• Posts by Benjamin B. Coulter
    Ben Coulter
    Partner

    Ben Coulter is a Partner at Burr & Forman LLP practicing in the General Commercial Litigation Group.

    His practice primarily involves the defense of banks, credit unions, brokers, and other financial institutions in securities ...

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 ...

Financial institutions should understand that relying on a power of attorney may subject them to potential liability as the use of powers of attorney becomes more commonplace.  The Alabama Supreme Court recently shed some light on this topic in Forbes v. Platinum Mortgage, Inc., No. 1180985, 2020 WL 746533 (Feb. 14, 2020).

In Forbes, Platinum Mortgage and PennyMac Loan Services LLC relied on a power of attorney when executing a $175,000 mortgage.  The principal's conservator later claimed that the principal lacked the capacity to execute the power of attorney and initiated the ...

Firms permitting the creation and operation of custodial accounts related to Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) transactions must take special notice of Financial Industry Regulatory Authority's (FINRA) recent Regulatory Notice 11-02.  This notice requires firms to take steps to establish the identity and age of the custodians and beneficiaries of custodial accounts.  Such custodial accounts are tied to UTMA and UGMA transactions allowing individuals to transfer property to a minor without the need for a formal trust.

While some ...

Posted in: FINRA

FINRA has proposed a new $100 per-arbitrator fee and a $100 per-arbitrator honorarium for the late cancellation or continuation of prehearing conferences in FINRA arbitrations. The proposed rule change would affect both customer cases and industry cases, and FINRA is seeking to amend FINRA Rules 12214(a), 12500, 12501, 13214(a), 13500, and 13501. In essence, if one or more of the arbitrating parties cancels or obtains a continuance of a prehearing conference within three business days of the scheduled hearing (for example, an Initial Prehearing Conference or "IPHC"), the ...

Posted in: Arbitration, FINRA

 

In Cyan, Inc. v. Beaver County Employees Retirement Fund, the Supreme Court resolved two critical issues for class action claims brought under the Securities Act of 1933 (1933 Act). First, the Supreme Court held that state courts retain jurisdiction to adjudicate class actions brought under the 1933 Act. Second, the Supreme Court held that defendants may not remove class actions alleging only 1933 Act claims.

Cyan has its origin in an initial public offering. Cyan, a telecommunications company, and its officers and directors (the Petitioners), offered and sold shares of Cyan ...

The SEC has approved FINRA Rule 2273, which requires a transferring representative to send customers an educational communication regarding firm recruitment practices and account transfers. The rule is designed to address situations in which a representative leaves his or her firm and contacts former customers. Noting that "the former customer's confidence in and prior experience with the representative may be one of the customer's most important considerations in determining whether to transfer assets to the recruiting firm," FINRA was concerned that former customers have ...
Posted in: FINRA, SEC

On April 29, the United States Court of Appeals entered an amended order (previously decided on March 17, 2016) that affirmed the decision of the United States District Court for the Southern District of New York in DeKalb County Pension Fund v. Transocean Ltd., Robert L. Long, Jon A. Marshall, and Transocean Inc.

The central issues in the case were (i) what statute of repose applies to a § 14(a) claim under the Securities Exchange Act of 1934? and (ii) when does the statute of repose began to run? This was a particularly thorny question because the private right of action in § 14(a) is ...

Posted in: Second Circuit

On March 4, 2016, the United States Court of Appeals for the Second Circuit affirmed the District Court for the Southern District of New York in Tongue v. Sanofi, No. 15-588-CV, 2016 WL 851797 (2d Cir. Mar. 4, 2016), holding that the District Court properly dismissed the Investor Plaintiffs/Appellants' Complaint. The Plaintiffs alleged that the Defendants, a pharmaceutical company, its predecessor, and three executives, violated § § 10(b), 18, and 20(a) of the Securities Exchange Act of 1934, § § 11 and 12 of the Securities Act of 1933, and state law by making misleading statements ...

On March 1, 2016, the Eleventh Circuit Court of Appeals affirmed the Southern District of Florida in Fried v. Stiefel Labs., Inc., No. 14-14790, 2016 WL 787986 (11th Cir. Mar. 1, 2016), holding that the District Court had properly refused to give a portion of a jury instruction requested by the Plaintiff/Appellant Richard Fried concerning Rule 10b-5(b). Fried is the former CFO of Stiefel Labs. After resigning in 1997, Fried held 30.7881 share of common stock in an Employee Stock Bonus Plan and 10 shares of stock outside of the plan. In August 2007, Fried learned that Stiefel Labs had ...

On January 11, 2016, the United States Supreme Court denied the petition for writ of certiorari filed October 29, 2015, by Plaintiff/Appellant NECA-IBEW Pension Trust Fund in its case against Bank of America, its former CEO Ken Lewis, and others in a securities class action. The case originated in the United States District Court for the Southern District of New York. There, NECA-IBEW Pension Trust Fund and Denis Montgomery filed suit alleging violations of § § 11, 12(a)(2), and 15 of the Securities Act of 1933 based on allegations of wrongdoing related to Bank of America's public ...
On August 24, 2015, FINRA Rule 2040 concerning payments to unregistered persons went into effect. The rule, approved by the SEC in January 2015, is aligned with § 15(a) of the Securities Exchange Act of 1934. Generally, FINRA firms or associated persons are forbidden from "paying any compensation, fees, concessions, discounts, commissions or other allowances" to persons not registered as broker-dealers under § 15(a) but who are required to be registered (as a result of receiving such compensation) or appropriately-registered association persons outside of compliance with ...
Posted in: FINRA, SEC
The Financial Industry Regulatory Authority (FINRA) announced last week that it is seeking comment on a proposal to create a new academic Trade Reporting and Compliance Engine (TRACE) data set. While academic researchers already use historic TRACE data, the data currently available to researchers does not include identifying information about dealer identities. The new data product, which would be available solely to institutions of higher education, would include masked dealer identities. FINRA's proposal, which is similar to a proposal recently made by the Municipal ...
Posted in: FINRA, MSRB

On February 20, 2015, the Alabama Supreme Court affirmed the order of the Circuit Court of Jefferson County, Alabama dismissing claims asserted by Walter Energy, Inc. against investor Julian A. Treger, his firm Audley Capital Advisors, LLP and other associated investment entities related to a purported "pump and dump" scheme executed by the Audley defendants related to Walter Energy stock. In late 2010, Walter Energy purchased Western Coal Corporation. Walter Energy alleged in the trial court that the Audley defendants initiated a "pump and dump" scheme on July 17, 2011, when ...

Posted in: Supreme Court
On February 26, 2015, the Securities and Exchange Commission ("SEC") approved a rule proposed by the Financial Industry Regulatory Authority, Inc. ("FINRA"). The rule, originally proposed by FINRA on June 17, 2014, amends FINRA Rule 12100(p) of the Code of Arbitration Procedure for Customer Disputes and FINRA Rule 13100(p) of the Code of Arbitration Procedure for Industry Disputes defining the term "non-public arbitrator" and FINRA Rule 12100(u) of the Customer Code and FINRA Rule 13100(u) of the Industry Code defining the term "public arbitrator." The proposed rule change was ...
Posted in: FINRA, SEC

On June 30, 2014, the Financial Industry Regulatory Authority ("FINRA") sent its proposed rules to limit the definition of "public arbitrators" to those without any experience in the securities industry. Previously, an arbitrator who had in the past worked in the securities industry but did not currently work in the industry could qualify as a "public" rather than a "non-public" or "industry" arbitrator. See FINRA Rules 12100 and 13100. According to FINRA, people "who represent investors or the financial industry as a significant part of their business would also be classified as ...

Posted in: FINRA, SEC
On Friday, June 20, 2014, the Financial Industry Regulatory Authority ("FINRA") withdrew its proposed Rule 2243, which would have required disclosure and reporting of FINRA member recruiting practices. Essentially, the rule would have required disclosure of a recruiting bonus for a representative that exceeded $100,000. The initial response to the proposed rule was mixed, but FINRA submitted the rule to the Securities Exchange Commission ("SEC") for approval earlier this year. In withdrawing the proposal, FINRA cited the rigid timeline for approval under the Dodd-Frank Act ...
Posted in: FINRA, SEC
On May 20, 2014, the Securities and Exchange Commission initiated proceedings to determine whether to approve a proposal by the Financial Industry Regulatory Authority, Inc, (FINRA) to amend the NASD and FINRA rules governing estimated valuations for unlisted direct participation program (DPP) and real estate investment trust (REIT) securities. On January 31, 2014, FINRA filed a proposed rule change to amend NASD Rule 2340 (Customer Account Statements) and FINRA Rule 2310 (Direct Participation Programs), both of which address per share estimated valuations for unlisted DPP ...
Posted in: FINRA, SEC
On June 4, 2014, the United States Court of Appeals for the Second Circuit vacated and remanded a November 28, 2011 order from the United States District Court for the Southern District of New York refusing to approve a consent decree entered into by the Securities and Exchange Commission ("SEC") and Citigroup Global Markets, Inc. ("Citigroup") and setting the case for trial. In doing so, the Second Circuit held that the proper standard for reviewing a consent decree with an enforcement agency requires that a district court: "determine whether the proposed consent decree is fair and ...
Posted in: SEC
On April 24, 2014, the Financial Industry Regulatory Authority (FINRA) announced that its board of governors had approved rules requiring that firms to run background checks on new hires, whether new brokers or transfers, to verify the information on their U4s. Amended FINRA Rule 3110, the supervision rule, will also require firms to establish procedures for verifying information on their representatives' U4s. FINRA itself will search public financial records and criminal records for registered representatives and registered individuals who have not been fingerprinted in ...
Posted in: FINRA
In back-to-back keynote addresses Monday to the Securities & Financial Markets Association's annual Compliance & Legal meeting, SEC-Chair Mary Jo White and Southern District of New York US Attorney Preet Bharara renewed the federal government's emphasis on securities enforcement actions. White emphasized the complimentary effect of the SEC's civil-enforcement abilities in parallel proceedings with Department of Justice criminal prosecutions, noting that parallel proceedings and criminal referrals have doubled over the past few years. The Commission continues to ...
Posted in: SEC
Rahman v. Kid Brands, Inc., 2013 WL 6038246 Shah Rahman, the plaintiff and appellant, brought a federal securities class action in March 2011 against defendant Kid Brands, Inc. and against individual defendants Bruce Crain, Guy Paglinco and Raphael Benaroya, officers of Kid Brands. In the Second Amended Complaint, Rahman alleged that the defendants mislead investors in Kid Brands by artificially inflating its stock price and issuing deceptive public financial reports and press releases dealing with Kid Brands' compliance with custom laws and Kid Brands' overall financial ...
On November 22, 2013, the SEC's Investor Advisory Committee voted to encourage the U.S. Securities and Exchange Commission to adopt a fiduciary duty for broker-dealers giving investment advice. The recommendation came from the Investor as Purchaser Subcommittee, and proposes either that the SEC conduct rulemaking under the Investment Advisers Act to narrow the broker-dealer exclusion from the Investment Advisers Act or that the SEC create a new rule under § 913 of the Dodd-Frank Act. In either case, the Committee recommended that the U.S. Securities and Exchange Commission ...
Posted in: SEC

In Regulatory Notice 13-40, FINRA announced that the SEC had approved amendments to its Discovery Guide. The Discovery Guide applies to customer cases (rather than intra-industry cases) and outlines presumptively discoverable documents that the parties to an arbitration should exchange without FINRA or an arbitrator intervening. The amendments concern three areas: (1) electronic discovery, (2) product cases, and (3) affirmations. First, the Discovery Guide was amended to clarify that electronic files are "documents" under the meaning of the Discovery Guide and that ...

Posted in: FINRA
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