Securities Litigation Blog | Burr & Forman LLP

Cyber-Security Awareness Month & Phishing FINRA

Thomas K. Potter, III — Thu, 08 Oct 2020 09:00:01 -0400

Phishing FINRA

October is cyber-security awareness month, so it’s only appropriate that FINRA started it with another Regulatory Notice warning member firms to beware of a false-survey phishing scheme. The Notice warns of “a widespread, ongoing phishing campaign” soliciting survey responses in an email using the fake domain “@regulation-finra.org.” See Reg. Notice 20-35 (Oct. 6, 2020), here.

That’s more of the same for FINRA. It warned in August that fraudsters were using a fake FINRA domain (www.finnra.org – with an extra “n”) in Regulatory Notice 20-27 ...

More FINRA Cyber-Security Warnings

Thomas K. Potter, III — Mon, 24 Aug 2020 09:00:02 -0400

On August 20, FINRA warned member firms about a rash of imposter websites, using registered representative’s names, pictures, CRD numbers and other information to gull investors into providing personally-identifying information to fraudsters.

FINRA suggests member firms should contact the FBI and financial regulators, and posting a notification to investors on their legitimate websites. Other response measures include conducting a who-is search, complaining to host ISP or domain-name registrar, among others.

Websites maintained by FINRA member firms and their ...

FINRA Warns of Fake FINNRA

Thomas K. Potter, III — Tue, 18 Aug 2020 09:00:03 -0400

The Financial Industry Regulatory Authority (“FINRA”) has issued a special alert to its member firms, alerting them to an imposter website: www.finnra.org (containing an extra “n”).

The fake site contains a purported “registration” form and firm gateway page, apparently phishing for credentials. FINRA also warns members that the fake domain may be the source of phishing emails.

Both FINRA and the SEC have amped up their cybersecurity warnings during the pandemic.

Regulatory Notice 20-27 is here.

Thomas K. Potter, III (tpotter@burr.com) is a partner in the ...

SEC Creates New Emerging & Event Risk Unit

Thomas K. Potter, III — Mon, 03 Aug 2020 09:00:04 -0400

The SEC recently announced the creation of the Event and Emerging Risks Examination Team (“EERT”) in its Office of Compliance Inspections and Examinations (“OCIE”). OCIE is the unit charged with conducting compliance exams on registered investment companies, investment advisors, and broker-dealers -- although primary responsibility for examining broker-dealers lies with their self-regulatory organization, FINRA (itself subject to OCIE exams).

The SEC said the EERT unit “will proactively engage with financial firms about emerging threats and current market ...

Regulation Best Interest is Good Enough: The Second Circuit Upholds Regulation BI in XY Planning Network

Benjamin B. Coulter, Emily Schreiber Pendley — Mon, 13 Jul 2020 09:00:05 -0400

In XY Planning Network, LLC, et al. v. SEC, et al., the United States Court of Appeals for the Second Circuit rejected a challenge to Regulation Best Interest brought by an organization of investment advisers, an individual investment adviser, seven states, and the District of Columbia. The Court denied the Petitioners’ petition, holding that: the individual investment adviser had standing but the states did not, that § 913(f) of the Dodd-Frank Act authorized the SEC’s promulgation of Regulation Best Interest, and that Regulation Best Interest is not arbitrary and ...

CFTC Final Guidance on "Actual Delivery" CEA Exemption for Cryptocurrency

Thomas K. Potter, III — Fri, 26 Jun 2020 09:00:06 -0400

The Commodity Futures Trading Commission’s (“CFTC”) Final Interpretive Guidance on the “actual delivery” exception to regulatory jurisdiction for digital assets became effective June 24, 2020. See 85 Fed. Reg. 37734. The CFTC unanimously adopted the Guidance in March: Retail Commodity Transactions Involving Certain Digital Assets, Rel. 8139-20 (Mar. 23, 2020).

The Final Guidance adopts the 2017 Proposed Interpretation with some minor changes. The “actual delivery” exception to CFTC regulatory jurisdiction still requires unencumbered physical ...

SEC Temporarily Allows Municipal Advisors to Solicit Direct Placements

Thomas K. Potter, III — Thu, 25 Jun 2020 09:00:07 -0400

On June 16, the SEC issued a temporary exemptive order, allowing registered municipal advisors to solicit banks, their wholly-owned commercial lenders and credit unions in connection with direct placements by municipal-issuer clients. Ordinarily, that placement-agent activity would require broker-dealer registration under ’34 Act Section 15 (15 U.S.C. § 78o).

The Commission granted the temporary exemption to allow MAs to assist municipal issuers – especially smaller municipalities not otherwise eligible for the Fed’s Municipal Liquidity Facility – with ...

Supreme Court Limits SEC Civil-Action Disgorgement; Raises More Questions

Thomas K. Potter, III — Wed, 24 Jun 2020 09:00:08 -0400

The Supreme Court allowed the SEC to seek “disgorgement” as a form of “equitable relief” in civil-actions, but limited the remedy to net profits for benefit of harmed investors. Answering part of a question reserved in 2017’s Kokesh opinion, this week’s Liu opinion raised more questions than it answered.

The Liu’s raised investor funds for an EB-5 visa program under a private offering, but pocketed most of them. In a civil enforcement action, the SEC obtained the Liu’s disgorgement of full amount raised from investors (not net), jointly and severally. The Supreme ...

FINRA Amends Rules to Comply with Reg. BI

Thomas K. Potter, III — Mon, 22 Jun 2020 09:00:09 -0400

Effective June 30, SEC Reg. BI requires broker-dealers to make recommendations only in the “best interests” of retail customers, imposing additional disclosure, care, conflicts-of-interest and compliance obligations. The disclosure obligations include dissemination of Form CRS educating customers on the nature of their relationship with the firm.

FINRA Regulatory Notice 20-18, issued June 19, makes corresponding changes to its Rules stressing the primacy of Reg. BI with respect to retail customers:

Capital Acquisition Brokers’ suitability (Rule 211).

FINRA Shares Firms’ WFH Practices

Thomas K. Potter, III — Fri, 29 May 2020 09:00:10 -0400

On May 28, 2020, FINRA issued its Regulatory Notice 20-16 sharing firms’ WFH practices observed to date. They include common practices adopted across most industries, as one would expect.

During the TRANSITION TO WFH, firm practices included:

Increased Customer Assistance through outreach and web-based communications, to ensure customers knew how to access representatives and other resources;
Location Monitoring & Contact Lists to know where staff were and ensure they knew how to stay in touch;
Increased Support for staff, including more frequent training and ...