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Recent Blog Posts

• A Few Things About AAA Arbitration of RIA (and Other) Claims At a recent webinar, representatives of the American Arbitration Association ("AAA") provided several comments about the arbitration process as applied to claims involving registered investment advisors ("RIAs"):Do the consumer or commercial AAA Rules apply?Where the operative arbitration clause determines the applicable rules, that controls.  Otherwise, AAA's case team reviews the claim to determine whether the claim falls under the consumer or commercial rules.  On motion, the appointed arbitrator may also be asked to review which rules apply.What's the number one... More
• Registered Investment Advisor Claims and American Arbitration Association (AAA) The American Arbitration Association (AAA) handles a great number of financial disputes. At a recent seminar, AAA shared some data:the AAA case load has risen rather sharply, a 19% rise in claimsin 2022 as compared to the prior year;The primary claim types driving that increase are: lender debtor, banking services, partnerships;90% of cases are decided in favor of one side or the other--in general they do not see claims resolved on a "split the baby" basis;the usual time frame from... More
• 2022 Revisions to American Arbitration Association Rules The American Arbitration Association (AAA) has updated its Commercial Arbitration Rules and Mediation Procedures, effective September 1, 2022.  Per AAA’s announcement the changes reflect the input of a wide range of AAA stakeholders, and “standardize important longstanding AAA practices—confidentiality, consideration of consolidation/joinder motions, and civility—as well as revise rules to further promote efficiency, reflect advances in technology, and include where appropriate discussions regarding cybersecurity.” The AAA highlights five key changes: Consolidation: AAA’s first-ever commercial rule for the consolidation of existing arbitrations or the joinder of additional ... More
• Attorneys' Fees under the Uniform Securities Act Because of the expense of litigation (and arbitration), a common question is whether attorneys' fees are available to the prevailing party.  Yes, but only in connection with some claims and don't bank on it. Under the Uniform Securities Act, which has been adopted in four New England States, the answer is yes, although recovery of attorneys' fees is permissive, not mandatory.  Maine and New Hampshire adopted the current version of the Act.  Massachusetts and Rhode Island adopted the original Act but... More
• Update on Securities Arbitration Administered by FINRA This is by no means verbatim, but presents the highlights of a town hall meeting with Rick Berry, Director of FINRA’s Arbitration Services and Manly Ray, Director of FINRA Arbitration’s Southeast Regional Office and the head of FINRA’s Mediation program, and Sam Edwards, President of the Public Investors Arbitration Association.    Has FINRA seen a spike in cases as a result of stock market volatility and the economic downturn?  Not yet.  FINRA expects a 3-6 month lag, or possibly longer as a result of delays caused by the... More
• Maine Securities Administrator Warns of COVID-19-Related Fraudulent Investment Schemes In an April 3, 2020 warning urging investors to be on guard against an anticipated surge of COVID-19 fraudulent investment schemes, the Maine Securities Administrator cautions that scammers will be targeting investors, capitalizing on the double whammey of the recent economic downturn and anxiety about the virus.       Of special concern are get rich quick schemes specifically tied to the threat of COVID-19.  "Bad actors can be expected to develop schemes that falsely purport to raise capital for companies manufacturing surgical masks... More
• Maine Joins Other States by Requiring Mandatory Reporting of Suspected Financial Exploitation To enhance prompt reporting of financial exploitation to state securities regulators and adult protective services, on April 2, 2019 Maine joined 25 other states by enacting the Act to Protect Vulnerable Adults from Financial Exploitation, Public Law 2019 Ch. 17.  The Act makes broker-dealers and others mandatory reporters of suspected financial exploitation of seniors and vulnerable adults.     The Act is intended to combat financial exploitation of elderly and disabled persons, a not infrequent occurrence.  According to one reputable source as many as 20%... More
• Unpaid Arbitration Awards: An Unabated Problem Earlier posts highlighted a long-recognized problem in the securities industry: investors who've proven that they were harmed by bad actors  all too often wind up recovering little or nothing even after winning a legal claim.    An analysis of arbitration awards a few years ago revealed that about 25%, nearly $1 out of every $4 awarded to customers in arbitration went unpaid.  There are solutions to the problem, like requiring insurance (as is required to register an automobile), requiring that broker-dealers maintain higher... More
• Expungement: A Seriously Flawed Process? In 2017, this blog featured a post examining the standard applied to requests by brokers to cleanse (erase) their public records of customer complaints, a process called "expungement," here.  A recently released (October 2019) study by the investor protection foundation run by the Public Investors Arbitration Bar Association (PIABA) reports that the process is “broken” as a result of being “systematically gamed, exploited and abused” by brokers and brokerage firms.      Among the problems found, according to PIABA's study are sham cases seeking... More
• Lessons From "Arbitration Nation:" an Empirical Study of 40,000+ Consumer Arbitrations A recent study identifies a problem -- "we know little about what actually happens in" arbitration -- and offers a solution: find out what happened in more than 40,000 consumer arbitrations administered by four major arbitration forums over the course of six years.    In the study, "Arbitration Nation: Data from Four Providers," Professors Andra Cann Chandrasekher and David Horton analyzed "40,775 consumer, employment, and medical malpractice arbitrations filed between 2010 and 2016 in four major arbitration administrators: the AAA, Judicial Arbitration and Mediation Services (JAMS),... More
• New Maine Restrictions on Non-Compete Agreements; Bans Restrictive Employment Agreements A new Maine law will make it more difficult for Maine employers to enforce non-compete agreements, an issue of particular interest in the securities industry where non-competition agreements often have been used to deter brokers from changing jobs. In enacting the new legislation, Maine joins other New England states, including Rhode Island, Massachusetts, and New Hampshire, which also have new laws on the books limiting the enforceability of non-compete agreements.    On June 28, 2019, Governor Mills signed LD 733 (“An Act... More
• Investing in Private Companies: Opportunities Abound, But So Do Risks More retail investors than ever are investing in private companies, but doing so can be "high-risk" and "more opaque" and private companies tend to be a magnet for fraud, according to the Wall Street Journal.  "More opaque" means "more secretive"--subject to lesser regulatory oversight and fewer obligations to disclose to the public how their business is performing.  Also problematic is that it can be hard to sell investments in private companies, which means that buying private companies can "tie up... More
• Public Investors Bar Association Report: Draft Reforms to FINRA Supervision Rules Leave Investors Vulnerable   In a report titled, FINRA’s Attempt to Gut Investor Protections: Proposed Reforms to FINRA Supervision Rules, Public Investors Arbitration Bar Association (PIABA) argues, “FINRA is currently contemplating the evisceration of crucial protections that have been in place for decades to safeguard investors against investment schemes by brokerage firms’ registered representatives, including ‘selling away’ schemes. If FINRA’s proposed changes are approved, there will likely be more investment scams perpetrated by registered representatives. If these proposals are adopted, brokerage firms will no... More
• FINRA Arbitration Requirements Take Priority over Forum Selection Clause The Third Circuit Court of Appeals recently ruled that Bear Stearns must comply with the Financial Industry Regulatory Authority (FINRA) rules that require arbitration of a customer’s claims despite the existence of a forum selection clause. That ruling, in Reading Health System v. Bear Stearns & Co., n/k/a J.P. Morgan Securities, LLC, involved a broker-dealer agreement between Bear Stearns (now J.P. Morgan Securities) and Reading Health System regarding offerings of certain securities by Reading Health through which J.P. Morgan Securities... More
• FINRA Issues Guidance on Heightened Supervision for Persons with a History of Past Misconduct   To reiterate the supervisory obligations of FINRA member firms regarding associated persons with a history of past misconduct that may pose a risk to investors, FINRA recently published Regulatory Notice 18-15. FINRA Rule 3110 (Supervision) requires member firms to establish and maintain systems to supervise activities of associated persons to comply with applicable securities laws and FINRA rules. Member firms have a fundamental obligation to implement a supervisory system that is tailored to the member firm’s business and addresses the activities of all its associated persons. Notice 18-15 highlights... More