Investor Advocacy Clinic Comments on Proposal to Modify New Member Application Process

In order to effectuate our mission, the Investor Advocacy Clinic regularly reviews and comments on FINRA rule proposals. By providing objective and critical analysis, we hope to meaningfully impact and shape the culture of investing. On April 9, 2018, the clinic commented on FINRA Regulatory Notice 18-06, a proposal that would add protections for retail investors by creating a more rigorous application process for broker-dealers joining and moving between firms.

The clinic’s comment, authored by student attorneys Ben Dell’Orto, Alisa Radut, and Esmat Hanano, supported FINRA’s efforts to further protect retail investors by changing the new member application process. The modified application process will make it more difficult for broker-dealers to avoid paying arbitration claims against them by requiring that they show their ability to pay those claims before they can be hired by a firm. FINRA’s proposed changes will also prevent firms from shifting assets to avoid their obligations to investors. The changes will require certain financial disclosures on the part of the firm before they can move the assets at issue.  The clinic’s comment is available in full here.

Investor Advocacy Clinic Comments on Proposal to Eliminate Fee for Explained Decisions

In order to effectuate our mission, the Investor Advocacy Clinic regularly reviews and comments on FINRA rule proposals. By providing objective and critical analysis, we hope to meaningfully impact and shape the culture of investing. On April 4, 2018, the clinic commented on SR-FINRA-2018-012, a proposal that would eliminate the $400 fee for explained decisions.

The clinic’s comment, authored by student attorneys Abigail Howd, Dowdy White, and Eric Peters, supported FINRA’s efforts to eliminate the $400 financial barrier to explained decisions. While it is unlikely that the removal of the fee will increase the number of explained decisions, it will remove all financial barriers, encourage those who want an explained decision to request one, and promote transparency. Click here to read the Clinic’s comment letter in full.

Scatter, Scatter, Scatter!

By: Dowdy White, Spring 2018 IAC Student Intern

You’ve probably heard of the phrase “jumping ship.” If a ship is taking on water and about to sink, it would probably be the best idea for you jump onto another ship to keep from drowning. As it turns out, this is actually a disturbing, but common, practice with broker-dealers. If a broker caused a claim to be brought against himself or his firm and the claimant was awarded a substantial amount that would bankrupt either the broker or the firm, the broker could switch firms and the firm could transfer its assets to a separate firm in order to avoid becoming inactive.

I like to think of this situation as insects, perhaps roaches, living under a big rock. When you pick up the rock and reveal the insects, they scatter and go hide under another rock. As soon as you pick that rock, they again find another rock. This cycle could go on for as long as there are more rocks in the yard.

Lucky for us, FINRA recently submitted a regulatory notice to combat this problem! Specifically, the proposed amendment addresses FINRA’s concerns in situations where a FINRA member firm hires a broker with pending arbitration claims, where there are concerns about the payment of those claims should they go to award or result in a settlement, and the supervision of those individuals, and when a member firm with substantial arbitration claims seeks to avoid payment of the claims by shifting its assets to another firm and closing down. Continue reading

Clinic Comments on Proposed Changes to Simplified Arbitration

As part of its mission of serving regular investors, the Investor Advocacy Clinic reviews FINRA rule proposals and submits comments after fully evaluating the proposal.  Last week, the clinic commented on FINRA SR-2018-003, a proposal that would provide additional options to investors with smaller claims to have their disputes heard by arbitrators.

The clinic’s comment, drafted by spring 2018 student interns Abigail Howd, Eric Peters, and Dowdy White, praised FINRA for taking steps to provide investors with smaller claims a third option: telephonic hearings.  Currently, investors with so-called simplified claims (damages of $50,000 or less) have two choices: either a proceeding entirely on the papers, with no ability to tell their story in person, or a full-blown arbitration proceeding.  The proposal adds an intermediate option, and the Investor Advocacy Clinic supports it.  The student attorneys also recommended mandatory, in-person training and specialized expertise for arbitrators who oversee the new proceedings.  They proposed additional changes, including renaming the overall process to “Small Claims Arbitration” instead of “Simplified Arbitration” because the student attorneys have found that their clients’ claims are anything but simple.  Finally, the student attorneys recommended that mandatory discovery be part of the new process.  Click here to read the Clinic’s comment letter in its entirety.

Iannarone and Edwards Comment on Proposed Delay of Fiduciary Rule

Investor Advocacy Clinic Director and Assistant Clinical Professor Nicole G. Iannarone, along with Professor Benjamin P. Edwards, currently at the Barry University Dwayne O. Andreas School of Law and joining the UNLV William S. Boyd School of Law this fall, recently commented on the Department of Labor’s recent proposal to delay implementation of the fiduciary rule. Their comment, available in full here, opposed the proposed sixty day delay for three reasons.  First, they argued that the proposal would undercut years of study and work that created a rule that will help investors save for their future.  Second, they noted that the financial services industry is prepared to implement the rule now and a sixty day delay will cost retirement investors $147 million in just one year.  Finally, Iannarone and Edwards argued that the rule should be implemented as planned to provide the necessary data to undertake the examination of the fiduciary rule as ordered by President Trump in his February 3, 2017 memorandum.  Professors Iannarone and Edwards continue to research the substantive questions raised in the President’s memorandum and plan to file a comment letter answering those questions before the April 17, 2017 deadline.

Clinic Comments on SEC Proposal to Require Hyperlinks to Exhibits in Filings

As part of its mission of serving regular investors, the Investor Advocacy Clinic reviews rule proposals and submits comments.  Earlier this week, the clinic commented on an SEC rule proposal, S7-19-16, which would require certain registrants to include a hyperlink to each exhibit listed in the exhibit index of the filings.

The clinic’s comment, drafted primarily by fall 2016 student intern Hector Rojas, praised the SEC for taking steps to make it easier for investors to access information.  The clinic believes that requiring registrants to include hyperlinks for all exhibits will not only supply investors with the location of a specific exhibit, but also give them access to these documents more easily and quickly.  As a result, the clinic believes the proposal will allow investors to make more informed investment decisions and potentially reduce investor fraud.

Click here to read the Clinic’s comment letter in its entirety.

Clinic Comments on FINRA Proposal to Change Arbitrator Chair Qualifications

As part of its mission of serving regular investors, the Investor Advocacy Clinic reviews FINRA rule proposals and submits comments after fully evaluating the proposal.  Earlier this week, the clinic commented on FINRA SR-2016-033, a proposal that would require change the qualifications necessary to become a public chair qualified arbitrator.

The clinic’s comment, drafted primarily by fall 2016 student intern Geoffrey Hafer, praised FINRA for taking steps to increase the roster of public, chair qualified arbitrators.  Hafer noted that FINRA should also revisit the definition of “public” arbitrators and consider revisions in light of the size of the current pool due to a recent change in the definition.  Moreover, the clinic recommended that alternative training be available to arbitrators who wish to serve as a chair to ensure that FINRA arbitrators continue to be of the highest quality.  Click here to read the Clinic’s comment letter in its entirety.