FINRA Lawyer Blog

Former SEC Chair Warning: Lack of Oversight of Registered Investment Advisors an Impending Disaster

December 11, 2017 | Herskovits, PLLC

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According to former Securities and Exchange Commission Chair Mary Jo White, the SEC insufficient examination of registered investment advisors is a “disaster waiting to happen.”

Without adequate oversight, misconduct at small advisory firms could be building up for years. While FINRA and state regulators vet half of all registered broker-dealers annually, the SEC only manages to examine 12% of RIAs every year.

Speaking at the Practicing Law Institute in New York, White expressed her concern about the SEC’s failing oversight of the independent space. “It’s a real problem that keeps me up at night,” she commented.

Morgan Stanley No Longer Bound by the Protocol for Broker Recruiting

November 30, 2017 | Herskovits, PLLC

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In a move that could be categorized as ‘seismic,’ Morgan Stanley has decided to quit the Protocol for Broker Recruiting. Originated in 2004, the document created a methodology to engineer the departure of brokers from one firm to join another.

Since then, it has protected departing brokers from litigation and temporary restraining orders, and ensured they do not share client information with their new firm without the clients’ consent.

For nearly 13 years, we have observed brokers moving between firms, and clients following them, more often than not. Meanwhile, brokerages have tried to train new recruits who can hold on to the clients of more experienced advisers. Now, Morgan Stanley will no longer be restrained by the Protocol, and they will likely go after departing brokers (who have taken their clients with them) much more aggressively.

SEC Enforcement Actions and Fines Plummet Under Trump

November 20, 2017 | Herskovits, PLLC

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Much has been said about the Trump’s administration effect on the SEC’s regulatory activities. Now, hard data confirms what we all suspected: under Trump, the Securities Exchange Commission has brought fewer enforcement actions and reduced its financial sanctions.

A new study by a Georgetown University professor, covering fiscal year 2017, revealed that the SEC brought 612 cases and follow-on actions in 2017, which represents a substantial drop from 743 enforcement actions brought during fiscal year 2016.

In 2016, financial sanctions amounted to $4.08 billion, while in 2017 they reached $3.45 billion.

Sandlapper Securities Named in FINRA Exorbitant Fees Complaint re: Saltwater Well Investments

November 13, 2017 | Herskovits, PLLC

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FINRA recently filed a complaint against a South Carolina-headquartered broker-dealer that allegedly charged exorbitant fees in connection with saltwater disposal well investments. The defendant, Sandlapper Securities, is a mid-size firm that employs about 60 brokers across its 13 locations.

According to FINRA, Sandlapper “participated in a fraudulent scheme and defrauded investors by selling investments in saltwater disposal wells at excessive, undisclosed markups through a middleman ‘development’ company owned and controlled by the firm, its CEO and a firm principal.” The fraudulent markups of as much as 270% “totaled over $8 million,” according to the complaint.

Starting in 2012, Sandlapper allegedly started using a development company as an intermediary between the fund and the saltwater well purchases, charging the fund substantial markups.

Former UBS Broker Wins $3 Million in Defamation Case

November 10, 2017 | Herskovits, PLLC

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A FINRA arbitration panel has just awarded James L. Springer Jr.; a Sarasota investment adviser, $3 million in damages, to be paid by his former employer, UBS. Springer, who managed $350 million in client assets during his 12 years with the company, claims UBS defamed him in a desperate attempt to keep his clients after he decided to leave.

In 2014, the broker prepared to leave UBS for a lucrative position at Merrill Lynch. Two days before he was supposed to resign, UBS fired him and proceeded to make allegedly false statements to his former clients.

UBS claimed Springer was being fired because he had used a corporate credit card to make personal purchases. The dollar amount of the purchases was, however, insignificant, especially when considering that the broker’s work yielded multi-million dollar profits for the company.

SEC Enforcement Executive Vows to Protect Retail Investors and Address Cyber Related Misconduct

November 9, 2017 | Herskovits, PLLC

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At a recent Securities Enforcement Forum in Washington DC, Stephanie Avakian, co-director of the SEC’s Division of Enforcement, discussed the agency’s future priorities.

Avakian emphasized that the mission of the Enforcement Division, to protect investors, will remain unchanged, but she announced a slight shift in focus areas and resource allocation.

The Division of Enforcement official referred to retail investors as the “most vulnerable market participants,” and confirmed that the SEC will continue to focus on:

Have FINRA’s “Poor Investments” Affected its Members?

October 31, 2017 | Herskovits, PLLC

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In a recent report, the Wall Street Journal said FINRA’s investments are underperforming. The self-regulatory organization boasts a $1 billion yearly budget, and it easily collects over $100 million per year through the imposition of fines.

According to WSJ journalists, throughout its existence, FINRA’s $1.6 billion investment portfolio has yielded $440 million less than what could have been obtained from a mix of balanced stocks and bonds.

After the industry’s recent questioning of how FINRA uses fine money, the new criticism appears as a new blow to its image at a time when it has been trying to show a willingness to reform in response to member feedback.

FINRA’s Competency Exam Updates Lower Barriers for Industry Newcomers

October 30, 2017 | Herskovits, PLLC

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Aspiring brokers will no longer need a firm to sponsor them in order to take FINRA’s competency exams. The Securities and Exchange Commission has just approved FINRA Regulatory Notice 17-30, which will make this and other changes effective within a year.

According to FINRA, the rule change aims to:

adopt consolidated FINRA registration rules;

NASAA Releases Annual Enforcement Report – Registered Members Top Enforcement Actions

October 27, 2017 | Herskovits, PLLC

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The North American Securities Administrators Association (NASAA) has just released its yearly Enforcement Report. Although NASAA is an international association of all state, provincial and territorial securities regulators in the United States, Canada, and Mexico, the annual report is focused on US jurisdictions.

According to data included in the document, there were more enforcement actions against registered members than against non-registered individuals in 2016.

2,017 (or 46%) of the 4,341 investigations conducted by state regulators in the securities industry resulted in enforcement actions. Resulting fines amounted to $682 million, while $231 million were returned to investors. The combined total between fines and restitutions, surpassing $900 million, constitutes a 5-year high.

SEC Accuses Two NYC Brokers of Defrauding Customers

October 18, 2017 | Herskovits, PLLC

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The SEC has accused two former Alexander Capital LP brokers, William Gennity and Rocco Roveccio of engaging in unlawful trading and deception that caused their customers to lose hundreds of thousands of dollars, while they earned a comparable amount in fees.

Gennity and Roveccio both worked at Alexander Capital from mid 2012 till October 2014.

They apparently have a long history of disciplinary action in the securities industry. In 2016, Gennity reached a settlement to resolve allegations of unauthorized trading and in 2014, he reached another settlement over churning and unsuitability. Roveccio has reached settlements over allegations of unauthorized trading and suitability in 2002, unauthorized trading in 2006, and a FINRA customer arbitration in 2013.

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