Photo of Benjamin P. Edwards

Benjamin P. Edwards

Subscribe to Benjamin P. Edwards's Posts

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

Yesterday, the SEC announced three different proposals related to financial advice for retail customers.  The SEC’s press release summarized the proposals:

Under proposed Regulation Best Interest, a broker-dealer would be required to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.  Regulation Best Interest is designed to make it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer in making recommendations.

In addition to the proposed enhancements to the standard of conduct for broker-dealers in Regulation Best Interest, the Commission proposed an interpretation to reaffirm and, in some cases, clarify the Commission’s views of the fiduciary duty that investment advisers owe to their clients.  By highlighting principles relevant to the fiduciary duty, investment advisers and their clients would have greater clarity about advisers’ legal obligations.

Next, the Commission proposed to help address investor confusion about the nature of their relationships with investment professionals through a new short-form disclosure document — a customer or client relationship summary.  Form CRS would provide retail investors with simple, easy-to-understand information about the nature of their relationship with their

…

One new book worth picking up is David Webber’s The Rise of the Working-Class Shareholder: Labor’s Last Best Weapon.  When I heard this book was coming out, I jumped to order it immediately. David Webber is a uniquely talented writer. In the book, he takes the stories of ordinary workers and labor activists and uses them to help explain sophisticated corporate governance concepts. Along the way, he keeps his objectivity intact and resists the urge to mythologize the gritty labor activists that help him present key concepts. For example, he writes that one: “was no saint. He was highly confrontational and abrasive, with a tendency to overplay his hand. I don’t write about him to hold him up as a paragon. I write about him because he . . . punched [his] way to a new set of tactics that must be refined and widely adopted if labor is going to reassert itself in the twenty-first century.”

The balance he brings in his portrayal of labor leaders continues with his discussion of key legal concepts. You’ll find yourself appreciating how much a nuanced understanding of ERISA can improve options. Although it’s nearly impossible to make ERISA engaging, Webber’s writing holds…

Most Americans lack basic financial literacy.  One recent study found that about two thirds of Americans cannot correctly answer basic questions about interest rates and ordinary economic calculations.  It isn’t a surprising finding.  Put simply, most people need help when it comes to handling financial planning and investing decisions.

There are different ways to solve the problem.  One way is to focus on increasing financial literacy by doing more education and outreach.  That approach hasn’t shown great results so far.  Another mechanism for improving financial decision-making is to pair people with competent financial advisers and planners.   In theory, financial advisers can improve financial outcomes for their clients by helping them make the best decisions for their situation.  Unfortunately, the law in most states doesn’t require persons providing financial advice to act in the best interests of their clients.  Nevada is a notable, recent exception.

Many people working with financial advisers walk in with a mistaken default expectation that financial advisers must give advice in the best interests of their clients.  This perception may exist because of the constant drumbeat of trust-focused advertisements from financial services firms. With mismatched expectations and commission-compensated financial advisers, ordinary customers routinely find themselves steered…

Interest rate risk seems to puzzle some students when they first encounter it.  It’s the idea that fixed-rate assets decline in value when interest rates rise.   I’ve started using a simplified bond trading exercise to help students get the concept quickly.  This is how it works. 

Give A Student A Bond

I find a few victims/volunteers and give them brightly colored pieces of paper.  These, I tell them, represent fixed rate bonds with a $10,000 value, paying 5% a year for the next twenty years.  We run through some basic questions.  How much money do they get each year ($500).  How much money will they get if they hold the bond to maturity?  ($20,000.  This is the amount of the bond plus another $10,000 in interest).  For the exercise, we keep it simple and just look at the cash flow coming off the one bond.

Change The Rates

After everyone gets the idea, I clap my hands and change the prevailing market interest rate from 5% to 8%.  This leaves our initial volunteer holding a 5% bond in an 8% market.  With a flourish, I pull out more brightly colored paper of a different shade and announce that I’m now…

The Wall Street Journal has an article on Morgan Stanley’s rising profits and stock price.  Much of the profits come from servicing retail investor accounts.  It’s an increasingly profitable business line:

Morgan Stanley’s X-Factor, though, is increasingly its giant retail brokerage, which oversees $2.4 trillion for some 3.5 million households. That unit’s revenue rose 10%, while lower expenses lifted its profit margin—once in the high single digits—1 percentage point to 26%. Mr. Gorman set a new upper goal of 28%.

Many of these profits come from gathering assets and then charging a management fee.  This allows Morgan Stanley to profit even when clients do not actively trade their accounts.  The Journal described it this way:

Morgan Stanley’s retail brokerage gets a growing portion of its revenue from steady fees that are assessed as a percentage of client portfolios, rather than commissions on trades. As the stock market marches higher, Morgan Stanley is guaranteed profits on those accounts whether clients trade or not.

Wrap fees

…

As a follow-up to my last post, the comment period on whether Non-Attorney Representatives (NARS), should be allowed to represent investors in FINRA arbitration has now closed.  By my count, fifty-seven different commentators weighed in on the issue.  Although securities industry groups and the plaintiffs’ bar often disagree over the right course, they share concerns about the impact of NARS on the forum.

For example, the Securities Industry Financial Markets Association, an organization that styles itself as “the voice of the U.S. securities industry,” cautioned against allowing NARS to represent investors in the forum, pointing out that “FINRA has no current means to measure or ensure competency, nor respectfully, should it put itself in the business of doing so” for NARS.  The Public Investors Arbitration Bar Association (PIABA), filed an entire report, arguing that FINRA should significantly restrict NARS from representing clients in FINRA’s forum.  The PIABA report also points out that a NAR’s appearance in an arbitration has resulted in an investor receiving no recovery because Kansas law prohibited the representation.  That arbitration award explained that:

The Kansas Supreme Court and the Rules of Professional Conduct have consistently and firmly held non-attorney representatives are not authorized to practice law in

…

My friend and colleague at West Virginia University, Jena Martin, has posted her new paper, Hiding in the Light: The Misuse of Disclosure to Advance a Business and Human Rights Agenda. The paper is forthcoming in the Columbia Journal of Transnational Law and can be accessed at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3028826 

It’s worth a read. Here’s the abstract:

In June 2017, Waitrose, a top UK supermarket, pulled its cans of corned beef off the shelves after an investigation revealed that the meat might have been produced with slave labor. At the time of the recall, Waitrose was in compliance with the UK Modern Slavery Act (MSA), a 2015 law enacted to prevent human trafficking and modern-day slavery. Under the MSA, corporations are required to file annual reports disclosing what action they had taken to eradicate slavery and human trafficking in their supply chains. The Modern Slavery Act, in turn, was a much-lauded law that is part of the growing trend of States to move the international business and human rights agenda forward. A key component of that agenda involves disseminating the UN’s Protect, Respect and Remedy Framework and implementing the UN Guiding Principles, which have been praised by States around the

…

The distinction between limited liability companies (LLCs) and corporations is one that remains important to me. Despite their similarities, they are distinct entities and should be treated as such.

When the indictment for Paul Manafort and Richard Gates was released yesterday, I decided to take a look, in part because I read that the charges included claims that the defendants “laundered money through scores of United States and foreign corporations, partnerships, and bank accounts.”  (Manafort Indictment ¶ 1.)

It did not take long for people to note an initial mistake in the indictment.  The indictment states that Yulia Tymoshenko was the president of the Ukraine prior to Viktor Yanukovych. (Id. ¶ 22.) But, Dan Abrams’ Law Newz notes, “Tymoshenko has never been the president of the Ukraine. She ran in the Ukrainian presidential election against Yanukoych in 2010 and came in second. Tymoshenko ran again in 2014 and came in second then, too.” Abrams continues: 

The Tymoshenko flub is a massive error of fact, but it doesn’t impinge much–if any–on the narrative contained in the indictment itself. The error doesn’t really bear upon the background facts related to Manafort’s and Gates’ alleged crimes. The error also doesn’t bear whatsoever

…

A recent magistrate judge’s recommendation on a motion to strike in Hawaii alerted me to a problem with the Hawaii Local Rules of Practice for the United States District Court for the District of Hawaii.  The mistake is not the judge’s; it is in the rules.  The recommendation explains: 

[An] LLC must be represented by an attorney. See Local Rule 83.11 (“[b]usiness entities, including but not limited to … limited liability corporations … cannot appear before this court pro se and must be represented by an attorney”) . . . .

THE BANK OF NEW YORK MELLON FKA THE BANK OF NEW YORK, AS TRUSTEE FOR THE CERTIFICATE HOLDERS OF THE CWMBS INC., CHL MORTGAGE PASS-THROUGH TRUST 2006-OA5, MORTGAGE PASS THROUGH CERTIFICATES, SERIES 2006-OA5, a Delaware corporation, Plaintiffs, v. LEN C. PERRY JR.; NATHAN JON LEWIS; 3925 KAMEHAMEHA RD PRINCEVILLE, HI 96722, LLC, Defendants., No. CV 17-00297 DKW-RLP, 2017 WL 4768271, at *1 (D. Haw. Oct. 2, 2017), report and recommendation adopted sub nom. THE BANK OF NEW YORK MELLON fka THE BANK OF NEW YORK, AS TRUSTEE FOR THE CERTIFICATE HOLDERS OF CWMBS INC.; CHL MORTGAGE PASS-THROUGH TRUST 2006-OA5, MORTGAGE PASS THROUGH CERTIFICATES, SERIES 2006-OA5, a Delaware corporation, …

If you’re a fan of wine (I am) and international business if of interest (it is), this Faculty Development might be for you.  It overlaps with the AALS Annual Meeting, so it won’t work for me this year, but it looks like a good program.  Have a look: 

Temple University’s Center for International Business Education and Research (CIBER) presents

Faculty Development in International Business: Santiago, Chile (January 5-11, 2018)

Business Innovation in Chile: A Case Study of the Wine Export Sector

Leave winter behind this January and join us for a summer experience in Chilean wine country. As an innovation-driven economy, the United States prides itself on developing and delivering innovative goods and services domestically and globally through high-tech exports, creative branding, and in-demand services. Among those exports is our growing wine sector, led by Napa Valley but recently expanding into other parts of California, Oregon, Virginia, and other lesser-known wine producing regions of the United States. Despite this expansion, the United States remains behind old world wine producers in Europe. Chile and Australia also outpace the United States in terms of wine exports and have been leading the way in innovative production and marketing techniques.

On this faculty/professional-oriented immersion…