Securities Compliance Sentinel - Analysis of Cutting Edge Securities Industry Issues

The 11^th Circuit Court of Appeals recently vacated a FINRA arbitration panel arbitration award because the panel had failed to decide if the securities firm had waived its right to arbitration by engaging in litigation. 

The arbitration arose out of a bond offering and a dispute between underwriters.  Ultimately, there was an arbitration award that was later confirmed by the federal District Court.  The 11^th Circuit stated that the district court did not consider the waiver issue of the party’s litigation conduct.  However, in vacating the award and remanding, the court did say that the district court, if it concluded that no waiver occurred, may then re-enter its order confirming the arbitration award.

This is an interesting decision because it does permit some insight into the courts' reasoning as it relates to a review of arbitration awards.

Late last week, one of my colleagues sent me an e-mail where he copied 8 other people, half of them I could not identify if my life depended upon it.  I then heard about the person who had a Twitter account with over 17,000 follwers, and was now being sued by his former employer over ownership of the account-- really, does anyone think the person knows 17,000 people?  Firms and persons working in financial services industries generate trillions of e-mails every year, encompassing the mundane to the critical. 

These firms and their employees also seem to be involved in numerous civil, regulatory and criminal investigations and litigations.  Much of the vast amount of money in legal fees paid to defend these firms and their employees (sums that sometimes greatly exceed the GDP of several developing countries) often relate to e-mail review and production.  General counsels and firm management looking for ways to save money on these bills should, initially, read my article that was published in the New Jersey Law Journal, outlining the "CC" problem and ways of clamping down on this terrible plague afflicting our society, http://www.foxrothschild.com/newspubs/newspubsArticle.aspx?id=4294970187.

Once read, please do your part in stopping this madness because the dollar you save maybe your own!!

Great program, 13th Annual FINRA Listens... And Speaks, to be held at the New York County Lawyer's Association on Monday February 6, 2012 at 5:00 PM at NYCLA. 14 Vesey Street (between Broadway and Church Street), New York, New York.  Katherine M. Bayer, regional director of the Northeast Region, FINRA Dispute Resolution, will speak. This program allows for an exchange of views among arbitrators, counsel for claimants and counsel for respondents.  Although the program has no fixed agenda, Ms. Bayer will discuss recent initiatives, including: revisions to the arbitrator disclosure checklist that all arbitrators must complete at the outset of cases on which they are serving, the new discovery guide, granting movants a right to reply, and the new composition of arbitration panels in promissory note cases; proposed rules allowing arbitrators to make referrals during the arbitration proceedings and precluding collective action claims from being arbitrated under the Industry Code; and updates, including FINRA's recent experience with investors' opting for an all-public arbitration panel and with the new discovery guide. As usual, Ms. Bayer will field questions from the audience.  NYCLA Evening Forums are free and open to the public. Entrance and facilities for those with disabilities are available. For wheelchair access, a ramp is provided. Please call 212-267-6646 at least one day in advance to make arrangements.

Those, who can attend, should!!

Interesting, NY Court of Appeals decision affirming an arbitration award despite a claim of partiality.  Check out the great write up from CPR!!

http://www.cpradr.org/Resources/ALLCPRArticles/tabid/265/ID/733/Arbitration-NYs-Top-Court-Sets-Evident-Partiality-Standard-for-Tribunal-Disclosure-Nov-15.aspx

In January 2001, the Securities and Exchange Commission (“SEC”) recommended the implementation of a uniform fiduciary duty standard for broker-dealers and registered investment advisors. Significant debate has followed regarding the potential parameters and scope of such a duty. Recently, the Securities Industry and Financial Markets Association (“SIFMA”), a lobbying group for large broker-dealers, proposed a framework for a uniform fiduciary duty.

Although SIFMA reiterated its support for such a standard, it also recommended against applying the fiduciary duty found in the Investment Adviser Act of 1940 to broker-dealers, stating that it would adversely impact “choice, product access and affordability of customer services”. Among other things, SIFMA proposed a new fiduciary duty for broker-dealers to accommodate broker-dealer conduct that would otherwise be in violation of the 40 Act.

In doing so, SIFMA recommended that, in its rulemaking, the SEC “provide the necessary rule-based guidance regarding when the fiduciary duty begins and ends and what disclosures and consents, if any, are necessary to satisfy the duty where a broker-dealer gives “advice involving principal trading, structured products, hybrid accounts, complex investment strategies, concentrated positions, and receipt of commissions and differential loads for different products.” To implement this standard, SIFMA proposed that it be articulated in the initial customer agreement. SIFMA also recommended that the fiduciary duty apply on an account-by-account basis.

By implementing a new fiduciary duty standard unique to broker-dealers, SIFMA believes that the SEC will properly take into account the distinctions in the law between registered investment advisers and broker-dealers while taking customer service into account. It remains to be seen if SEC heeds this call to action, or if the SEC simply rubbers stamps the 40 Act fiduciary duty standard to broker dealers.