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Benjamin P. Edwards

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Benjamin Edwards joined the faculty of the William S. Boyd School of Law in 2017. He researches and writes about business and securities law, corporate governance, arbitration, and consumer protection.

Prior to teaching, Professor Edwards practiced as a securities litigator in the New York office of Skadden, Arps, Slate, Meagher & Flom LLP. At Skadden, he represented clients in complex civil litigation, including securities class actions arising out of the Madoff Ponzi scheme and litigation arising out of the 2008 financial crisis. Read More

Rory Van Loo (@RoryVanLoo) recently posted a new article exploring how automated personal assistants increasingly influence consumer purchasing decisions.  As these digital intermediaries play an ever-larger role, we need to think more about how protecting consumers requires protecting these digital intermediaries.  He opens with an example showing how a digital assistant may soon be able to efficiently shift consumer purchasing:

Siri. As part of my regular monitoring of your spending, I have located an opportunity to save money on your phone bill and on your grocery bill each month. Would you like to hear more?

Consumer. Tell me about the phone bill.

Siri. Based on your monthly data usage and the performance of the networks where you spend most of your time, you can receive comparable service through Sprint at $140 less per year. Let me know if you want to hear more. Or, if you would like me to switch your account, place your thumbprint on the phone.

Although some might fear the arrival and widespread adoption of this technology, I’d be thrilled.  Sure, I could puzzle through Project Fi, Sprint, and Verizon to find the optimal deal, but my time has real value and I cannot…

We have big news in the regulation of investment advice space.  Nevada just released its proposed regulations under the state’s fiduciary duty statute.  Comments are due on March 1, 2019.  I broke the draft regulations down on Twitter when they came out and highlighted a few provisions:

Nevada’s draft regulations differ from the SEC draft in significant ways.  The draft Nevada regulations are substantially shorter coming in at eight pages against over a thousand pages from the SEC.  They also catch more misconduct.  Consider the SEC’s proposed title restrictions.  Although the SEC recognized that brokers calling themselves advisors/advisers has a tendency to mislead, the SEC only specifically targeted a few titles.  The Nevada regulations go broader:

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A new paper from Colleen Honigsberg and Matthew Jacob sheds light on how to think about FINRA’s controversial expungement process.  As I explained in a post a couple years back, FINRA’s expungement process leaves its own paper trail behind, making it possible for firms and more sophisticated individuals to see whether a broker has scrubbed complaints from their record:

You should also know that these studies work off compromised databases.  BrokerCheck only shows a partial picture because many financial advisers have managed to have complaints expunged from their records.  In instances where an investor settles an arbitration claim against a financial adviser, FINRA arbitrators routinely agree to expunge the existence of the complaint from the public record.  One study found that FINRA arbitrators granted 90% of these requests for expungement.  In some instances, state regulators have even struggled to block the expungement of complaints from the public record.

Like Harry Potter’s Mad-Eye Moody, you too can see the invisible.  You can uncover whether (and possibly how many times) a financial adviser has used this process to scrub records by checking a different database.  FINRA makes its arbitration awards available.  While complaints may not show up on BrokerCheck, you may find whether a financial adviser has had complaints

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Some business school professors recently posted new research on FINRA arbitration and came away with interesting findings.  They looked at about 9,000 different arbitration cases and found significant differences between arbitrators.  Some were more industry-friendly, meaning they gave lower awards to claimants.  Others were more client/customer-friendly, giving more awards to customers.  Unsurprisingly, industry-friendly arbitrators were 40% more likely to be selected for panels.  The authors found that industry firms were, on the whole, better at picking arbitrators than customers.

The FINRA arbitration process allows parties to influence arbitrator selection.  FINRA generates lists with arbitrators for the parties and then allows the parties to strike a certain number of arbitrators before ranking the remaining arbitrators.  FINRA appoints the highest-ranking remaining arbitrators to decide the case.

The study provides some support for a longstanding fear about the FINRA arbitration process.  Customers with cases before arbitrators are usually not repeat players in arbitration.  Once burned in a stock swindle, customers tend to become more cautious about trusting brokers. Arbitrators and firms, on the other hand, are repeat players.  If the arbitrator tags the industry with a large award and rules in favor of the customer, other industry members will likely strike that arbitrator…

A coalition of consumer groups put together a study to evaluate the effectiveness of new disclosures proposed by the SEC.  In essence, the disclosures are supposed to help consumers recognize the differences between different types of financial advisers.  The study found that the proposed disclosures were not particularly effective:

To begin, participants in our testing probably read the CRS in more depth than they would on their own. Despite that more in-depth reading, participants struggled throughout with sorting out the similarities and differences between the Broker-Dealer Services and Investment Adviser Services. Both the formatting and the language contributed to the confusion.

On the upside, the testing provides a useful starting point for thinking about how the initial draft disclosures can be improved.  Instead of giving up on disclosure entirely, the authors argued for more work to get it right:

we believe that this report is an important first step in an iterative process designed to improve the SEC’s first published draft. This report helps to identify how typical investors read and misread, understand and misunderstand, and interpret and misinterpret efforts to communicate complex and technical concepts and information. We firmly believe that the results of our testing show that a usable document that communicates clearly and well with potential investors

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FINRA recently appointed Jack Ehnes as a public governor.  As the CEO of CalSTRS, he helps manage approximately $224 billion in assets.  

Although Mr. Ehnes does not seem to have many of the same kinds of conflicts as other Public Governors currently serving on FINRA’s governing board, he would not be my pick to represent the interests of public investors.  CalSTRs has significant business relationships with entities associated with other board members.  To illustrate, take a quick glance at this CalSTRS investment committee report.  It shows CalSTRS investing with Bridgewater and Blackstone.  Notably, persons affiliated with Bridgewater and Blackstone already serve on FINRA’s governing board.  CalSTRS likely has significant additional relationships with other large players.  

If FINRA is serious about serving as (and not just portraying itself as) an investor protection organization, it should add investor advocates without these entangling business relationships to its board as public governors.

The New York Times recently published a compelling article about a dispute a woman had with J.P. Morgan Securities after she discovered odd activity in her mother’s account.  The account, which was to help provide for her mother through retirement, had losses at times when the market otherwise rallied:

Around the time of her mother’s move, Ms. Dewart noticed what looked like unusual activity in the account, which she and her older sister had overseen for about four years. A closer look revealed that it was down $100,000 in a month.

“My own accounts were rallying, so I thought this was strange,” she said.

She notified the firm that something seemed awry. As someone who does research and policy analysis for a living, she also put her own skills to work.

She pored over piles of statements and trade confirmations, built spreadsheets and traded phone calls and emails with the broker who handled the account, Trevor Rahn, his manager and the manager’s manager. She hired a lawyer and worked with a forensic consultant.

After about six months, she learned that the account, worth roughly $1.3 million at the start of 2017, had been charged $128,000 in commissions that year —

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Gary Shteyngart has a new book out, titled Lake Success Capital.  It’s about a narcissistic hedge fund manager on the run from the SEC.  Although I’m still waiting on my copy to arrive, the marketing for the book is impressive.  Ben Stiller joined Gary for a promotional video:

The video tweaks the hedge fund industry for its insularity and tendency to draw its talent from a narrow pool of sources.  Lake Success seems to be recruiting new employees from the lacrosse teams at fourteen elite schools.  With these schools absorbing a significant chunk off the nation’s wealthy scions, it’s particularly funny when they describe accredited investors as “your moms.”  

I wanted to flag for this audience because others might also enjoy reading it. 

Willamette University College of Law seeks applicants for up to two full-time, tenure-track faculty positions beginning in the fall of 2019.  While the focus of our search is for entry-level candidates, we also welcome applications from early-career lateral candidates.  Our curricular interests include Business Associations, Commercial Law, and Health Law, as well as Trust & Estates, Property, Family Law, Tax, Torts, and Criminal Law.  Applicants must possess strong academic credentials and a proven ability to produce thoughtful scholarship, as well as the skills necessary to communicate their expertise to colleagues and their students.  The Faculty Appointments Committee will begin reviewing applications in the late summer and will continue to do so until the positions are filled.

Willamette University is committed to the academic excellence and rich and rewarding communities that a diverse faculty, staff and student body brings.  We welcome candidates whose work furthers equity and diversity and who bring to campus a commitment to sharing varied experiences, perspectives and backgrounds.  Applicants demonstrating these qualifications are particularly encouraged to apply.

Contact:  Please use the AALS submission process to apply; questions can be addressed to Jeff Dobbins, Chair, Faculty Appointments Committee, Willamette University College of Law, 245 Winter Street, Salem, OR 97301, or jdobbins@willamette.edu. 

The Washington Post recently ran a piece by Ridhi Tariyal, the CEO of NextGen Jane.  Tariyal describes the environment she faced raising capital as a woman in Silicon Valley and the identity performance strategies she used to project a masculine identity to access capital.  The startup now works to develop a “smart” tampon that will test “the endometrial cells shed in menstrual fluid for disease.”  At times, her startup faced extra challenges because venture capitalists tend to be overwhelmingly male and “are unaccustomed to talking about menstruation.”

She faced pressure to minimize her gender and project masculinity in different ways.  Some suggested she hire more men.  Others pushed her to shift the pitch language to strip and obscure as many references to gender or menstruation by employing odd terms such as “novel female substrate” instead of simply saying menstrual blood.  

Even though she tried these strategies to project an idealized masculinity to masculine sources of capital, the strategies simply did not work for her business model.  She explains how she came to reject them:

Ultimately, I realized I cannot project my male alter ego and simultaneously talk about my period. I had reached the limits of professional theater. The business

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