Securities Litigation

A pair of FINRA Rule revisions designed to protect seniors from financial exploitation become effective February 5. The Rules require member firms to request "Trusted Contact Person" information and impose short account-disbursement holds upon reasonable suspicion of financial exploitation.

FINRA Rule 2165 applies to retail accounts held by a "Specified Adult," defined as at least 65 years old, or otherwise impaired and unable to protect her own interests. The Rule allows a 15-day temporary hold on disbursements from an account upon reasonable suspicion of financial exploitation, if the firm (a) Provides notice within two days of the hold and its reasons to persons authorized on the account (unless they're suspected) and to the Trusted Contact Person, and (b) commences an immediate internal review of the circumstances prompting the hold. If the review supports the belief, then the hold may be extended another 10 days.

FINRA Rule 4512 is revised to add Supplementary Material .06, requiring a Member to obtain contact information for a Trusted Contact Person on all retail accounts.

The SEC approved the Rule revision last Spring. See Reg. Notice 17-11.

The Rule amendments are consistent with Senior Protection statutes adopted by a number of states and the Senior $afe Act of 2017 introduced in the House (H.R. 3758) and Senate (S. 223). See, e.g., DEL. CODE ANN. tit. 31, § 3910 (2015); MO. REV. STAT. §§ 409.600-.630 (2015); WASH. REV. CODE §§ 74.34.215, 220 (2015); and IND. CODE ANN. § 23-19-4.1 (2016).

Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 32 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile. © 2018 by Thomas K. Potter, III (all rights reserved).