April 17, 2021
A public customer filed a FINRA arbitration claim citing nearly $6 million in losses in Puerto Rico municipal bonds. The Claimant took his place on a proverbial long, long line that winds around several blocks. After 20 FINRA hearing sessions, the arbitrators denied all the claims, which set the stage for a federal court appeal. Adding insult to injury, the Court wasn't all that impressed with Claimant's arguments or the manner in which some were presented.
Another day and another dispute about whether an employment dispute is arbitrable before FINRA. In today's iteration, we got two former employees of a non-FINRA-member-firm but they are also employees of a FINRA member firm -- and both firms are subsidiaries of the same parent. After the employees resign to join Wells Fargo Advisors, only the non-FINRA employer sues them in federal court. In trying to get their case before a FINRA Arbitration Panel, the former employees argue that as FINRA registered representatives, their disputes are subject to the arbitration provisions of the Form U4 and FINRA Rule 13200, and if the Court ain't buyin' that, the employees further argue that the FINRA member firm is an indispensable party and must be joined, which would then give them another avenue to argue for FINRA arbitration.
Submitted for you disapproval is FINRA Regulatory Notice 21-15, which does nothing more than "reminds members" that they are required to do something. In case you missed it, the focal point of the reminder is about something that members are "required" to do. It's not something they may want to do. It's not something that they are musing about doing. It's something that's set out in many forms and iterations in FINRA's rulebook -- and the rules are mandatory (which is just another way of saying "required.")
BrokeAndBroker.com publisher Bill Singer was the third generation of his family in the wine and liquor business. Mounted on a wall in Bill's home is the framed First Dollar that his father got when he opened his liquor store in the 1950s. It's a "Silver Certificate" with its own unique serial number -- almost like cryptocurrency but for the fact that it is a legacy, paper currency with a physical manifestation but, hey, if my aunt were a man she'd be my uncle. Also, someone (whose name is now lost to history) wrote on the First Dollar: "Best of Luck!" Imagine if Bill's father had transformed his First Dollar into an NFT way back in the 1950s. Why that First Dollar would be worth -- what? -- something like $2 or even $3? You would have doubled or tripled your investment.
If you file a securities fraud claim under Section 10(b) of the Securities Exchange Act of 1934, a basic element of your proof must be to show that the defendant had acted with "scienter." What's scienter? Ahh, that's as easy as explaining what's cryptocurrency -- or what's "enough" or "a lot" or "frequently." In legalese, courts refer to "scienter" as a mental state embracing intent to deceive, manipulate, or defraud. Yeah, sure, that's helpful (not). Complicating things, in 1995, the Private Securities Litigation Reform Act imposed a further threshold upon plaintiffs in that they must plead a "strong inference" of scienter; and, as held in 2007 by the United States Supreme Court in Tellabs, Inc. v. Makor Issues & Rights, LTD, a securities fraud complaint must allege facts establishing that the strong inference of scienter is "cogent and at least as compelling as any opposing inference of nonfraudulent intent." Confused? Welcome to the club. See how all of this plays out in a recent Class Action.