On February 5, 2018, a new FINRA rule geared towards preventing financial exploitation of seniors  – also called elder financial abuse – goes into effect. This is new Rule 2165, which creates a limited safe harbor for brokers to put a temporary hold on certain disbursement requests from a brokerage account.

The rule “permits members to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers.”  The new rule also amends existing FINRA Rule 4512, to require members to take reasonable efforts to have the customer identify the name of a trusted contact person as part of gathering customer account information. The broker may contact that person if there is a suspicious request for a disbursement of funds. The broker may also contact that person to confirm the customer’s contact information, health status, or identify of any legal guardian, executor, trustee, or holder of a power of attorney.

The new rule permits, but does not require, temporary holds and contacting the trusted contact person. And using it does not necessarily mean a total halt on all disbursements. For example, a broker could put a temporary hold on a suspicious request to transfer funds to an unfamiliar outside account, while still allowing regular bill payments to continue.

This is an important new tool from the Financial Industry Regulatory Authority (“FINRA”) in the fight to curb financial abuse of senior citizens.

Elder financial abuse continues to be a major problem in the U.S., sometimes with devastating results. Fraudsters cheat seniors out of an estimated $3 billion annually. Some believe the dollar figures are up to ten times higher. Nobody is certain of the overall numbers, in part because it is believed that only a small percentage of cases are reported.  Senior financial abuse depletes retirement savings, and it affects our elderly community in other ways.  Studies concentrated on the health effects among those whose essential life savings have suddenly vanished have found that mortality rate can triple. Just think about the stress and emotional impact on a vulnerable senior when his or her financial security is stolen.

State and federal securities regulators are working to prevent elder financial abuse before it happens. But the scammers are out there. What can you do if you or a loved one has been financially exploited?

Contact an attorney experienced in recovering financial losses. In many circumstances, money unlawfully taken can be recovered. In my work as a litigator, I’ve helped curtail and restore money improperly taken from elders in estate and trust disputes among family members. I have helped recover money from brokers “selling away” from their firm, selling unapproved, extremely risky, or even outright fictional investments to unsuspecting elderly clients. We see bad actors unduly influencing seniors to sell undervalued property.  We see seniors (and others) who continue to place trust in swindlers because con artists are good at what they do. We see forged signatures, shady documentation, account statements printed off a home computer, and account figures that just don’t add up. And we fight for the financial abuse victim to recover money where possible. Contacting law enforcement and regulators are additional important resources, and your attorney can advise you on your best options for loss recovery.

As a securities attorney, I represent investors nationwide who have lost money due to the conduct of a financial professional or a defective investment product. I also represent parties in trust and estate disputes where a fiduciary has breached their duties and money is recoverable to the estate, trust, or beneficiary.

The Investor Defenders at Pasieczny Law LLC help investors get their money back from brokerage fraud, fraudulent investments, elder financial abuse, and other situations. Our specialized investment litigation practice combines familiarity with complex financial modeling, experience with specialized FINRA arbitration rules and securities laws, and empathy for our clients whose financial losses have become personal.

If you have concerns about how your money is being handled by your financial professional, or concerns that you or a loved one might be the victim of financial exploitation, call me at (503) 358-8292. Consultations are free, and confidential.

This past Thursday, the same day I posted about a recent FINRA Investor Alert regarding cryptocurrency, there was a new press release from the North American Securities Administrators Association (NASAA) with further guidance on the same topic. NASAA’s analysis and warning amounts to this:  Initial Coin Offerings (“ICOs”), and all other investment products related to cryptocurrency or the blockchain, pose a threat to investors.

“A NASAA survey of state and provincial securities regulators shows 94 percent believe there is a ‘high risk of fraud’ involving cryptocurrencies. Regulators also were unanimous in their view that more regulation is needed for cryptocurrency to provide greater investor protection.”

The same day, the SEC made a public statement from Chairman Jay Clayton and Commissioners Kara M. Stein and Michael S. Piwowar, in wholehearted agreement with NASAA:  “The NASAA release also reminds investors that when they are offered and sold securities they are entitled to the benefits of state and federal securities laws, and that sellers and other market participants must follow these laws. Unfortunately, it is clear that many promoters of ICOs and others participating in the cryptocurrency – related investment markets are not following these laws. The SEC and state securities regulators are pursuing violations, but we again caution you that, if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment.”

“High risk of fraud”?  That’s a polite understatement. The conditions in this cryptocurrency market are the perfect conditions for bad actors to harm investors and cause investment losses. How? Fraud through market manipulation. Fraud through technical manipulation. Fraud through plain theft. Adverse terms and conditions on a clickthrough agreement. Technical failure, incompetence, malfeasance on the part of the provider. Cyberthreats from third parties online, vandals or burglars. Misrepresentations of the real possibility that cryptocurrency is an object of temporary interest, the bubble will pop, and prices will drop.

And, of course, bad actor conduct includes flawed recommendations by financial advisors to jump in and buy these new, complicated products related to cryptocurrency.  If your portfolio contains investments that, on closer examination, are not plausible or not understandable, that’s one of the ten red flags of financial fraud.

As a securities attorney, I represent investors nationwide who have lost money due to the conduct of a financial professional or a defective investment product.

The Investor Defenders at Pasieczny Law LLC help investors get their money back from brokerage fraud, fraudulent investments, elder financial abuse, and other situations.  Our specialized investment litigation practice combines familiarity with complex financial modeling, experience with specialized FINRA arbitration rules and securities laws, and empathy for our clients whose financial losses have become personal.

If you have concerns about how your money is being handled by your financial professional, or if your broker has stopped returning your calls, contact me for a free, confidential consultation at (503) 358-8292.

FINRA recently released an Investor Alert on cryptocurrency scams. Investors should be wary of jumping into this “hot,” volatile sector, and do their research before handing over their money to a potential fraudster, or for a risky investment that they don’t understand.

In the last quarter, cryptocurrencies such as Bitcoin and Ripple have received a fresh burst of press attention. This includes reporting on massive price swings up and down, and stories of overnight millionaires. According to the media, a Welsh man who spilled lemonade on his laptop in 2013 and absentmindedly threw the hard drive away now wants to mine the local dump for the hard drive. Why? It contained the key to access his lost Bitcoin fortune said to be worth $100 million — but only if he finds it and if the drive is still operational.  It’s a good metaphor for Wild West, gold rush atmosphere of the whole cryptocurrency hype.

With this Investor Alert, and other recent warnings, FINRA points out that:

• Investment offerings based on distributed ledger or “blockchain” technologies may or may not qualify as securities. Many fundamental investor protections written into federal and state law depend on this distinction.
• The cryptocurrency markets inherently transcend national borders. This also limits investor protections. There may be restrictions on how much information the SEC can obtain about the investment, the quality of the information, and limit law enforcement ability to recover money.
• An “initial coin offering” (ICO) for a cryptocurrency is nothing like an “initial public offering” (IPO) for a stock.
• Lack of regulation, lack of clarity about the underlying value of the investment, and the excitement in the market create the perfect conditions for market manipulation and “pump-and-dump” schemes. Fraudsters may use the hype and make false, misleading or greatly exaggerated statements to drive up a higher share value, and then cash out their large holdings at the peak, driving values down and leaving innocent investors at a loss.
• Even if there’s no trace of fraud in an ICO, blockchain operators may themselves be vulnerable to hacking and other cyber threats

According to a December 11, 2017, public statement from SEC Chairman Jay Clayton, the number of such investments registered with the SEC is ZERO. “Investors should understand that to date no initial coin offerings have been registered with the SEC. The SEC also has not to date approved for listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies.”

As a securities attorney, I represent investors nationwide who have lost money due to the conduct of a financial professional or a defective investment product.

The Investor Defenders at Pasieczny Law LLC help investors get their money back from brokerage fraud, fraudulent investments, elder financial abuse, and other situations.  Our specialized investment litigation practice combines familiarity with complex financial modeling, experience with specialized FINRA arbitration rules and securities laws, and empathy for our clients whose financial losses have become personal.

If you have concerns about how your money is being handled by your financial professional, or if your broker has stopped returning your calls, contact me. Consultations are free and confidential. Call (503) 358-8292 now.

On December 21, 2017, the Financial Industry Regulatory Authority (FINRA) announced it had fined brokerage firm Raymond James Financial Services, Inc. $2 million for significant supervisory failures in reviewing email communications. FINRA found that, over a nine-year period, Raymond James did not have a reasonably designed supervisory system and procedures for reviewing email communications.

Why is email review important? Under FINRA rules, brokerage firms must reasonably supervise all electronic communications technology used by a firm and its brokers to conduct firm business.  Many firms used a risk-based approach to supervision, automatically searching for key words and phrases in emails. This review is important for firms to catch bad conduct, such a broker involved in unapproved “outside business activities,” or conducting securities transactions that are not approved by the firm, also known as “selling away.” 

Brokers engaging in “selling away” sometimes create their own spreadsheets and account statements to mislead customers into thinking that recommended investments are approved by the brokerage firm. Often those investments are especially risky, inappropriate for the particular investor, and very lucrative for the seller. For example, it is not uncommon for a seller to receive a 7 – 10% commission on a sale of a private placement investment like a limited partnership (LP) interest. The most slick-looking investment pamphlet could be an outright investment fraud … with the check going straight to the seller’s pocket.

Firms must actively maintain supervisory procedures reasonably designed to catch such unlawful conduct, and protect its customers.  Email supervision, office audits, and document review are only a few of the ways firms should be monitoring the activities of its brokers.

Under FINRA rules and the applicable state or federal law, a brokerage firm can be held financially liable to the customer for the losses caused by its bad actor brokers.  And, for the firm’s own supervisory failures.

If you believe you are the victim of “selling away,” negligent portfolio management, churning, securities fraud, or other unlawful conduct by your financial professional,contact the Pasieczny Law LLC Investor Defenders team at (503) 358-8292 for a free, confidential initial consultation.

You may be able to recover financial losses caused by your financial professional.  An experienced securities attorney will fight on your side.

While FINRA Awards issued by arbitrators are publicly available through the FINRA Awards Online Database, all materials submitted to FINRA by the parties in a case (such as the Statement of Claim and Answer) are deemed “confidential” and are not made publicly available by FINRA. While an Award will usually give a brief outline of the claims and allegations, the arbitrators are not required to give their reasoning for a decision unless both sides request it. Combined with the private proceedings, that makes it very difficult for a claimant (or attorney unfamiliar with securities claims in FINRA arbitration) to research and understand how similar claims may have been made and argued in other cases.

Having an Attorney Familiar with Securities Claims in FINRA Arbitration Matters

Attorneys Robert S. Banks, Jr. and Darlene Pasieczny use their experience representing claimants in FINRA arbitration across the U.S. at every step of the process, including evaluating claims before filing a case and understanding the procedural rules for effective advocacy. And we are sitting right next to our clients throughout the entire arbitration hearing. As senior counsel, Robert S. Banks, Jr. personally has over 32 years of experience representing investors in FINRA (formerly NASD) arbitration, and has served on FINRA’s own rule-making committees for a deep knowledge of the process.

Do You have a FINRA Arbitration Claim?

Most securities industry disputes – whether an individual investor suing a broker or brokerage firm for improper conduct such as churning an account, negligence, margin calls, unsuitable recommendations, failure to supervise, unauthorized trading, or misrepresentation of an investment, or an intra-industry dispute by a broker against a firm for improper termination, unpaid wages, promissory notes, or form U5 reporting – are handled through FINRA Dispute Resolution and FINRA arbitration. That’s because pre-dispute arbitration clauses are found in almost all brokerage account agreements and registered representative agreements with brokerage firms. A series of U.S. Supreme Court decisions over the past few decades have upheld that those arbitration clauses are usually binding and enforceable.

Investor Defender attorneys Robert S. Banks, Jr. and Darlene Pasieczny at Pasieczny Law LLC have the knowledge you want in fighting for investment loss recovery or intra-industry disputes. Our clients include institutional investors, pension funds, municipalities, fiduciaries, as well as individual investors. For a free initial consultation and more information about Pasieczny Law LLC’s Investor Defenders litigation team and securities litigation visit: https://investordefenders.com/

The sanction also reflects FINRA’s frustration with Oppenheimer, which failed to make more than 300 required filings to FINRA about Hotton and other brokers in a timely manner, and failed to provide timely responses to requests for information.

Hotton’s FINRA BrokerCheck report shows 30 reported disclosure events including 24 customer disputes and 2 criminal events.

Pasieczny Law LLC attorneys Robert S. Banks, Jr. and Darlene Pasieczny have over 35 years combined experience in representing investors in securities industry disputes in court and FINRA arbitration across the United States. Our clients include institutional investors, pension funds, municipalities, fiduciaries such as trustees, as well as individual investors. If you have concerns about your financial advisor or investment portfolio, contact us. For more information about Pasieczny Law’s Investor Defenders litigation team and securities litigation, visit our investment claims page.

Investor Choice. Since 1987, when the Supreme Court decided McMahon v. Shearson Lehman Brothers, investors have been denied their Constitutional right to a jury trial. Instead, if they have lost money through the fraud or negligence of a FINRA-licensed stockbroker, financial advisor or brokerage firm, investors are required to bring their cases through the FINRA arbitration process. Although we have seen benefits for many of our clients in using the FINRA arbitration forum over the last 23 years, some cases are better resolved in court by a judge and jury. Investor Choice simply allows investors to choose between FINRA arbitration and court. Congressman Ellison from Minnesota has introduced the Investor Choice Act, which would give investors that choice. There is no legitimate reason for barring investors from the courthouse doors. Congress should side with individuals and not with Wall Street firms. Call your representatives and urge them to support Investor Choice!

Uniform Fiduciary Standard. A fiduciary standard requires nothing more than putting the investor’s needs ahead of the brokerage firm. That is what investors expect from a financial adviser, and that is what brokerage firms claim to provide. But, that is not what happens in reality. PIABA prepared and distributed to Congress and the press a compelling report that collected advertisements of brokerage firms, all of which declare that they put investors first. When those same firms face FINRA arbitration claims from investors for mismanagement and fraud, however, they deny that they owe any fiduciary obligations to their clients. The PIABA report includes specific examples of the defenses that the firms file. We see the same tired defense routinely raised when we include claims for breach of fiduciary duty. The Wall Street firms claim that their only obligation is to make “suitable” investment recommendations.

What’s the difference between a suitability standard and a fiduciary standard?

Commissions and fees. A suitable investment must be in line with an investor’s investment objectives and risk tolerance levels, but it need not necessarily be in the investor’s best interest. Say that there are two mutual funds, each consisting of a similar broad mix of stocks and bonds. One charges the investor a 3% commission and the other 1%. Under the pure suitability standard, the financial advisor may be able to recommend only the higher commissioned product, even if he is fully aware of the lower cost fund and it is readily available. Under a fiduciary standard, he could not. Does that matter? It does. The White House issued a report recently that explained that even a 1% difference in commissions results in many thousands of dollars in the value of a retirement account over time. Jason Zweig, an insightful columnist on investor issues at The Wall Street Journal, has made similar observations. Currently, registered investment advisors are held to a fiduciary standard, but financial advisers who work at a brokerage firm are not, at least under federal law.   Investors don’t know the difference between investment advisors who are registered with the SEC and financial advisors who are FINRA licensed.  And, practically speaking, there is no difference. Both provide investment advice to their clients. SEC Chairperson Mary Jo White and the White House have stated that we need a uniform federal fiduciary standard for all advisers, whether they are FINRA licensed or SEC registered. PIABA agrees, and I agree. You should too. The claims of the financial services industry that a fiduciary standard would prevent middle class Americans from getting financial advice is bunk. Many states, including Oregon and California, already impose fiduciary obligations on advisers that advise their clients on what investments to make, and investors in those states get the same advice and service as investors in non-fiduciary duty states.

The FINRA Investor Education Foundation issued a new research report, “Non-Traditional Costs of Financial Fraud,” based on a survey of 600 self-reported fraud victims. The survey details the emotional tolls and indirect costs (bounced checks, lost wages, lost opportunities, bankruptcy filings) that may come from losing money in a fraud.

Victims who lost the greater amounts in the financial fraud reported greater levels of interaction with the fraudster (e.g. communicating many times, filling out lots of paperwork, etc.) And the most frequently cited ways victims came into contact with the fraudster was through a friend or family member (18%) or a professional contact (13%).

Other significant survey results:

• 19% of survey respondents reported having between $50,000 and $100,000 invested in non-retirement securities accounts
• 40% of the survey respondents reported having more than $100,000 invested in non-retirement securities accounts

When asked whether they felt they had been defrauded in certain “red flag” scenarios, the survey participates responded:

• 28% “yes” and 19% “maybe” to having been defrauded by investing in a product or service (e.g. a vacation timeshare, annuity product, etc.) that they learned about from a free lunch seminar
• 23% “yes” and 17% “maybe” to having been defrauded by a stranger who called on the phone to offer an investment opportunity
• 15% “yes” and 18% “maybe” to having been defrauded in an investment that guaranteed a daily rate of return of over 10%
• 13% “yes” and 14% “maybe” to having been defrauded in an investment that involved a promissory note
• 13% “yes” and14% “maybe” to having been defrauded by someone offering “Prime Bank” or “bank guarantee” investments
• 13% “yes” and 14% “maybe” to having been defrauded in an investment that involved oil or gas exploration

Only 35% of victims reported the incident to some kind of authority. For those who didn’t report, the most common reasons were feeling like it wouldn’t make a difference, wanting to put it behind them, and being embarrassed.   Self-blame was a common reaction: 61% agreed with the statement that “I was defrauded because I was too trusting”. Anger, feelings of betrayal, and high stress were also highly reported by fraud victims.

The survey results are no surprise to the securities litigation & FINRA arbitration attorneys at Pasieczny Law LLC, who have combined over 35 years of experience in recognizing, advising, and recovering investment losses due to securities fraud, broker negligence, defective investment products, or other unlawful conduct across the country. “Victims of investment fraud often feel they were at fault for trusting the recommendations of their financial advisor, or they don’t want to “make trouble” for their advisor despite significantred flags,” says Pasieczny Law LLC attorney Darlene Pasieczny. “But acting quickly for a second opinion or consultation with a securities attorney can mean the difference between losing an entire retirement savings or recovering enough to rebuild and regain peace of mind.”

In addition to the red flag scenarios noted above in the FINRA survey results, other red flags might include:

• Discovering that you can’t easily sell an investment that you thought you could
• Excessive trading or high fees charged in an account
• Pressure from a financial advisor to make investment decisions quickly or without understanding the investment or paperwork you are asked to sign
• Having a lot of “alternative investments” like non-traded REITs, private placements, and interests in limited partnerships in your portfolio
• Having multiple accounts opened for you without a clear explanation why
• Seeing a swing in portfolio value of more than 10% in any account statement when you are a conservative or moderate investor
• Having investments that don’t appear on your brokerage company’s account statements

Contact the Investor Defender attorneys Robert S. Banks, Jr. and Darlene Pasieczny at Pasieczny Law LLC if you have concerns about your financial advisor or securities portfolio. We have the experience of representing over 850 clients in securities arbitration (now FINRA arbitration) and court, and our clients include individual investors from all backgrounds and across the United States, as well as pension funds, fiduciaries, municipalities, retirement plans, and other institutional investors.

FINRA requires that firms have supervisory systems and written procedures to supervise VA transactions. The Sept. 29^th complaint includes the following allegations:

• Inadequate supervisory systems and written supervisory procedures to supervise VA business,
• Inadequate supervisory reviews of VA deals,
• Failure to have registered principal review of VA’s before submitting the application to the insurer
• Failure to have surveillance procedures to detect inappropriate VA exchanges
• Failure to develop and document a specific training plan for supervisory review of VA deals to

According to FINRA’s report, variable annuity sales made up 16-20 percent of the firm’s total revenue during the period of review (Septermber 2009-May 2011).

Bob Banks has years of experience representing investors who were sold variable annuities that were misrepresented. These are extremely complex and confusing products and in our experience, even the brokers who have sold them often do not understand how variable annuities work.

The Wall Street Journal article, entitled Stockbrokers Fail to Disclose Red Flags, written by Jean Eaglesham and Rob Barry, describes an impressive study whose findings disclose a problem that has not previously been documented to this degree. More than 1600 stockbrokers in the study had dodged regulators and failed to report multiple bankruptcy filings and even criminal convictions.

The WSJ article makes the important point that brokers who hide their past problems have more disciplinary actions than other brokers. Hundreds of thousands of stockbroker records were evaluated and the data is clear. “About one in 33 had three or more other black marks such as customer complaints or terminations on their regulatory histories, a rate more than 65% higher than other brokers.” (WSJ 03/06/2013).

The WSJ reports in detail on the case of Mr. Levia – a broker whose regulatory record failed to include a judgment for unpaid debt and a criminal guilty plea. According to FINRA, the plea should have barred him from selling securities for 10 years. Instead, he continued to manage investor’s life savings, with disastrous consequences.

And just to be clear, it’s not just an occasional rogue broker or small firm that cloaks itself in an invisibility cape. The 10 largest brokerage firms in the Journal’s analysis have over 450 employees with bankruptcy filings that should have been reported. The list included stockbrokers from Merrill Lynch (now owned by Banks of America), J.P. Morgan Chase, MetLife, J.P. Turner. and a brokerage unit of Allstate, just to name a few.

Banks Law has always encouraged investors to review FINRA’s Brokercheck before investing with a financial professional and we will continue to recommend it. In addition we keep our own small website financialproductalerts.com to help alert investors of our current investigations into brokers, financial advisers, and brokerage firms.

Most importantly, if you ever have concerns about a financial adviser or broker, reach out to an experienced securities attorney with your concerns. We can help you to understand your options for recovery in a confidential, complimentary phone call.

A link to the full WSJ article is here but you may need an account to read the full article.

The Senator also stated that he was “appalled” at a reported $51 million in arbitration awards granted to investors in 2011 that remains unpaid. “Investors are required to participate in FINRA’s arbitration program if they have a claim against their broker. If an investor successfully proves their claim but is never paid, the integrity of the entire system is threatened.”

Senator Markey’s letter can be viewed by clicking here

PIABA’s 2013 Expungement Study can be viewed by clicking here

Attorneys Robert S. Banks and Darlene Pasieczny are PIABA members with a combined experience of over 35 years in recovering investment losses nationwide.

Attorneys for investors will search for responsible professionals who should or could have known about problems with these dollars. The investor’s lawyers and accountants have some obligation to advise and care for their clients. They may be responsible for paying back some of the lost dollars.

This scenario is more common than people want to admit. Banks Law encourages all investors to follow FINRA guidelines for safe investing. Also, if you follow the recommendations of a financial advisor or broker, be sure to check first on FINRA’s brokercheck. And finally, if you have lost money in an investment and want to know if you might be able to recover the funds, please contact our office for a confidential and complimentary evaluation of your potential claim. You have nothing to lose by calling us to see if there is any chance of recovering your investment.

Robert Banks has been protecting investors from financial abuse and neglect for over 30 years. He files claims against brokers, financial advisors, accountants, lawyers, and brokerage firms to help investors recover their money. You need only read his biography to know that you have discovered the best of the best.

These actions leave no doubt that you should seek the help of an attorney who has a focused practice on investment recovery. In these situations the choice you make for representation is critical. Please give our office a call to discuss the details of your potential claim.

Ninety-one-year-old Joe Forrest of Sarasota lost $246K to former broker Paul Arnold of Raymond James & Associates. Only the accidental intervention of a caring acquaintance led to an investigation and, ultimately, a FINRA judgment that stripped Arnold of his credentials, awarded Forrest $739K in restitution and damages, and led to an ongoing criminal case. The estimated size of the “industry” that financially exploits seniors is $2.9B in 2010, up about 10% from the previous year, and an estimated 86% of these victims do not report the crimes out of shame, confusion, or isolation.

(Barbara Peters Smith, Sarasota Florida Herald-Tribune, at www.heraldtribune.com)

Between 2006 and 2010 the five banks (Citigroup, Goldman Sachs, JPMorgan, Merrill Lynch and Morgan Stanley) underwrote municipal and state bond offerings in California, made payments to the lobbying group California Public Service Association (Cal PSA) for their legislative influence in Sacramento, and characterized those payments as “underwriting expenses” for which taxpayers were ultimately responsible. Although an industry-wide practice at the time, this violates the fair-dealing and supervisory rules of the Municipal Securities Rulemaking Board, the muni bond market’s self-regulatory body. Roughly a quarter of these specific fines go back to the bond issuers.

(Bloomberg at www.bloomberg.com)

“Funding portals” as authorized under the JOBS Act signed in April remain illegal until regulation is complete. The most optimistic projection for having rules in place is summer of 2013. In the meantime, a lot of noise. Various blossoming entities like CFIRA (CrowdFund Intermediary Regulatory Advocates) complain about the delay and press for an accelerated timeline. A small army of start-ups claim to have found legal crowdfunding business models using debt funding, donations, or state-level regulatory workarounds. And the state regulators in NASAA (North American Securities Administrators Association) are preparing for an explosion of fraudulent offerings and a long line of burned investors next summer.

(St. Louis Business Journal at http://www.bizjournals.com/stlouis/)

Of course we agree that recordings should not be made secretly. It raises obvious ethical problems but practical dangers too. Such as the possibility that one side has an unnamed co-counsel stashed in a hotel room somewhere.

That said, it’s worth clarifying that all FINRA hearings are digitally recorded anyway. Parties have the right to bring court reporters into the hearing. Any party should be permitted to make any recording of the process that it wants, so long as everybody knows they are doing it.

FINRA’s official instructions to arbitrators includes this language:

There must be a record kept of every FINRA arbitration hearing. This is an important function, and is required under FINRA rules. It is essential that care be taken to properly record each hearing, and to timely transmit the digital recorder and memory cards to FINRA Dispute Resolution.

Occasionally, the parties request a stenographic record. In such cases, the arbitrator can determine that the stenographic record will be the official record and dispense with the recording of the hearing. If a stenographic record is used, the parties are required to defray the cost of such record and provide FINRA Dispute Resolution with sufficient copies of the transcript for FINRA and the arbitrators.

…There are no “off the record” conversations between the parties and yourself. Record the entire proceeding!

The news of the secret recordings comes from Dan Jamieson, writing in Investment News.

(The complete article can be found here.)

FINRA has formally proposed that broker-dealers and their employers reveal the terms of their compensation, which normally include bonuses and incentives. Industry reaction has, predictably, been loud and indignant. Regulators point out that Registered Investment Advisors are already under similar restrictions; that compensation and bonus structures for brokers can potentially lead to conflicts of interest, churning, and unsuitable sales; and those investment clients have a right to know how their brokers are rewarded.

(Dan Jamieson at www.investmentnews.com)

Attorney Preet Bahrara against a former portfolio manager for Steven A. Cohen’s well-known SAC Capital Advisors LP. The criminal complaint charges Mathew Martoma of trading on inside information of disappointing Alzheimer’s drug trials, and coming away with $276 million of profits and avoided losses. The case was referred to state and federal prosecutors in 2008 by the New York Stock Exchange Division of Market Regulation on the analysis of suspicious trading patterns. That organization is now part of FINRA. The contents of the complaint suggest that the high-profile Cohen may also be implicated.

(Bloomberg News at www.bloomberg.com)

The total includes nine counts of aggravated theft in the first degree, one count of theft in the first degree, and 27 counts of securities fraud. This is in addition to four charges of aggravated theft in the first degree dating from February, an arrest for contempt of court charges arising from a civil matter in June, and his being barred from FINRA and ordered to repay former clients $584,000 in September.

(Lane County court documents)