FINRA

FINRA Says New Rule Book Consolidating NYSE and NASD Rules Might Not Be Completed Until 2009

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

FINRA enforcement chief Susan Merrill announced at a Practising Law Institute Gathering on “Coping with Dealer/Broker Regulation and Enforcement” that the Financial Industry Regulatory Authority rulebook, which consolidates NASD and NYSE Rules might not be completed until the end of 2008 or even into 2009.

Merrill said that the consolidation is causing FINRA to ponder whether different kinds of firms should be regulated differently and whether it makes sense to use principle-based standards more frequently.

Merrill says that different groups, including employees previously with NYSE and NASE, are looking at the different rules and trying to figure out how to best merge the two systems.

FINRA Cautions Investors to Watch Out For “Pump-and-Dump Scams” Using Energy Stocks

Published on: November 1, 2007 | by Shepherd Smith Edwards & Kantas, LLP

FINRA (Financial Industry Regulatory Authority) is warning investors to look out for “pump-and-dump” scams focusing on energy stocks. FINRA says that these scams involve energy stocks that are thinly traded issues from companies that are not well known.

In the alert that it issued on October 23, FINRA says that the purpose of the scams is to increase a stock’s price using misleading or false statements that create a demand for a company’s shares. The people who “pumped” the stock then sell their shares when the stock price is high enough. Investors are then left with stock that are worthless.

In one scam, investors were encouraged to invest in a Texas energy company involved in a business deal with a $23 million Chinese oil monopoly. The backers of the scheme told investors that they would receive huge returns if they invested immediately.

Study Says Securities Arbitrators Often Expunge Investor Settlements from Brokers’ Records

Published on: October 9, 2007 | by Shepherd Smith Edwards & Kantas, LLP

A recent study conducted by the Public Investors Arbitration Bar Association indicates that securities arbitrators frequently agree to erase past settlements that were paid to investors from brokers’ records. Removing brokers’ settlement payments from their histories could cause future investors to not find out about the brokers’ past misconduct.

The study reveals that 99% of the time, FINRA arbitrators are the ones who suggest expunging these records. Over 70% of these decisions were made without hearings, even though there are new rules in place that say that a record can only be expunged if the complaint is false, erroneous, or did not involve the broker that was accused.

FINRA disagrees with the study results and claims expungements have dropped dramatically since the new rules were put in place in 2004.

New Primary Regulator of Securities Brokerage Firms Is Run Only By Brokerage Firms

Published on: October 8, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The National Association of Securities Dealers (NASD) recently absorbed the regulatory unit of the New York Stock Exchange (NYSE) and changed its name to the Financial Industry Regulatory Authority (FINRA). Yet nothing has really changed. The primary regulator of securities brokerage firms industry is run solely by … brokerage firms.

There are a number of industry associations which oversee that industry. Yet, no other has the power of the FINRA. The Securities and Exchange Commission (SEC) is charged with the responsibility of policing the securities industry. (The last SEC commissioner appointed by a Democrat left this week leaving only Republican appointees and the Director is a former Republican Congressman, but that is another story.)

In any event, the SEC, the nation’s securities police force, delegates to the securities industry the power to police itself. There is now only FINRA, the rent-a-cop group in charge of that duty. FINRA is run by seven directors. Almost unbelievably, all of the directors of FINRA are representatives of brokerage firms. None are “public” directors.

Morgan Stanley to Pay $12.5 Million in Compensation and Fines

Published on: October 1, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley says it will pay $12.5 million as part of a settlement to resolve charges that the company neglected to produce e-mails that had been lost during the September 11, 2001 terrorist attacks in New York.

The Financial Industry Regulatory Authority (FINRA) announced the settlement on Thursday. Morgan Stanley will pay $9.5 million to a fund designated for thousands of investors that have filed arbitration complaints. The remaining $3.5 million is a fine. The settlement also resolves charges that Morgan Stanley did not provide other documents required for certain arbitration cases.

Morgan Stanley will retain an independent consultant to make sure that retail brokerage clients in arbitration get specific materials that they need. By agreeing to the settlement, Morgan Stanley is not admitting to any wrongdoing.

SEC and FINRA Say “Free Lunch” Seminars are Investment Scams Targeting Seniors

Published on: September 16, 2007 | by Shepherd Smith Edwards & Kantas, LLP

FINRA, SEC, and state regulators are saying that the “free lunch” investment seminars for senior citizens are actually high-pressure sales pitches, involving fraud and misleading claims about financial products that are not suitable for its elderly audience. A report of these findings will be issued to the public this week.

Alabama, California, North Carolina, Florida, Texas, Arizona and South Carolina are the U.S. states with the largest numbers of retirees. All seven states were included in the probe. The investigation took place from April 2006 to 2007 and concentrated on 110 investment firms and branch offices that held “free lunch” seminars for seniors.

The report blames investment firms for failing to properly supervise the employees that conducted the senior seminars.

Fraud is Cause of Financial Loss! Say One in Five Older Americans

Published on: September 13, 2007 | by Shepherd Smith Edwards & Kantas, LLP

“Mr. Chairman, there is no doubt financial fraud aimed at older Americans is real.”

This astounding statement was made at the SEC’s Senior Summit by Mary L. Schapiro, the Chief Executive Officer of the Financial Industry Regulatory Authority (FINRA), the regulatory body formed by the merger of the National Association of Securities Dealers and the regulatory arm of the New York Stock Exchange.

Ms. Schapiro backed her statement with the results of a recent FINRA survey which found that, of the 55 percent of respondents who said they lost money on an investment, 19 percent-almost one in five-attribute that loss to being misled or defrauded. While this is cause for concern, she added, it’s also an opportunity for creative collaboration by regulators.

FINRA Is Pressured to Cut Ties Between Public Arbitrators and the Industry

Published on: September 11, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Industry arbitration critics want the Financial Industry Regulator Authority to forbid “public” arbitrators from having any connections to the industry. Although the majority of arbitration panels in the industry continue to be made up of one industry member and two “public” panelists, critics say that the public members are not actually public-especially if the arbitrator has any industry ties.

Investor attorneys want FINRA to adopt a “zero tolerance” policy toward any public arbitrators that have a connection to the industry.

Public arbitrators currently can have up to 10% of their yearly income from the last two years come from clients that participate in activities related to the securities industry.

NASD Successor “FINRA” Hypes Retail Investor Online Info Section

Published on: September 7, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The new Financial Industry Regulatory Authority has launched a section on its website to provide online information for retail investors.

The “Market Data” section on FINRA’s website provides data on equities, options, mutual funds and corporate, municipal, Treasury and Agency bonds. The site also provides a page for all stock exchange-listed companies, including a company description, recent news stories and Securities and Exchange Commission filings, and an interactive list of domestic securities the company issues.

The site also provides equities indices and the FINRA-Bloomberg Active U.S. Corporate Bond Indices for investment-grade and high-yield bonds. Additionally, the site features U.S. Treasury Benchmark yields, market news an economic calendar and other information indicating current market conditions.

Wealth Advisor Institute Calls for Reforms of the U-5 Termination Process For Brokers

Published on: September 2, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The Wealth Advisor Institute wants the way U-5 termination forms are filed to be reformed. The forms are used for reporting information about why a broker has left a firm. A copy of the form then has to be given by the broker to a new employer.

The WAI called on NASD (Now part of FINRA) to make the reforms after the New York State Court of Appeals gave total legal immunity to the information that firms choose to include on U-5 forms. This means that under New York law, brokers cannot obtain monetary damages in rulings involving U-5 defamation cases. An appeals court in California issued a similar ruling regarding U-5 forms two years go.

The WAI says it was appalled by the New York Court’s decision and expressed worries “advisers can end up getting sold out” by their firms.