FINRA issued its summary of disciplinary actions reported for June 2012. Certain actions are noteworthy and are indicative of regulatory trends effecting broker-dealers and registered representatives.
Herskovits PLLC comments on the following regulatory actions:
The Financial Industry Regulatory Authority (FINRA) views its mandate as investor protection and as such, they have given notice that a new suitability rule, Rule 2111, will go into effect on July 9, 2012.
As long as there have been investors and brokers, there have been people who take advantage and people who are taken advantage of. This rule codifies a standard that FINRA thinks is best for the investing public by imposing more stringent regulations on securities that a broker recommends to buy/sell, including those within a client’s existing portfolio. Rule 2111 has significant implications for broker-dealers who maintain retail brokerage accounts. The rule by its own terms, carves out institutional accounts: So if you are a broker-dealer that sells to hedge funds, this is not a game changer. But if you are selling to Main Street as opposed to Wall Street, then this is a very significant rule.
The new rule contains three guiding principles. Each recommendation must have:
Regulators are examining whether Morgan Stanley, the investment bank that shepherded Facebook through its highly publicized stock offering last week, selectively informed clients of an analyst’s negative report about the company before the stock started trading.
Rick Ketchum, the head of the Financial Industry Regulatory Authority, the self-policing body for the securities industry, said Tuesday that the question is “a matter of regulatory concern” for his organization and the Securities and Exchange Commission.
The top securities regulator for Massachusetts, William Galvin, said he had subpoenaed Morgan Stanley. Galvin said his office is investigating whether Morgan Stanley divulged to only some clients that one of its analysts had cut his revenue estimates for Facebook before the stock hit the market on Friday.
French investors urged New York’s top court on Wednesday to reinstate their lawsuit over losing $43 million out of $50 million they put into two structured investment vehicles.
The investors claim Barclays Bank, Standard & Poor’s and two management companies were complicit in leaving investors with plummeting securities shortly before the Wall Street collapse. Oddo Asset Management claimed collateral managers Avendis Financial Services Ltd. and Solent Capital Ltd. conspired with Barclays in early 2007 to transfer subprime mortgage-backed securities from Barclays to the two vehicles.
The investors also claimed S&P was complicit by confirming inflated note ratings for Golden Key Ltd. and Mainsail II Ltd.
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