Investor Advocacy Clinic Comments on FINRA Discovery Rule Change Concerning Firm Insurance Information

The Investor Advocacy Clinic continues to give all investors a voice. On September 24, 2018, the clinic commented on FINRA Regulatory Notice 18-22, a proposal that would amend the Discovery Guide’s Firm/Associated Persons Document Production List to require brokers and firms to produce documents concerning third-party insurance coverage upon request.

The clinic’s comment, authored by student attorneys Lynn Mckeel , Ben Dell’Orto , Edward Greenblat , Matthew Haan, Kevin Mathis, Brook Ptacek, and W. Dowdy White, support FINRA’s efforts to allow investors to evaluate whether they should go forward with a claim if there is little chance of discovery. Nevertheless, the clinic urged FINRA to take their proposal a step further and adopt the automatic mandatory disclosure of third-party insurance coverage regardless of any formal written request. Georgia permits any litigant to receive insurance information, upon request, before a suit is even filed.  Moreover, federal and many state courts mandate disclosure of insurance information without a formal request.   Requiring firms to produce insurance information early in an arbitration proceeding helps claimants evaluate whether they are throwing good money after bad.  The clinic’s comment is available in full here.

Lucia v. SEC: Who’s the Officer in Charge Here?

By: Esmat Hanano, IAC Student Intern Spring 2018

The Securities and Exchange Commission (SEC) is in the spotlight again, but not for any regulations or judgments it issued. Rather, the very structure of the SEC is the newsworthy topic because of a pending Supreme Court case: Lucia v. SEC. Lucia has not been set for oral argument; however, it is already causing quite a stir within the legal community because of the potential implications a decision by the Court will have. The main issue to be decided in Lucia is “[w]hether administrative law judges of the Securities and Exchange Commission are Officers of the United States within the meaning of the Appointments Clause.” While this seems like a boring issue worthy of only the most avid Supreme Court nerd, a decision one way or the other will have lasting impact that goes well beyond the SEC. Administrative law judges (ALJs) hand down enforcement orders for the SEC and a myriad of other agencies such as the Federal Deposit Insurance Corporation (FDIC). The work that ALJs perform is integral to the functioning of a regulatory agency and they are one of the main enforcement tools available to the Executive branch when it comes to civil remedies. Continue reading

To Thine Own Elders Be True: New Rules in Effect Today

By Abigail Howd, Spring 2018 IAC Student Intern

New rules to protect investors who have reached retirement age go into effect today. Now that our nation’s baby boomers are turning 65 or older, a large portion of the population is now being targeted by fraudsters in the investment industry. A survey conducted in 2012 showed that older investors were 34% more likely to lose money to fraudulent investments than investors in their 40s. More specifically, the study found that “[r]espondents age 65 and older were more likely to be solicited (93%), more likely to engage (49%), and more likely to have lost money (16%) than younger respondents.”

FINRA’s new rules seek to prevent fraudsters from being able to take advantage of these older investors. The new Rule 2165 (Financial Exploitation of Specified Adults) allows FINRA members to temporarily place holds on funds or accounts of seniors or otherwise incapacitated adults in four potential scenarios: Continue reading

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.

Interns Comment on FINRA Proposal to Increase Cancellation and Postponement Fees

cropped-law_iac.jpgThe Investor Advocacy Clinic’s Spring 2015 Student Interns recently commented on SR-FINRA-2015-003, a proposed rule that would increase the honorarium to arbitrators for a party’s late cancellation of a scheduled hearing. The proposed rule would result in a $600 per arbitrator honorarium if a hearing is cancelled or postponed within ten business days of the scheduled hearing date.  The Investor Advocacy Clinic’s comment suggested that while it is important to compensate arbitrators for their time and lost opportunities, the rule as proposed goes too far in both cost to investors and notice required before the fee is assessed.  We instead proposed either that small investors be excluded from the rule change or that FINRA enact a phased cancellation/postponement fee.  A phased fee would pay $100 per arbitrator if a hearing is cancelled or postponed between ten and four business days before a scheduled hearing.  The fee would rise to $600 per arbitrator if a hearing is cancelled or postponed three or less business days before a hearing.  We believe these alternatives are necessary to ensure that smaller investors are not disproportionately impacted by the rule change. Read our full comment here.

Investor Advocacy Clinic Comments on FINRA Proposed Rule Change 2014-028

By: Ryan Corbin , Fall 2014 Student Intern

LAW_IACThe GSU Investor Advocacy Clinic is committed to protecting the interests of individual investors. Therefore, in addition to providing legal services and participating in investor education and outreach, the clinic is also actively involved in the public comment process relating to rule changes proposed by FINRA.

The Proposal: SR-FINRA-2014-028

FINRA recently proposed SR-FINRA-2014-028, which would “refine and reorganize the definitions of ‘non-public arbitrator’ and ‘public arbitrator.’” Individuals affiliated with the financial industry are typically considered “non-public arbitrators” and individuals unaffiliated with the financial industry are typically considered “public arbitrators.”  The new rule would provide that persons who worked in the financial industry for any duration during their careers would always be classified as non-public arbitrators.  The change would also provide that persons who represent investors or the financial industry as a significant part of their business would also be classified as non-public arbitrators, but could become public arbitrators after a cooling-off period.

The Clinic’s Comment

On November 6, 2014, the clinic submitted a comment letter expressing its opposition to this proposed rule change.  The proposed rule would actually serve to diminish the availability of public arbitrators and remove qualified arbitrators with no ties to the industry from the pool of available arbitrators.  The proposed rule also does not achieve its goal of broadening the definition of “non-public arbitrators.”  This is of significant importance to small investors since they may arbitrate their claims before an all-public panel.  The proposed change will drastically decrease the amount of public arbitrators available to hear these types of disputes.

The clinic recommended that the definition of non-public arbitrators include anyone who has ties, whether current or former, to the financial industry including individuals associated with hedge funds, mutual funds, and non-traded REITS. It is essential that the investing public feel that they have a fair and unbiased tribunal in which to arbitrate their claims.  The clinic further recommended that claimants lawyers and other professionals serving the investing public not be classified as non-public.

The primary student author of the comment letter, Kori Eskridge, was assisted by student interns Ryan Corbin and Kristina Ludwig.

FINRA Warns Firms about Overreaching Confidentiality Provisions in Settlement Agreements

By Patricia Uceda, Fall 2014 Graduate Research Assistant

confFINRA has issued a regulatory notice reminding brokerage firms that it is a violation of FINRA Rule 2010 to include confidentiality provisions in settlement agreements or any other documents that prohibit or restrict a customer from communicating the SEC, FINRA, or any federal or state regulatory authority regarding a possible securities law violation. Under FINRA Rule 2010, firms are required to observe “high standards of commercial honor and just and equitable principles of trade” in the conduct of their business.

As part of settlement agreements, some firms had required customers to sign confidentiality stipulations restricting them from disclosing to securities regulators the settlement terms and underlying facts of the dispute. Similarly, some investors had reported that during the arbitration discovery process, they had been asked to enter into stipulations that would prohibit them from using the documents outside of the proceeding. Such practices could, for example, prohibit investors from providing important information to regulators that would permit them to stop brokers who were engaged in questionable or illegal conduct. Continue reading