The Resolution Law Group: FINRA Considers System That Would ‘Red Flag’ Customer Accounts at Brokerage Firms

The Financial Industry Regulatory Authority is looking at a system that would let the SRO run analytics on the customers accounts at brokerage firms that would allow it to identify “red flags” involving business and sales misconduct involving branches, firms, and registered representatives. The agency is now seeking comments for its proposal for the Comprehensive Automatic Risk Data System (CARDS).

Upon implementation of CARDS, clearing firms and self-clearing firms would regularly turn in, in standardized, automated format, specific data about customer accounts and the customers accounts of each member account that they clear for. This would allow FINRA to conduct analytics so it can identify excessive commissions, churning, markups, pump and dump scamps, and mutual fund switches. The information would also be used to examine broker-dealers.

FINRA says it wants to be able to find the risks and red flags earlier. According to a notice from the SRO, the agency says that this type of automated reporting would get rid of some of the one-off reporting that brokerage firms now have to engage in. This would also let FINRA compare broker-dealers and identify trends and patterns in the industry.

CARDS is part of FINRA’s efforts, since the 2008 financial crisis, to go from depending on individual financial firm exams to surveillance that is broader and occurs on an ongoing basis. The SRO says it conducted a successful trial of CARDS earlier in 2013. 300 introducing firms were involved.

To make CARDS a working reality, brokers might have to gather historical data. Meantime, clearing firms would need to construct a system that would let them turn in the information and oversee data transmission. FINRA CEO and Chairman Robert Ketchum said that the purpose of CARDS isn’t to “replace the compliance officer.” He said the SRO wants to be able to swiftly place attention on firms and their branches where there may be a “concentration in assets that are more likely to be hit.”

The Resolution Law Group works with institutional investors and high net worth individual investors to get back their money that they lost due to securities fraud. Contact our broker fraud law firm today.

The Resolution Law Group: SEC Wants Comments About FINRA’s Proposed Rules About Broker-Dealer Supervision

The Securities and Exchange Commission wants comments on a proposed amendment to the Financial Industry Regulatory Authority’s broker-deal supervision rules. The latter wants to change the rules by consolidating some of them, including NASD Rule 3010 and NASD Rule 3012 into its proposed Rules 3110 and 3120 that have to do with supervisory controls and the supervision of supervisory jurisdictions’ office and branch offices. The proposed rule change would eliminate NYSE Rule 342, which is related to supervision, approval, and controls, Rule 401 about business conduct, and Rule 354 regarding control persons, Rule 351e about reporting requirements. The consolidation is taking place because the SEC says some of the rules are duplicative.

FINRA also wants to eliminate proposed Rule 3110.03, which is a provision about the supervision and control of registered principals at one-person OSJs by a designated senior principal on the site. The SRO also is proposing to amend rule 3110.05 so that an Investment Banking and Securities Business member doesn’t have to perform detailed reviews of transaction if the member is using risk-based review system that is designed in a way so it can focus on areas that have the greatest risks of violation.

Meantime, proposed Rule 3110(b)(6)(D) will be changed so that it is clear that the rule doesn’t establish a strict liability to identify and get rid of all conflicts as they relate to an associated person that is supervised by supervisory personnel. There will have to be procedures to make sure that conflicts of interest don’t compromise the supervisory system.

As for proposed rule 3110(c)(3)(A), this will be modified so it is clear that it doesn’t establish a strict liability duty mandating the ID’ing and getting rid of all conflicts of interest as they relate to the inspections taking place at a location. Members will have to implement procedures designed so that they don’t let the effectiveness of inspections become compromised by such conflicts.

The Resolution law Group represents investors that have sustained financial losses because of broker fraud. Contact our securities law firm today.

The Resolution Law Group: FINRA Reports Losses After Squandering Profit From NYSE Payment

Last month, the Financial Industry Regulatory Authority put out its yearly report for 2012. According to the results, the self-regulatory organization is hurting. Its operating losses are huge—nearing $90 million for the second year straight. Meantime, its staff has grown 13%, with benefits and compensation rising 41% in the last five years to hit $628.9 million last year. That’s a significant jump from 2007 when the SRO’s compensation and benefits was $446.1 million. Retirement and pension expenses have risen 89% in the last five years.

While observers say that FINRA’s operating losses are not an immediate danger, no one can say for sure. Some are even asking how could a regulator facing potential financial trouble do its job and protect investors? Unlike its last five yearly reports, FINRA’s 2012 report pointedly says that the will keep observing the changing economy and assessing any effect on the organization. If there were to be a huge market collapse, however, FINRA’s equity would take a beating.

The private SRO is the National Association of Securities Dealer’s successor. NASD’s merger with the New York Stock Exchange (NYSE) Regulatory Division is one reason for the increase in FINRA’s compensation. After its merger with the NYSE Regulatory Division, NASD soon changed its name to the Financial Industry Regulatory Authority (FINRA).

““In order to divest itself of its non-market making regulatory responsibilities the NYSE exchange actually paid the NASD over $150 million, approximately $35,000 per NASD member firm, “ said FINRA arbitration attorney William Shepherd.

Like others in the securities’ industry, FINRA’s portfolio also was hit by the financial crisis.

Meantime, as broker-dealers continue to close shop, with middle and small sized firms upping costs to keep up with compliance and regulation costs, FINRA’s brokerage firm membership has gone down.

“FINRA remains an association of securities dealers, not a government regulator as many may believe.,” said Securities Attorney Shepherd. “FINRA still derives some of ts income from its members through dues, fees and fines. As a self-regulatory organization (SRO) FINRA must answer to the Securities Exchange Commission (SEC) regarding rule changes, etc. Some therefore call FINRA and other self-regulatory financial SRO’s ‘quasi-governmental’ regulators. “

To “balance the books,” Stockbroker fraud lawyer Shepherd offers some simple suggestions:
• First, stop paying your head regulators 7 figure incomes – yes, over a million per year. Real regulators on government pay make a fraction of that!

• Next, fine your members ‘til it hurts. Strike some real fear into would-be wrongdoers to clean up their acts.

• Moreover, strike fear into bosses who either ignore what’s happening or do not want to kill any gold laying geese. The fear of getting caught is not severe if the penalty does not fit the crime.

“Beyond some flashy exceptions, too many fines remain mere wrist slaps. Too many times smaller firms and ‘rogue’ brokers are crushed, while large firms and those charged with supervision and/or ‘control person liability’ even go unscathed,” said Shepherd. “When firms and supervisors have no real worries, bad actors simply become expendable – but only when their costs outweigh their contributions to firm revenue.”

If you feel you are the victim of FINRA Fraud, please do not hesitate to email or call the The Resolution Law Group (203) 542-7275 for a confidential, no obligation consultation.

Lender Litigation, Unlawful Foreclosure, Tarp Money, Mortgage Backed Securities, Derivitives Lawsuits, Insider Trading Lawsuit, SEC Settlements, Ponzi Scheme Lawsuits, Intentional Misrepresentation, Securitized Mortgage, Class Action Securities Lawsuit, Robo-Signing Lawsuit, Lost Equity Litigation, Mortgage Lender Fraud, FINRA Fraud Lawsuit, Suing Banks, Fraudulent Misrepresentation, Short Sale Fraud, Fraudulent Business Practices, Mortgage Litigation, Complex Tort Litigation, Injunctive Relief, MERS Fraud

The Resolution Law Group: FINRA Delays Audit Trail Plan, Proposes Arbitration Rule Changes, Asks for Firm’s Social Media Use Data, Warns About Cybersecurity Breaches

FINRA Wants Broker-Firms to Provide More Data About Social Media Use
The Financial Industry Regulatory Authority has sent target examination letters to broker dealer members regarding their use of social media. The SRO warned that electronic and written communication may be subject to spot checks and it wants to know how the firms are using social media, what platforms they employ, and the names of the people that post on these sites. FINRA is also interested in each firm’s written supervisory procedures about this type of online communication that were in effect between February 4 and May 4, as well as what steps were taken to make sure that compliance was in effect.

SEC Seeks Comments on Proposed FINRA Arbitration Changes
In other FINRA news, the Securities and Exchange Commission has put out two proposed changes to the SRO’s arbitration and is seeking comment. One change would make panel selection in FINRA arbitration with three arbitrators easier by no longer mandating that a customer select a method for choosing the panel. Instead, all parties involved with cases that are presided over by three-member panels would use the same selection method: Every party would get lists of 10 public arbitrators, 10 chair-qualified public arbitrators, and 10-non public arbitrators. A party would be allowed to eliminate four arbitrators from the public list, as well as from the chair-qualified public list. Any party could establish a panel made up of all-public arbitrators by eliminating the names of all the arbitrators found on the nonpublic list.

The second proposed rule change would modify the broker-customer proceeding’s discovery guide. It describes the process for discovery and provides explanation for how arbitrators should use the guide in arbitration. Commenters have 21 days from Federal Register publication to make their remarks.

Increase in Cybersecurity Breaches Place Investors Funds in Peril
At a recent Insured Retirement Institute event, FINRA member regulation EVP Daniel Sibears says there has been a “proliferation” of complaints regarding cybersecurity breaches at broker-dealers firms and there are now dozens of complaints about customer information being compromised, especially data that is used to access online accounts, make transactions, and move funds. Sibears says this typically involves hackers who get into FINRA member clients’ private e-mail accounts where they can obtain access to their exchanges with the firms. They then reach out to the firms, pretending there is an emergency and asking that thousands of dollars in securities or cash be moved.

Siebers said that some firms end up sending money to hackers because firm employees are in a rush to help clients. Improper customer validation procedures is another reason this happens.

SROs Report a Delay in the Consolidated Audit Trail
Meantime, FINRA, Nasdaq, the New York Stock Exchange, and other self-regulatory organizations are now saying that there has been a delay in the development of what is being called the “consolidated audit trail,” and the deadline of June 20 for vendors to turn in their CAT request-for-proposal responses has been delayed by longer than six weeks. Per Regulation National Market System Rule 613, the SROs have to implement the CAT system, which will identify, gather orders, exchanges, and cancellations for all-exchange listed options and equities in US markets. The system will let regulators supervise and keep track of market transactions in an improved way.

If you have losses on investments that you believe were unsuitable for you or which you purchased based on the misrepresentations of the broker who made the sale, you may be able to recover all or a part of those losses through FINRA arbitration. Call The Resolution Law Group for a no charge consultation to discuss your legal rights. www.TheResolutionLawGroup.com

Lender Litigation, Unlawful Foreclosure, Tarp Money, Mortgage Backed Securities, Derivitives Lawsuits, Insider Trading Lawsuit, SEC Settlements, Ponzi Scheme Lawsuits, Intentional Misrepresentation, Securitized Mortgage, Class Action Securities Lawsuit, Robo-Signing Lawsuit, Lost Equity Litigation, Mortgage Lender Fraud, FINRA Fraud Lawsuit, Suing Banks, Fraudulent Misrepresentation, Short Sale Fraud, Fraudulent Business Practices, Mortgage Litigation, Complex Tort Litigation, Injunctive Relief, MERS Fraud

FINRA Plan May Dramatically Change The Way Brokerage Firms Report On Nontraded REITS & Other Illiquid Investments on Client Statements

The Financial Industry Regulatory Authority’s board of governors has a plan that could radically modify the way brokerage firms report illiquid investments’ value on the account statements of clients. The SRO, which wants to give investors more transparency in regards to the actual value of such investments, has been trying to modify its rules about REITs and private placement valuations on client statements for well over a year.

Earlier this month, in changes it is proposing to Rule 2340, the FINRA board presented two reporting alternatives for brokerage firms. With the first option, a brokerage firm wouldn’t need to have the per-share estimated value of an REIT or a private placement that is unlisted included in customers’ account statements. The second choice lets a brokerage firm chose from three options:

• A valuation done by an external service at least one time every three years.
• A valuation performed by a service that performs valuations according the methodology revealed in the prospectus.
• For a couple of years after the initial investment, a “net investment” valuation that is comprised of the offering price without cash that is distributed to investors and “organization and offering expenses” paid for via the offering or borrowing of proceeds.

The majority of nontraded real estate investment trusts sell at $10/share and they generally stay at that value on a client’s account statement until a year and a half has passed since the REIT ceased to raise funds. This means that years may go by without a client being able to see that the nontraded REIT has a value that differs from that $10/share price.

However, when the recent credit crisis hit, some of the biggest nontraded REITs experienced steep drops in valuation each quarter, and advisers and investors found it difficult to figure out how, why, and to what extent the valuation declines occurred. The matter of the way a nontraded REIT should be valued (and a brokerage firm’s duty to make sure that valuation is stated on client account statements) has become a highly charged issued.

Also, to the dismay of FINRA, its examiners, who have studied quite a number of retail sellers of nontraded REITs in the last couple of years, have found that firms selling these instruments didn’t perform much reasonable diligence before selling them or failed to determine whether the product was appropriate for investors. In comments made to a Securities Industry and Financial Markets Association forum last year, FINRA executive vice present of member regulation sales practices Susan Axelrod said that when REITs have gotten into financial trouble, there were usually red flags that brokerage firms could have assessed first before making more sales.

Our REIT lawyers represent investment fraud victims. Contact The Resolution Law Group today at (203) 542-7275 for a confidential, no obligation consultation.

Lender Litigation, Unlawful Foreclosure, Tarp Money, Mortgage Backed Securities, Derivitives Lawsuits, Insider Trading Lawsuit, SEC Settlements, Ponzi Scheme Lawsuits, Intentional Misrepresentation, Securitized Mortgage, Class Action Securities Lawsuit, Robo-Signing Lawsuit, Lost Equity Litigation, Mortgage Lender Fraud, FINRA Fraud Lawsuit, Suing Banks, Fraudulent Misrepresentation, Short Sale Fraud, Fraudulent Business Practices, Mortgage Litigation, Complex Tort Litigation, Injunctive Relief, MERS Fraud

NASAA Wants Investment Advisers To Be Banned From Forcing Clients Into Mandatory Arbitration

The North American Securities Administrations Association Inc. wants Congress to put into place a law to bar investment advisers from making clients go through arbitration to resolve their securities claims. They also want lawmakers to make either the SEC propose a rule that would get rid of the pre-dispute arbitration clauses currently found in broker firm contracts or push for similarly purposed legislation. The association recently unveiled its legislative priorities, which includes getting a discourse going about a recent FINRA panel ruling that found that the self-regulatory organization could not prevent Charles Schwab Corp. (SCHW) from using agreements that include mandatory pre-arbitration clauses to bar clients from taking part in class action securities cases.

NASAA President Heath Abshure has spoken about how giving investors options when it comes to settling claims is key to making them feel more confident about the financial markets. He said that when seeking relief they should have the option of going to the forum of their choice. The association also wants there to be legislation that would let the SEC impose user fees when investment advisors take exams (The group’s members believe this would enhance adviser oversight), as well as a law that would let crowdfunding victims file class action securities lawsuits. Crowdfunding involves using the Internet to sell securities in small batches to nonaccredited investors.

NASAA is hoping that the significant turnover that occurred in both the House and the Senate will give the organization a chance to generate new support.

NASAA
State and provincial securities regulators belong to this group. NASAA has protected investors on Main Street from fraud for about a century. It is the longest running international investor protection group.

More About the FINRA Panel’s Ruling on the Charles Schwab Case
FINRA itself has said that it will appeal this ruling, which lets Charles Schwab make customers waive their right to participate in these types of lawsuits. The panel found that while Schwab’s actions do violate FINRA rules, the SRO’s rules actually violate the National Arbitration Act. A spokesperson for Schwab has said that the financial firm will now likely seek to get the pending class action securities cases against it thrown out. Meantime, FINRA has 45 days to appeal the panel decision before the National Adjudicatory Council.

Investment Adviser Fraud
If you think you may have sustained financial losses because of investment adviser fraud, contact The Resolution Law Group P.C. securities fraud law firm right away and ask for your free case evaluation. You may be able to recoup your losses. At The Resolution Law Group, we represent clients both in arbitration and before the courts. We are dedicated to helping investors recover what they are owed.  For further information, Call us at (203) 542-7275 for a confidential, no obligation consultation.

Lender Litigation, Unlawful Foreclosure, Tarp Money, Mortgage Backed Securities, Derivitives Lawsuits, Insider Trading Lawsuit, SEC Settlements, Ponzi Scheme Lawsuits, Intentional Misrepresentation, Securitized Mortgage, Class Action Securities Lawsuit, Robo-Signing Lawsuit, Lost Equity Litigation, Mortgage Lender Fraud, FINRA Fraud Lawsuit, Suing Banks, Fraudulent Misrepresentation, Short Sale Fraud, Fraudulent Business Practices, Mortgage Litigation, Complex Tort Litigation, Injunctive Relief, MERS Fraud