pleasant experience. As I discussed in my column “When the SEC Comes Calling” a financial professional’s involvement in a regulatory investigation or proceeding is extremely serious, and can be a career busting event. Receiving a Wells Notice could be worse. Interested readers should also read Tips for Responding to an SEC Subpoena. Be Prepared While careful preparation and use of experienced counsel is the key to a successful outcome, prospective defendants (who are called respondents in these types of proceedings) have a valuable tool in their arsenal when dealing with the regulators – the Wells Submission. My partners and I have been involved in hundreds of investigations with FINRA and the SEC. While we are often able to head off an investigation before we reach the Wells Notice stage, we have made countless wells submissions. If you have an SEC or an 8210 Request from FINRA, call us before you respond. We may be able to save you time, and your license. Wells Notice The process starts with a Wells Notice – a notification from a regulator that it intends to recommend that enforcement ...