FINRA Lawyer Blog

Georgia Court Ruling Diminishes Protocol Protections for Brokers

July 12, 2018 | Herskovits, PLLC

Ever since it was implemented, brokers have relied on the Protocol for Broker Recruiting to be able to take some of their clients with them when they leave a firm, but a recent ruling by a state court in Georgia might jeopardize the Protocol’s protections.

The Appeals court’s ruling concluded the case against four former Aprio brokers, who failed to give 60 or 90 days’ notice before moving to Morgan Stanley, as it was established in their employment agreements.

Instead of giving Avrio a heads up, they announced they were leaving and quit on the same day. As soon as they had a foot out the door, they reached out to all their clients, in an attempt to bring them over to Morgan Stanley. Naturally, many followed, and Aprio lost a significant amount of business.

Massachusetts Watchdog Targets Broker-Dealers’ Inadequate Oversight of Private Placements

July 11, 2018 | Herskovits, PLLC

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The head of Massachusetts’ state securities regulatory body, Secretary of the Commonwealth William F. Galvin, issued a public statement announcing an inquiry into the practices of some of the top local broker-dealers related to private placement investments.

These funding rounds of securities, which are not sold through a public offering, but rather, presented to a select group of investors, commonly involve a higher risk of fraud.

The list of companies that have already received an inquiry letter from Galvin’s office includes, among others, Arthur W. Wood, Bolton Global Capital, Advisory Group, Santander Securities, LPL, U.S. Boston Capital, and BTS Securities.

FINRA Regulatory Notice Encourages Members to Disclose Participation in Any Cryptocurrency-related Activities

July 10, 2018 | Herskovits, PLLC

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FINRA has announced it will increase its scrutiny of the cryptocurrency market. As several regulatory bodies endeavor to establish their jurisdiction over the crypto space, FINRA will now boost its oversight of registered firms’ participation in its burgeoning market.

In a new regulatory notice, the self-regulatory organization asked its 3,700 member firms to notify it if they trade in cryptocurrency, accept cryptocurrency from clients, manage crypto funds, participate in the sale of digital tokens, or even offer advice relating to cryptocurrency.

FINRA will also monitor virtual currency mining and any other related use of blockchain technology.

WELLS FARGO Will Pay $480 Million to Settle Fraud & Insider Trading Class Action Brought by Shareholders

July 9, 2018 | Herskovits, PLLC

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Wells Fargo will pay $480 million to resolve fraud and insider trading allegations brought in a class action in California.

According to the plaintiffs, top executives at the bank engaged in insider trading after employees were directed to create millions of accounts under customer names, without the customers’ consent.

While litigation in California state court continues, the settlement will end the federal lawsuit.

California Attorney Found Guilty in Pump-and-Dump Scheme Case Involving Greenway Technology and Crown Marketing

June 16, 2018 | Herskovits, PLLC

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Jehu Hand, a California-based attorney has been found guilty of securities fraud and is now awaiting sentencing. Following his trial, which took place in Boston, the defendant could be facing up to eight years in prison.

The federal jury found that Hand conspired with his two brothers to run a pump-and-dump scheme by falsifying documents. According to the evidence presented during trial, the defendant and his co-conspirators fraudulently obtained $1.5 million through the scheme.

Hand and his brothers allegedly misrepresented Greenway Technology Inc. as a company with tremendous potential, which was about to acquire lucrative gay-friendly hotels in California and Nevada.

Merrill Lynch FAs Will Experience Pay Cuts Unless They Meet Certain Targets

June 15, 2018 | Herskovits, PLLC

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As Merrill Lynch brokers appear to lag behind their competitors at Morgan Stanley, some FAs at the firm are probably not looking forward to seeing their paychecks this summer season.

Based on Merrill’s new compensation program, FAs who do not hit specific targets are going to endure punishment in the shape of a pay cut, compliments of the firm’s parent company, Bank of America.

There is much controversy about the management’s plans, mainly because it rewards practices like cross-selling. The fact that they are going to apply the new compensation program retroactively is not sitting well with brokers either. Actually, the FAs have referred to this particular element as a “clawback” tactic.

CFTC Tells Judge It Has Jurisdiction Over Cryptocurrencies

June 11, 2018 | Herskovits, PLLC

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A few days before issuing the recent advisory for the cryptocurrency market, the Commodity Futures Trading Commission told the judge in the case against My Big Coin Pay Inc. that cryptocurrencies are commodities, and are therefore within CFTC jurisdiction.

The federal judge in Massachusetts is hearing the case against My Big Coin Pay Inc., a cryptocurrency company that allegedly defrauded dozens of investors out of at least $6 million.

Unsealed earlier this year, a CFTC lawsuit against the issuer of the virtual currency known as My Big Coin Pay first shed light on the company´s questionable practices.

CFTC Staff Advisory Offers Guidance for Listing Cryptocurrency Derivative Products

May 22, 2018 | Herskovits, PLLC

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On May 21st, the Commodity Futures Trading Commission issued a new document offering valuable guidance for registered market participants.

The head of the CFTC’s Division of Market Oversight, Amir Zaidi said in an accompanying press release,

“The CFTC staff is committed to providing regulatory clarity as much as possible. As the virtual currency market continues to evolve, CFTC staff will seek to provide additional guidance to help market participants keep pace with innovation while complying with CFTC regulations.”

Anti-Money Laundering and Sanctions Compliance: New Challenges for Financial Institutions

May 14, 2018 | Herskovits, PLLC

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In a complex and shifting global scenario, the financial industry faces numerous challenges relating to anti-money laundering (AML) compliance. In a rapidly changing regulatory environment, within an unstable geopolitical context, financial institutions have to adapt to new technologies and innovative operating models.

As regulators worldwide coordinate to increase transparency and target wrongdoers, AML has taken center stage when it comes to compliance programs.

The 2017 Global Anti-Money Laundering and Sanctions Compliance Survey by AlixPartners shed light on many observable industry trends. A survey of 361 financial institutions, the report is a valuable tool for anyone trying to understand the industry’s current perceptions and expectations.

Delaney Equity Group Could Face Probation and Steep Fines in “Shell Factory” Case

May 12, 2018 | Herskovits, PLLC

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Last week, federal prosecutors charged Delaney Equity Group with participating in a fraudulent scheme involving the sale of bogus shell company shares. The Florida-based broker-dealer allegedly conspired to sell shares of fraudulent microcap companies to investors at a profit. The Department of Justice has accused the defendant of “unlawfully” selling “unregistered securities” between late 2009 and mid 2013.

According to prosecutors, Delaney Equity Group recruited individuals to pose as CEOs for shell companies which were used to fraudulently register securities with the SEC. In order to be able to market shares of the shell companies, Delaney and the straw CEOs allegedly submitted numerous fraudulent documents to government agencies. Among other falsehoods, the documents stated that the ‘CEOs’ owned a control block of restricted shares in their respective companies.

Delaney Equity Group could be fined up to $500,000 or double the proceeds from the misconduct. The case has been assigned to Miami District Judge Cecilia M. Altonaga.

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