May 13, 2017
FINRA has a ginormous rulebook --- yeah, "ginormous," look it up, it's a real word. Alas, so many rules and so little time. In today's featured FINRA regulatory settlement, our publisher Bill Singer read through the underlying facts and was puzzled by the odd characterizations. Bill figures that the Respondent probably violated at least one of FINRA's rules. Bill just doesn't think it's the one that FINRA cited -- or, perhaps, FINRA chose the right rule but didn't accurately explain the specifics of the conduct at issue. In the end, it looks like the regulator is trying push a three-prong plug into a two-prong outlet. READ VirnetX Holding Corporation and Apple have been fighting a patent infringement case in the federal courts with victories for VirnetX in the district court but with Apple prevailing on appeal. Still, the war wages on. In a recent Financial Industry Regulatory Authority arbitration, we find a public customer suing JP Morgan over losses sustained in her massive position of VirnetX, a company purportedly founded by her uncle. The customer was demanding at least $6.6 million in damages. There was a lot at stake for both sides. There are also many lessons taught in this arbitration as to what customers and industry participants may need to preserve and to prove in order to prevail in such disputes.READ
To the unsophisticated observer, lawsuits typically appear to be about winning. After all, when someone files a lawsuit in court or proceeds with an arbitration, the point must be to vanquish their adversary. Commonsense would dictate that you don't incur the costs of litigation just for the hell of it, right? Well . . . you know . . . that's one way of looking at it.
To those of us who have made a career of practicing law, lawsuits aren't always about winning versus losing -- at least not the way some of our clients explain to us why they want to sue. Sometimes a lawsuit isn't as much about the endgame as about the opening gambit. Sometimes a large corporation, for example, might figure that whether it wins or loses a particular case there is a lot of merit to be found in making a so-called point. Which isn't to suggest, even remotely, that the big boys don't want to win. That almost always goes without saying. On the other hand, you ever watch a baseball game where the score is 14 to 1 in the eighth inning and the pitcher for the losing team throws a purpose-pitch fastball that hits the batter in the helmet and knocks him down? READ
In a regulated industry such as Wall Street, there is a tension between the regulated and the regulator. It's not unique to the securities industry. Wherever you have a regulatory scheme, there is the same dynamic. The purpose of a regulator is to regulate but to do so fairly and effectively. The regulated are businesses entitled to make a fair buck as a result of providing a legal product or service.The regulated were not created, however, in order to justify the existence of their regulators.
A recent FINRA regulatory settlement shows that regulators need to be careful that their own prior conduct doesn't undermine their best efforts to police the industry. Nothing worse than a regulator's hypocrisy. Nothing worse than Sideshow Bob being undone by Lisa Simpson. Nothing worse than FINRA being hoisted with its own BrokerCheck petard. READ They can fire you. You can quit. That pretty much sums up the employer-employee relationship for most American workers. To be clear, that's an overly broad brushstroke. Many employment relationship are not at-will but governed by employment contracts. Similarly, employers can't simply fire you for illegal reasons . . . well, on second thought, that's not correct: An employer can fire you for an illegal reason but you have the right to sue. Conversely, employees can't always just get up and walk out as they see fit. You can't take things that don't belong to you or destroy your employer's property. Then there's that whole battlefield about the rights that a former employer and former employee have concerning customers. In today's BrokeAndBroker.com Blog, we consider the war between a former Schwab employee and his firm. A truce of sorts gets called. Both sides lay down their weapons. The cessation of hostilities aside, you get the sense that one of the combatants came away with more than the other. As Wall Street regulator Willie Nelson so wistfully asks: "Maybe we should call a truce. We could but what's the use? That just about does it, don't it?" READ