The Securities Litigation Expert Blog

Leveraged and Inverse ETFs: Trojan Horses for Long-Term Investors

Posted by Jack Duval

Aug 28, 2013 2:34:25 AM

Accelerant has a new white paper about leveraged and inverse Exchange Traded Funds ("ETFs"), here.  The paper includes the following:

  • Historical background on ETFs;

  • The introduction of leveraged and inverse ETFs;

  • How leveraged and inverse ETFs have been misused;

  • An explanation of the internal rebalancing mechanism of leveraged and inverse ETFs;

  • A review of prospectus language;

  • A literature review, including popular and financial press, academic, and industry sources;

  • FINRA Suitability Rules;

  • RIA Suitability Regulations, including the fiduciary duty;

  • Supervision and compliance implications for both Broker-Dealers and RIA firms.



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Topics: FINRA, RIA, Leveraged and Inverse, Investment Advisors, litigation, Senior Investors, investments, rebalancing; investments; FINRA, '40 Act; Suitability; Supervision; Compliance, SEC, ETF, Compliance, regulation.

A Fiduciary Standard for Brokers?

Posted by Jack Duval

Feb 12, 2013 3:06:00 AM

This blog post continues our expert analysis of complex investments and their regulation.

Thompson-Reuters has a brief interview with legal scholar Tamar Frankel addressing the different standards of care for brokerage customers.  (TR)

Here's a quote:

Q: Can you really apply a fiduciary standard to Wall Street?

A: I think so. It will help to show who is a real salesman and who is a person who sells something but also has advice. Brokerage customers are not always in the position to make that distinction. For example, when I buy a dress and the saleswoman tells me that I look beautiful, I can judge for myself if that's true because I can look in a mirror and see I'm fat. But if a doctor or lawyer says the best thing for you is to have heart surgery or go to court, I have no idea about whether that advice is for my benefit.




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Topics: FINRA, RIA, Thompson Reuters, Fiduciary, Investment Advisors, litigation, SEC, Tamar Frankel, Compliance, regulation., Complexity

Finra Scales Back RIA Oversight Bid

Posted by Jack Duval

Feb 8, 2013 1:45:46 AM

Finra CEO Richard G. Ketchum is quoted in an InvestmentNews article saying the regulator will pare back it's lobbying efforts to take over Investment Advisor regulation from the SEC.  (IA)  Despite the lack of political momentum, Ketchum said the need for more resources for RIAs remains.

“We haven't changed our view,” Mr. Ketchum said. “We've been at this for four years now. The SRO approach is the most effective, least duplicative way to oversee [advisers]. If an SRO is not approved, the SEC should be given more resources to oversee [advisers]. If an SRO is not approved, the SEC should be given more resources to address a significant investor exposure. Any way you look at it, the SEC needs more resources.

A 2011 SEC study mandated by the Dodd-Frank financial reform law indicated that the SEC could conduct annual examinations of only 8% of the approximately 12,000 advisers under its aegis at the time. After some adjustments ushered in by Dodd-Frank, the SEC now oversees about 11,000 advisers.

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Topics: FINRA, RIA, Richard G. Ketchum, Investment Advisors, SEC, Compliance, Dodd-Frank Act, regulation.

Finra Guidance on Investment Advisor Arbitration

Posted by Jack Duval

Nov 8, 2012 1:35:11 AM

Finra has published guidance for Investment Advisors at non-member firms who wish to utilize the Finra Dispute Resolutions platform.  (Finra)  You can see our previous coverage of this here.  The full text is below:

FINRA Dispute Resolution has received inquiries from lawyers who represent investors and those who represent investment advisers (IAs) which are not FINRA members about the availability of FINRA’s arbitration and mediation forum to resolve their disputes.  Currently, such disputes are resolved in court or in non-FINRA dispute resolution forums.  In response to these inquiries, FINRA offers the following guidance:

With respect to arbitration, FINRA will accept these disputes on a voluntary, case-by-case basis if the parties meet the following conditions:

  • The IA and investor submit a post-dispute agreement to arbitrate.

  • The IA or other parties agree to pay all arbitration surcharge fees.

  • The investor files a special written submission agreement to submit the dispute to FINRA Dispute Resolution that is:

    • Signed by all parties to the arbitration (including all investor parties and all IA parties).

    • Signed after the events occurred that gave rise to the underlying dispute.

The special submission agreement requires the parties to acknowledge that:

  • FINRA cannot enforce awards entered against non-member IAs and/or their employees (because FINRA is not a Self-Regulatory Organization for IAs).

    • Prevailing parties may enforce awards entered against non-member IAs and/or their employees in a court of competent jurisdiction pursuant to applicable state or federal law.

  • FINRA may bar the IA from the forum in future cases if an IA fails to pay any award, settlement agreement, or FINRA fees.

  • FINRA and its arbitrators and mediators will be held harmless from liability arising in connection with the resolution of the parties’ dispute.

  • Disputes involving IAs will be administered in accordance with the SEC approved FINRA Codes of Arbitration Procedure.

  • The final award will be made publicly available.

FINRA will also accept industry disputes between non-member IAs and their employees on a voluntary, case-by-case basis if the parties meet the above conditions.

With respect to mediation, FINRA will offer mediation services for any IA disputes on a voluntary basis.  Mediation can be faster and less expensive than arbitration or litigation.  If the parties agree to mediate, they will not give up any right to arbitrate or litigate if they cannot reach a satisfactory settlement. FINRA's mediation program has achieved an 80% success rate — parties who mediate in our forum resolve four out of every five cases.

Parties and counsel may direct any questions regarding IA cases to Todd Saltzman, Deputy Director of Case Administration, at (212) 858-4273 or by email.

Note:  FINRA requires IAs to arbitrate investor and industry disputes when the IA is dually registered with FINRA and the dispute arises in connection with the IA’s business activities as a FINRA member or associated person (see FINRA Rules 12200 and 13200).

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Topics: FINRA, RIA, Investment Advisors, litigation, arbitration, Compliance, regulation.

Finra to Facilitate RIA Arbitrations

Posted by Jack Duval

Nov 1, 2012 4:16:37 AM

Bruce Kelly, of InvestmentNews, reports that Finra will soon open its dispute resolution arbitration platform to registered investment advisors.  (IN)  This is good news for RIA investors because those arbitrations have typically been heard in AAA or JAMS forums, which are much more expensive.  RIA firms may also welcome the lower costs.

Finra Dispute Resolution President Linda Feinberg announced that a few RIA cases were already in the system and a formal rollout will be coming soon.  Feinberg also said,

"The move is in no way related to Finra's effort to become the self-regulatory organization overseeing investment advisers."

Readers of this blog will note that we have covered the battle for investment advisor regulation being waged between Finra and the SEC here.  I will leave readers to their own opinions about how this move relates to that dispute.


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Topics: FINRA, RIA, Bruce Kelly, Investment Advisors, Investment Advisor, litigation, arbitration, AAA, Linda Feinberg, SEC, JAMS, Compliance, regulation., InvestmentNews

SEC Announces Over 1,500 Private Fund Advisors Register as Investment Advisors

Posted by Jack Duval

Oct 20, 2012 3:47:35 AM

As a result of the Dodd-Frank legislation, hedge fund, private equity fund and other fund managers are having to register as Investment Advisors with the SEC.  This is a significant development as trillions of assets are now coming under the aegis (and scrutiny) of the SEC.  We will have more commentary on this later, but here are some initial links for your review:

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Topics: RIA, Dodd-Frank, Investment Advisors, Investment Advisor, SEC, Compliance, private equity fund, regulation., hedge fund

SEC/Finra Battle for Regulation of RIAs is Heating Up

Posted by Jack Duval

Oct 10, 2012 4:32:34 AM

Melanie Waddell of AdvisorOne reports that SEC Commissioner Daniel Gallagher has been casting rhetorical aspersions on Finra's ability to regulate RIAs.  (AdvisorOne)  Here's a taste:

“Is FINRA becoming a ‘deputy SEC’?” Gallagher, a Republican, asked during a recent speech at a Securities Industry and Financial Markets Association conference. “With all of the issues facing the broker-dealer industry it was created to oversee, should FINRA be seeking to branch out into entirely new fields of responsibility, such as regulating investment advisors?” he asked. “Is ‘mission creep’ affecting FINRA’s ability to perform its core duties?”

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Topics: Daniel M. Gallagher, FINRA, RIA, AdvisorOne, SRO, SEC, Melanie Waddell, regulation.

The New York Observer Weighs in on the Fiduciary Battle Between RIAs and BDs

Posted by Jack Duval

Aug 22, 2012 8:50:22 AM

The Observer has always published interesting, if not quirky, financial reporting.  Here's a serious piece on the fiduciary standard battle currently raging across the financial industry.

A surprising number of heavy hitters are putting their two cents in - from many different walks of life.

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Topics: RIA, broker dealer, The New York Observer, Compliance, fiduciary standard

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