Financial Firms

Is the Arbitration System Stacked In Favor Of Brokerage Firms and Against Investors?

Published on: April 5, 2007 | by Shepherd Smith Edwards & Kantas, LLP

After the U.S. Supreme Court decided to let brokerage firms make customers sign arbitration agreements, a lot of people thought that this was a faster, less expensive alternative than letting investors take their claims to courts. Recently, however, what seemed like a good way to resolve disputes between brokers and investors has come under close scrutiny.

Certain regulators and lawmakers are now saying that the system needs to be reviewed. According to William Galvin, the Massachusetts Secretary of the Commonwealth of Massachusetts, the arbitration side of disputes need to be fairer and not “stacked against” investors.

These kinds of concerns are taking on a new importance in the wake of the upcoming consolidation of the NYSE Group Inc.’s New York Stock Exchange and the National Association of Securities Dealers.

Goldman Sachs Affiliate Agrees To Pay $2 Million in Fines and Penalties Over Short-Sale Scheme Charges by NYSER and the SEC

Published on: March 27, 2007 | by Shepherd Smith Edwards & Kantas, LLP

NYSE Regulation Inc. and the Securities and Exchange Commission say that a clearing affiliate and prime broker of Goldman Sachs Group will pay $2 million in fines and penalties over its alleged role in an illegal short-sale trading scheme that was executed by Goldman Sachs customers through their accounts with the brokerage. Goldman Sachs Execution and Clearing, LP has not admitted to or denied any wrongdoing by agreeing to the censure. They are, however, agreeing to cease and desist from future violations.

The SEC charges that firm customers unlawfully sold securities short right before public offerings of the companies’ securities. It is accusing Goldman of violating the rules that mandate that brokers must mark sales short or long, while restricting stock loans on long sales. Both NYSER and SEC say that if Goldman had proper procedures in place, it would have discovered via its own records this illegal activity by its customers. Two Goldman customers have already settled SEC charges connected to their alleged participation in these activities.

SEC Chairman Christopher Cox told the U.S. Chamber of Commerce on the day of this announcement that the commission and its senior staff members are very concerned about abusive naked short-selling. He admitted that Regulation SHO had not properly addressed these issues and that the commission will now eliminate the regulation’s grandfather provision. Cox said that naked short-selling was connected to settlement and clearance systems and that the SEC would use technology to further deal with this issue. He said the action against Goldman was important.

Oppenheimer CEO Charged by NASD with Knowingly Producing Inaccurate Data

Published on: January 9, 2006 | by Shepherd Smith Edwards & Kantas, LLP

The NASD is charging Albert Lowenthal, Oppenheimer & Co.’s CEO, with knowingly turning in data that was not complete or accurate when it responded to the self-regulatory agency’s request that the brokerage firm assess its own practices pertaining to mutual fund breakpoint discounts. This latest complaint stems from a report issued in 2003 by NASD and other regulators that demonstrated how almost one in three mutual fund transactions in front-end load mutual funds did not get a breakpoint discount even though they looked to be eligible for one.

Because of this, NASD told about 2,000 brokerage firms that sold front-end load mutual funds during the two years previous to perform their own assessment of self-compliance regarding related requirements and report their findings. Oppenheimer (OPY) was one of the broker-dealers that got this request.

The breakpoint sweep led to investors getting over $130 million back. These are breakpoint discounts they should have received previously.