Blog by Bill Singer WEEK IN REVIEW

December 10, 2016

A 28-year industry veteran stockbroker borrows money from a client. There are two sets of considerations that should have come into play: One, what is required under FINRA's Borrowing Rule; and, two, what is required according to his firm's in-house policies.  In today's Blog analysis, we may find ourselves pondering whether that industry veteran was unaware of the regulatory and compliance issues or if he simply chose to ignore them. Whatever the explanation, it doesn't end particularly well. READ

A stockbroker made a computational mistake on an Excel spreadsheet and erroneously told her clients that their accounts were worth $120,000 less than was true. Thereafter, the clients liquidated their holdings and purportedly sustained a loss. Right up front, let me confirm that there is no question whatsoever that the stockbroker goofed and conveyed the inaccurate account valuations to her clients. All of which suggests that this is something that should have settled quickly. Surprisingly, this one went to trial.

We got the uncontested Point A of a clear-cut mistake in computation. Then we got the Point C of the liquidation of the accounts and some likely losses. What we don't got and what's going to prove to be a fascinating issue is Point B, which determines whether the stockbroker's mistake caused the clients' account-liquidation damages. READ

Sadly, the alternative-dispute-resolution of arbitration has become a laundromat where consumers are forced to allow powerful business interests to wash their dirty clothes in private. As I see it, the hallmarks of a truly fair arbitration system are that it is voluntary and offers a reasonable alternative to the court system's due process protections. The modern-day reality, however, is that too many industries force consumers into using a mandatory arbitration process that utilizes policies designed to delay the onset of adjudication, protract the hearing of the dispute, and favor repeat corporate users of a given forum.

The response of those apologists and defenders of the present arbitration system is that it is not mandatory but simply an economically necessary option that corporations use in order to contain ever-increasing legal fees and costs attendant to lawsuits.  Not mandatory? Okay, go try an open a brokerage account without agreeing to the purportedly optional arbitration provision. Go try to buy a major appliance or vehicle and strike out the arbitration provision on the sale contract. Good luck with that!  As is becoming increasingly clear, mandatory arbitration is not just a problem on Wall Street but has become far more pervasive. Consider a recent arbitration involving the dispute over a new car purchase and a used-car trade-in. READ

On December 6, 2016, the United States Supreme Court issued a dramatic and historic ruling in the high-profile insider trading case of United States of America v. Bassam Yacoub Salman.  The Supreme Court's Opinion clarifies some of the uncertainty that developed following the United States Court of Appeals for the Second Circuit vacatur of the insider-trading convictions in United States of America v. Todd Newman and Anthony Chiasson. In affirming the Ninth Circuit, the Supreme Court wrestled with the question of whether a "personal benefit" bestowed upon an insider requires proof of a potential or actual pecuniary gain; or, as the Ninth Circuit found, that proof of a close family relationship between the insider and tippee is sufficient. READ

It's one thing for a brokerage firm to have a stockbroker engaging in a few trades using unauthorized discretion. In today's Blog. however, we have a FINRA settlement involving seven years of improper discretion and 21 customers, a few of whom were the family members of the respondent. For some of you, today's article will be a wake-up call. You need to get discretion in writing from the customer before you start to exercise it. You need to notify your firm beforehand and make sure that you will be given permission to exercise discretion. Then there's that final issue: Don't answer "NO" on in-house compliance forms when the correct answer is "YES." READ

Senator James Lankford (R - OK) recent issued his second annual "Federal Fumbles: 100 ways the government dropped the ball." Notwithstanding the absurd and often laughable focus of Senator Lankford's barbs, this compendium of often wasteful and inefficient federal spending is a sad commentary. Get your morning cup of coffee. Treat yourself to another donut. Sit down. Get comfortable. READ the Report.