For some time, FINRA has allowed stockbrokers to suppress complaints from their record through an expungement process.  I’ve written about this here before and about how recent research shows that brokers who have procured expungements may be more likely to attract more complaints than other brokers.  Another relatively recent report revealed that the pace at which brokers now procure expungements has accelerated, moving from brokers seeking to expunge just 102 complaints in 2015 to attempting to suppress 1,036 complaints in 2018.  Remarkably, brokers succeed over 80% in their attempts to suppress and expunge complaints from the public record.

Yet we do not have a robust understanding about why brokers tend to win at such high rates in the FINRA forum.  One reason might be problems with how customers receive notice about an attempt to expunge their complaint.  Consider one recent news report.  Ron Carson, a former stockbroker currently affiliated with Cetera Advisor Networks secured the expungement of a customer dispute in an arbitration award released last week.  Carson filed an arbitration proceeding against his former firm on February 28, 2019.  Over nine months later, on or about  December 11, 2019, Carson “submitted a copy of the letter sent to…

Briefing continues in litigation aimed at overturning the SEC’s Regulation Best Interest.

After the parties filed their briefs on December 27, the amicus front heated up.  The Public Investors Arbitration Bar Association filed an amicus brief citing some academic works by Rutger’s Arthur Laby, and St. John’s Christine Lazaro.  Better Markets and the Consumer Federation also filed an amicus brief–also citing influential work by Arthur Laby.  Even former members of congress–notably Dodd and Frank have weighed in arguing that the SEC misread Dodd-Frank.

It’s worth following the case as it continues to develop.

Brian Frye has released a new paper including an SEC No-Action Letter request.  His abstract describes the piece:

This article is a work of conceptual art in the form of a law review article. It argues that the sale of conceptual art violates the Securities Act of 1933. And it proposes to prove itself by requesting an SEC no-action letter holding that the sale of a work of conceptual art titled “SEC No-Action Letter Request” does not violate the securities laws.

Essentially, Frye argues that conceptual artwork meets the Howey test’s four elements:

1. The investment of money
2. In a common enterprise
3. With the expectation of profits
4. From the efforts of others.   

It’ll be interesting to see if the SEC responds to Frye’s request.  Frye has also agreed to issue “ownership certificates” to the first 50 persons to email him with a request for a certified copy of the work.  As this conceptual art enterprise has not been nested within any limited liability business entity, I wonder whether the owners of certified copies of the work become anything like general partners in the enterprise under common law.  I’m not sure that a court would view this conceptual art piece as

Senator Rand Paul has a new proposal out to (among other things) allow retirement savers to make tax-free withdrawals from their retirement accounts in order to pay down student loans.  The press release describes the plan this way:

As U.S. student loan debt hits its highest-ever levels, Dr. Paul’s HELPER Act would allow Americans to annually take up to $5,250 from a 401(k) or IRA — tax and penalty free — to pay for college or pay back student loans. These funds could also be used to pay tuition and expenses for a spouse or dependent. 

Why his office refers to him as Dr. Paul and not Senator Paul, I cannot fathom.  If I ever get elected to anything and start introducing legislation, I’m not going to be calling myself “Professor” in the press release.

For people paying down student loans, this could result in a substantial tax savings.  Think about it from the perspective of a person lucky enough to make good money and have the funds available to make significant contributions.  Routing funds through the 401(k) account would reduce taxable income and make it possible to pay $5,250 a year with pre-tax money. 

I’m not sure why we…

The broker-dealer community enjoys unusual influence over its regulation because Congress made an industry trade-association the primary regulator for broker-dealers.  FINRA’s member firms elect much of its governing board and influence how FINRA will allocate its resources and set priorities.  This includes decisions about how many resources to devote to enforcement and supervision activities which might prevent significant investor losses.  Giving the industry collective responsibility for making harmed investors whole might cause the organization to devote more resources to enforcement and investor protection.

Unpaid arbitration awards may escalate if changing market conditions reveal that brokerage firms have sold investors interests in frauds and ponzi schemes.  Consider the recent case of Taylor Capital Management.  Taylor’s representatives reportedly sold interests in  “an alleged $283 million loan fraud” run though a company known as 1 Global Capital.  The allegations remind me of the Woodbridge Ponzi scheme that collapsed last year.  Now that Taylor Capital Management has closed its doors, the investors harmed by its conduct may not be able to recover.  We may never know the true scope of the harm because investors won’t file arbitration claims against an entity that cannot pay them.

It’s difficult to know whether these early collapses will…

Recent news reports claim that T-Mobile CEO John Legere may be in discussions with WeWork for him to leave T-Moble to take over as CEO at WeWork.  Legere came to my attention because of social media ads featuring videos of him bedecked in T-Mobile gear and hawking its services.   You’ve probably seen the ads as well. By all accounts, T-Mobile has grown dramatically under his leadership.  Legere’s name recognition and public visibility has also grown with the CEO becoming the ubiquitous face of the company.  In contrast, I cannot readily name or picture the CEOs of Verizon, Sprint, or AT&T.

T-Mobile may have spent millions to promote itself and also generate Legere’s visibility and name recognition.  It’s difficult to recall a T-Mobile advertisement without him in it. He now has about 6.5 million followers on Twitter.  In contrast, T-Mobile itself only has 1.2 million followers.  If he goes to WeWork, will his Twitter account go with him?  What does this mean for T-Mobile’s brand?  Is using corporate resources to secure additional social media followers for yourself ever a breach of the duty of loyalty to the corporation?

This strikes me as a corporate governance issue that boards should be thinking…

Tomorrow, we’ll host the first (and possibly annual) Corporate Governance Summit at the University of Nevada, Las Vegas William S. Boyd School of Law for public company directors and others involved in the corporate governance space.  Greenberg Traurig is co-hosting the event with us.  They, and some of the dedicated staff at UNLV, have done so much of the heavy lifting to get the event together.  I’m incredibly grateful for the work the team has put into this.  We’ve assembled a strong mix of panelists including directors, officers, law professors, and corporate lawyers.  

We’ve pulled together a series of panels focusing on hot topics this year.  We’ve got:

• Basic Legal Duties
• Cyber-security and Oversight
• Shareholder Activism
• Compensation
• Social Media
• Diversity 
• Sexual Harassment

As I’m looking at the topics we’re hitting tomorrow, I’m also thinking ahead.  Many of these issues will probably still be significant next year.  What do we think the broader trends will be in the next five to ten years?  My early sense is that stakeholder governance will draw more and more attention. If we do decide to give non-shareholder stakeholders more voice in corporate governance, I’m not yet sure about the most efficient way to do that.