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Securities Fraud

Are regulators too soft on prosecuting securities fraud?

If you thought too many incidents of securities fraud in the U.S. go unpunished, you’re probably right. This is the view of trial attorney James Kidney, who recently retired from the Securities and Exchange Commission. Speaking at his retirement party, Kidney said his bosses were too “tentative and fearful” to prosecute many Wall Street leaders after the 2008 credit crisis. He noted that the commission can pursue fraudsters more vigorously, and should ratchet up enforcement, since it operates with a lower burden of proof than the Justice Department. However, Kidney noted that he often got the message from his superiors that he...

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CPAs on the Lookout for Securities Fraud

CPAs should be on the front line alerting their clients to securities fraud much more frequently than they presently do. Why do I say that? Because CPAs meet with their clients each year to prepare taxes and the common “client questionnaire” or “client organizer” which accountants routinely send to clients to fill out for tax preparation purposes ask the client if they have experienced any investment losses during the last year. The answer to this question serves as the perfect springboard for a discussion about these issues. Securities and investment fraud is more rampant than ever. Ponzi schemes, the sale of...

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Are Pension Advance Companies Too Slick?

Advance funding companies, or “factoring” companies, are now arm-twisting military veterans, teachers, firefighters, police officers and other retirees to sell their future pension benefits. Retirees receive cash in exchange for selling their structured settlement payments at deep discounts. Abuses by advance funding companies in their treatment of accident victims led to the eventual passage of structured settlement protection acts in 47 states. Undeterred, the factoring companies have moved on to people with sizable retirement savings. By targeting retirees, factoring companies have potentially placed themselves into an even more unpopular position. Pensions are traditionally viewed as sacrosanct – the financial bedrock of the...

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Congress Considering Bills to Ban Mandatory Arbitration Clauses

A bill that would prohibit the enforcement of mandatory arbitration clauses against employees and consumers has been introduced in the US Congress. Senator Al Franken, D-Minn., reintroduced the Arbitration Fairness Act of 2013 (S. 878). It provides that “no pre-dispute arbitration agreement shall be valid or enforceable if it requires arbitration of an employment dispute, consumer dispute, antitrust dispute or civil rights dispute.” The act would amend the Federal Arbitration Act (FAA) and undo a string of decisions from the U.S. Supreme Court which culminated in its ruling in AT&T Mobility v. Concepcion.  This business-friendly ruling holds that the FAA preempted a...

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FINRA Slaps LPL with Largest Fine Ever for E-mail Issues

According to a report in a recent edition of Investment News, the Financial Industry Regulatory Authority (FINRA) fined LPL Financial LLC $7.5 million for 35 significant e-mail system failures. representing the inadequate oversight of 28 million e-mails over a four-year period. FINRA also ordered LPL to set up a $1.5 million fund to compensate brokerage customers who might have been affected by its inadequate e-mail oversight. Spokeswoman for the agency, Michelle Ong, said this is the largest fine FINRA has imposed for an e-mail case. The problems with LPL’s e-mails occurred from 2007 to 2013, and its systems failed more than at 35...

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Five Independent Broker Dealers Reach $7M Settlement with Massachusetts

The Secretary of the Commonwealth of Massachusetts, William Gavin, recently announced settlements with five leading independent broker-dealers regarding sales of non-traded real estate investment trusts (REIT). A recent edition of Investment News reports that the five firms were ordered to make $6.1 million in restitution to investors and pay fines totaling $975,000. Ameriprise Financial Services Inc. faces $2.6 million in restitution and a fine of $400,000; Commonwealth Financial Network will pay $2.1 million in restitution and a $300,000 fine; Royal Alliance Associates Inc. is charged with $59,000 in restitution and a $25,000 fine; Securities America Inc. will pay $778,000 in restitution and...

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Schwab clients may now file class-action suits

A recent article in Investment News reports that effective May 15, Charles Schwab Corp. will temporarily modify account agreements to eliminate language that prevents customers from filing class-action lawsuits. The company said that while it believes dispute resolution is best handled via arbitration, it has chosen to remove the waiver until the issue is resolved by the appropriate regulatory and/or court decisions. Schwab decided to be proactive because the arbitration decision will likely take considerable time to resolve and may leave clients with a degree of uncertainty until the legal and regulatory process is completed. Last year, the Financial Industry Regulatory Authority, Inc....

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End Mandatory Arbitration Clauses, Says SEC Commissioner

A recent article in Investment News reports that state securities regulators are trying to build support among lawmakers on Capitol Hill to restrict or end the use of mandatory arbitration clauses in client contracts with brokers. In meetings with more than 40 lawmakers, about 17 members of the North American Securities Administrators Association Inc. (NASAA) made the case that investors should be allowed to go to court to settle grievances against their brokers. SEC Commissioner Luis Aguilar favors such regulation. In a statement, Mr. Aguilar expressed the belief that allowing investors to take their legal claims to court would enhance investor protection...

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Advisers Could be Mishandling Your Assets, Says SEC

In a recent investor alert, the Securities and Exchange Commission warned that it has found significant deficiencies in the way investment advisers are handling the custody of client assets. The SEC revealed that their recent examinations unearthed custody-related problems in one third of the firms reviewed. Advisers failed to recognize that they control their clients' assets, co-mingled client, proprietary and employee assets and fell short of surprise-exam requirements. Advisers cited by the SEC had to change their custody compliance policies and procedures, modify their business practices or devote more resources to custody issues. SEC Chairman Elisse Walter notes that because safeguarding assets is...

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Sizable Verdict Reaffirms Need for Due Diligence in Selecting Motor Carriers

A recent verdict entered against a transportation broker for negligent hiring should motivate companies to revisit their own company policies regarding the qualification and selection of motor carriers. In 2012, an Oregon jury awarded several million dollars to the family of a man who was killed by a commercial motor vehicle. The verdict in the Linhart v. Heyl Logistics case is significant because it was entered against a transportation broker for negligent hiring, and it included punitive damages. Industry insiders believe this is the first verdict in the country awarding punitive damages against a transportation broker for negligent hiring. It is one...

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