Investor Lawyers Blog

Investment Advisers and Brokers Should Be Able To Explain in One Page Why an Investment Would Benefit a Retail Client, Says FINRA CEO Richard Ketchum

Published on: June 14, 2012 | by Shepherd Smith Edwards & Kantas, LLP

At the Financial Industry Regulatory Authority’s yearly conference, the SRO’s CEO, Richard Ketchum, talked about how investment advisers and brokers that sell complex instruments to retail clients should be able to write on a “single page” the reasons why the product is in the best interest of that investor. Ketchum made his comments less than a month after FINRA fined Citigroup Inc. (C), Wells Fargo & Co. (WFC), UBS AG (UBS), and Morgan Stanley (MS) $9.1 million for their alleged failure to correctly train sales employees about the features of and risks involved with leveraged and inverse exchange-traded funds.

Shepherd Smith Edwards and Kantas, LTD, LLP Founder and FINRA Arbitration lawyer William Shepherd disagrees with this ‘single page’ approach. “Despite its name, one should know that FINRA is a self-regulatory association owned and operated by securities dealers,” he said. “A one page statement as to why an investor is being sold an investment is likely designed to become a disclaimer such as the one found on a toaster or other product. This one-pager could then be used to shift the burden of suitability from the broker to the investor. Retirees who lose their savings can then be told. ‘It is your fault, not ours.’ Beware of securities self-regulators bearing gifts.”

Ketchum also talked about how reps should talk to investors about how a product will likely do in different markets and that investment losses could result. He also suggested that broker-dealers provide more training to brokers about financial products so that they can also better explain any costs involved. Acknowledging that conflicts of interests do exist, Ketchum spoke about the need for brokerage firms to self-assess regarding which is higher priority to it: the best interests of investors or that of their own employees?

Meantime, Securities Industry and Financial Markets Association general counsel and senior managing director Ira Hammerman has spoken in favor of a uniform fiduciary standard” for both investment advisers and brokers. He said it was key that new disclosures articulate in simple English the material risks, conflicts of interest, and possible rewards.

“As for standardizing the breach of fiduciary standard in the securities industry: The goal is to water-down ‘settled law’ regarding fiduciary duty,” said Stockbroker fraud attorney William Shepherd. “Other professionals, including lawyers, have lived with this duty for centuries. Since 1945, investment advisors have existed with the current legal definition of ‘fiduciary duty.’ Wall Street brokers should simply be held to the same standard.”

FINRA Annual Conference 2012

Securities Industry and Financial Markets Association

More Blog Posts
FINRA Initiatives Addressing Market Volatility Approved by the SEC, Institutional Investor Securities Blog, June 5, 2012
FINRA Will Customize Oversight to Investment Adviser Industry if Chosen as Its SRO, Stockbroker Fraud Blog, April 8, 2011

Fiduciary Standard in Securities Industry Doesn’t Need New Definition, Stockbroker Fraud Blog, November 26, 2010 Continue Reading ›

CFTC Director Says Corporate Compliance Employees Should Have Comprehension of Dodd-Frank Whistleblower Requirements’Anti-Retaliation Provisions

Published on: June 14, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Speaking at Compliance Week’s yearly conference, Commodity Futures Trading Commission’s Whistleblower Office Director Vincente Martinez said that personnel in corporate compliance should have an understanding of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act’s anti-retaliation provisions that are part of its whistleblower requirements. Martinez noted that while companies are not mandated to explain the way the whistleblower program works to employees, the “quality of information” that compliance personnel choose to offer in response to whistleblowers wondering whether to bring information to the CFTC could make a company liable if an anti-retaliation claim were to be later brought. “Prudence” must therefore be exercised by compliance staff when dealing with such inquiries.

Under Dodd-Frank, eligible whistleblowers may be entitled to 10-30% of money sanctions when agencies are awarded over $1 million in penalties. These informants are also provided with significant protections against employer retaliation for their decision to step forward. Unlike the 2002 Sarbanes-Oxley Act’s whistleblower anti-retaliation provisions, which requires that an anti-retaliation complaint is first submitted to the Department of Labor, under Dodd-Frank, not only can a whistleblower go straight to federal court, but also jury trials for CFTS and Securities and Exchange Commission whistleblower retaliation claims are allowed.

Also speaking at the conference was SEC Enforcement Division Whistleblower Office deputy chief Jane Norberg. She made clear that foreign whistleblowers have the same anti-retaliation protections under Dodd-Frank even if they are located overseas. Norberg did, however, note that for foreign whistleblowers anti-retaliation process could be impacted by both the courts in that jurisdiction and whether or not the whistleblower submitted the claim in US federal court.

Securities Law Roundup: Ex-Sentinel Management Group Execs Indicted Over Alleged $500M Fraud, Egan-Jones Rating Wants Court to Hear Bias Claim Against SEC, and Oppenheimer Funds Pays $35M Over Alleged Mutual Fund Misstatements

Published on: June 13, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Former Sentinel Management Group Inc. CEO Eric Bloom and head trader Charles Mosley have been indicted for allegedly defrauding investors of about $500 million prior to the firm’s filing for bankruptcy protection in 2007. The government is seeking forfeiture of approximately that amount.

The two men are accused of fraudulently getting and retaining “under management” this money by misleading clients about where their money was going, the investments’ value, and the associated risks involved. According to prosecutors, defendants allegedly used investors’ securities as collateral to get a loan from Bank of New York Mellon Corp. (BK), in part to buy risky, illiquid securities. Bloom is also accused of causing clients to believe that Sentinel’s financial problems were not a result of these risky purchases, the indebtedness to the BoNY credit line, and too much use of leverage.

In other securities law news, Egan-Jones Rating Co. wants the Securities and Exchange Commission’s attempts to pursue claims against it in an administrative forum instead of in federal court blocked. The credit rating agency, which has long believed that the SEC does not treat it fairly even as it “historically coddled and excused” the larger credit raters, contends that if it were forced to make its defense in an administrative hearing it would not be able to avail of its constitutional due process rights due to the SEC’s bias.The Commission’s administrative claims accuse Egan Jones and its president Sean Egan of allegedly making “material misrepresentations” in its 2008 registration application to become a nationally registered statistical rating agency for government and asset-backed and securities issuers.

Egan-Jones filed a complaint accusing the SEC of “institutional bias,” as well as of allegedly improper conduct when examining and investigating the small credit ratings agency (including having Office of Compliance Inspections and Examinations staff go “back and forth between divisions and duties” to engage in both examination and enforcement roles.)The credit rater is also accusing the Commission of improperly seeking civil penalties against it under the Dodd-Frank Wall Street Reform and Consumer Protection Act, even though the actions it allegedly committed happened way before Dodd-Frank was enacted.

One firm that has agreed to settle the SEC’s administrative action against it is OppenheimerFunds Inc. Without denying or admitting to the allegations, the investment management company will pay over $35 million over allegations that it and its sales and distribution arm, OppenheimerFunds Distributor Inc., made misleading statements about the Oppenheimer Champion Income Fund (OPCHX, OCHBX, OCHCX, OCHNX, OCHYX) and Oppenheimer Core Bond Fund (OPIGX) in 2008.

The SEC contends that Oppenheimer used “total return swaps” derivatives, which created significant exposure to commercial mortgage-backed securities in the two funds, but allegedly did not adequately disclose in its prospectus the year that the Champion fund took on significant leverage through these derivative instruments. OppenheimerFunds also is accused of putting out misleading statements about the financial losses and recovery prospects of the fund when the CMBS market started to collapse, allegedly resulting in significant cash liabilities on total return swap contracts involving both funds. The $35 million will go into a fund to payback investors.

Meantime, Nasdaq Stock Market and Nasdaq OMX Group are proposing a $40M “voluntary accommodation” fund that would be used to payback members that were hurt because of technical problems that occurred during Facebook Inc.’s (FB) IPO offering last month. Nasdaq would pay about $13.7 million in cash to these members, while the balance would be a credit to them for trading expenses.

A technical snafu had stalled the social networking company’s market entry by about 30 minutes, which then delayed order confirmations on May 18, which is the day that Facebook went public. Many investors contend that they lost money as a result of Nasdaq’s alleged mishandling of their purchases, sales, or cancellation orders for the Facebook stock. Some of them have already filed securities lawsuits.

Sentinel Management Chief, Head Trader Indicted in Illinois, Bloomberg/Businessweek, June 1, 2012
Investors sue Nasdaq, Facebook over IPO, Reuters, May 22, 2012

Credit Rater Egan-Jones, Alleging Bias, Sues To Force SEC Proceeding Into Federal Court, BNA Securities Law Daily, June 8, 2012

OppenheimerFunds to pay $35M to settle SEC charge, Boston.com, June 6, 2012 Continue Reading ›

Advanced Equities Ordered by FINRA Arbitration Panel to Pay $4.5M to Ex-Broker

Published on: June 12, 2012 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel has ordered Advanced Equities, CEO Dwight Badger, and Chairman Keith Daubenspeck to pay one of their former brokers $4.5 million in compensatory damages. The ex-broker, John Galinsky, had accused all three of them of not paying certain commissions on his work to raise capital for clients, such as Alien Technology, Bloom Energy, Arbinet (ARBX), ForceIO Networks, Infinera, (INFN), Motricity (MOTR), and Peregrine Semiconductor (PSMI). He also made claims of unjust enrichment, breach of contract, retaliatory discharge, and fraudulent inducement. Daubenspeck and Badger cofounded Advanced Equities.

The FINRA arbitration panel awarded Galinksy $3.47 million in actual damages, $347,000 in interest, $211,314 in other costs related to trial, and $500,000 in punitive damages-the last due to the investment banking boutique showing a “reckless disregard” for the broker’s warrant rights while breaching its fiduciary duties to him. Additionally, Advanced Equities must pay FINRA $61,650 in session fees. (There were 51 pre-hearing and hearing sessions took place between June 2010 and April 2012, which is after Galinsky went to arbitrators.)

Advanced Equities is a Chicago-based investment firm. It makes late-stage venture capital investments in tech companies. Just last January, the Securities and Exchange Commission sent Wells notices to Badger and Daubenspeck letting them know they could face federal enforcement action over a 2009 private offering.

Galinsky worked for Advanced Equities’ retail broker unit for 10 years. He now works with National Securities Corporation.

Brokers With Arbitration Claims Against Financial Firms
“In 1972, financial firms instituted mandatory arbitration to resolve disputes between financial firms and disputes between those firms and their representatives. During the 1980’s mandatory arbitration agreements with clients of securities firms were enforced by the courts,” said FINRA Arbitration Attorney William Shepherd. “Today, while the vast majority of securities arbitration actions are between investors and firms, each year hundreds of disputes between securities firms, and between those firms and their brokers, are also resolved in arbitration.”

Among such cases, was the claim brought by Patrick M. Mendenhall against UBS Financial Securities. Last year, a FINRA arbitration panel ordered the financial firm to pay its former broker $350,000 in compensatory damages and 6% interest until the amount was paid. Mendenhall, a former UBS broker, had sought resolution over allegedly unpaid deferred compensation and unused vacation time

Ex-Advanced Equities Broker Gets $4.5 Million IOU, Wealth Management, June 3, 2012

FINRA panel orders Advanced Equities to pay $4.5 mln, Reuters, May 21, 2012
Former UBS Broker Sues Firm For $3.8 Million in Deferred Comp and Unused Vacation Time, Forbes, November 28, 2011

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Hampton Porter Investment Bankers’s Stockbrokers, Convicted For Securities Fraud In Pump-And-Dump Scheme, To Be Sentenced This Year, Stockbroker Fraud Blog, January 9, 2007 Continue Reading ›

Madoff Trustee Files Clawback Lawsuits Collectively Seeking Over $1B For BLMIS Feeder Fund Transfers

Published on: June 12, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Irving Picard, the trustee in charge of liquidating Bernard L. Madoff Investment Securities LLC, has filed nearly a dozen clawback lawsuits seeking to recover more than $1 billion from investments by “feeder” funds tied to the failed financial firm. Picard has been working to recover the money of the victims of the Madoff’s Ponzi scam who were collectively bilked of billions of dollars.

Among the defendants are Swiss private banks Lombard Odier Darier Hentsch & Cie and EFG Bank SA. Picard is seeking $179.4 million and $354.9 million, respectively. He is also suing ABN Amro Fund Services (Isle of Man) Nominees Ltd for $122.2 million and Banque Degroof SA, a Belgian private lender, for $108.1 million.

Although firms and banks based abroad that allegedly obtained transfers from the funds are the primary defendants, there also were other entities and individuals named. All of the defendants are affiliated with the Fairfield Greenwich Group, which was BLMIS’s biggest feeder fund operator.

The clawback complaints were filed with the U.S. Bankruptcy Court in Manhattan right before the one-year anniversary of when the settlement between Picard and the liquidators of Fairfield Sigma Ltd., Fairfield Sentry Ltd., and Fairfield Lambda Ltd., which are three funds connected to the Fairfield Greenwich Group. was approved. According to Picard’s spokesperson Amanda Remus, June 7, 2012 is the earliest date that defendants can claim that the statute of limitations “expires for subsequent transfer cases” related to that settlement.

In other Madoff-related news, the U.S. District Court for the Southern District of New York has dismissed a would-be securities class action lawsuit by investors in Madoff feeder fund Optimal Strategic U.S. Equity fund, against Banco Santander SA.

The plaintiffs claim that an investment adviser of the feeder fund and two affiliated Banco Santander S.A. entities disregarded “red flags” that should have warned them that Madoff was running a Ponzi scam. They are contending that their investments are covered under US securities law protections because they are connected with Madoff’s alleged New York Stock Exchange stock trades and, as a result, “economic reality” makes their purchases equal to investments in these stocks. They also believe that the defendant issued material misstatements related to the sale of shares of Optimal US.

More Blog Posts:
Leave The 2nd Circuit Ruling Upholding Madoff Trustee’s “Net Equity” Method for Investor Recovery Alone, Urges SEC to the US Supreme Court, Stockbroker Fraud Blog, June 5, 2012

SIPC Modernization Task Force Recommends Increasing SIPA Protection Level for Failed Brokerage Firm’s Clients from $500K to $1.3M, Stockbroker Fraud Blog, March 10, 2012

House Financial Services Committee Hears Arguments Over Who Should Oversee Investment Advisers

Published on: June 9, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Last week, the House Financial Services Committee held a hearing about the Investment Adviser Oversight Act of 2012, a bill introduced by the committee’s chairman, Rep. Spencer Bachus (R-Ala.), and Rep. Carolyn McCarthy (D-N.Y.). The two lawmakers had come up with (HR 4624) because they believe that the US Securities and Exchange Commission, which has been supervising investment advisers, doesn’t have the resources to do this job effectively.

While there has long been discussion over this issue, the 2008 financial crisis and the discovery of Bernard Madoff’s multibillion-dollar Ponzi scam, which had been going on for years, served to some as evidence that the SEC wasn’t doing a thorough enough job of detecting financial fraud. Last year, the Securities and Exchange Commission issued a study acknowledging that its resources were limited. It too recommended that the Financial Industry Regulatory Authority or a new SRO be given the responsibility of overseeing investment advisers. Or, if it were to continue this oversight, then the Commission suggested that it work with an enhanced oversight program paid for with user fees.

While all sides involved in the debate are in agreement that registered investment advisers are not being examined on a regular basis, they can’t seem agree on how to make additional exams happen or on who should facilitate them. Unlike broker-dealers, investment advisers don’t have a self-policing group. They are usually examined by the states or the US.

Investor Fraud Claims Against Prescott City, AZ are Dismissed by District Court

Published on: June 9, 2012 | by Shepherd Smith Edwards & Kantas, LLP

In the wake of the US Supreme Court’s ruling in Janus Capital Group Inc. v. First Derivative Traders, the U.S. District Court for the District of Arizona is now saying that investors did not succeed in stating a securities fraud claim against Prescott City, Arizona related to the $35 million in revenue bond sales that paid for the construction of a 5,000 seat event center. The case is Allstate Life Insurance Co. Litigation, D. Ariz.

Allstate Life Insurance Co. and other investors had bought the bonds in accordance with the offering documents. Because the official statements failed to include key information that only the defendants knew, the plaintiffs contend that these omissions made parts of what was stated misleading and false. As a result, they are claiming that the defendants violated Section 10(b) of the 1934 Securities Exchange Act.

The district court, in a 2010 order, had said that case law indicates that a party could be held liable under Section 10(b) for “making” a statement that was untrue. Liability could also be held under this section of the Act if a party was involved in “substantially” taking part in preparing, creating, editing, or drafting a statement that was materially false or misleading even without saying or signing the statement in question. However, in the wake of the US Supreme Court’s Janus decision last June that rejected the “substantial participation” approach and found that under Role 10b-5, the statement’s maker is the one with the final authority over the statement, the defendants asked the district court to reconsider.

Now, after Janus, the district court is saying that the plaintiffs have failed to make valid Section 10(b) claims against Prescott City and the securities fraud claims against the town are therefore dismissed. Per the court, the plaintiffs did not allege any facts to make it plausible that Prescott City is the one that made the misleading statements or any of the alleged misrepresentations in the official statements.

Commenting on the district court’s May 24 ruling, Institutional investor securities lawyer William Shepherd said: “The Janus case and this one demonstrate further erosion of the liability standards for investors’ claims. Almost 20 years ago, courts decided that Wall Street and other defendants cannot be held liable for ‘aiding and abetting’ in federal securities fraud cases. (Those who assist in other kinds of wrongdoing are not granted this kind of get-out-of-jail-free card.) Because of this free pass, most of those that assisted Enron in defrauding the public were not held liable for their actions. The Janus case is proving to be yet another case of ‘judicial activism’ to help big shots escape responsibility for their misdeeds and omissions.”

Janus Capital Group Inc. v. First Derivative Traders

Prescott Valley loses motion to dismiss investor lawsuit against events center, The Daily Courier, October 26, 2011

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Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 20, 2010

Morgan Stanley Sued by MetLife for Securities Fraud Over $757 Million in Residential Mortgage-Backed Securities, Institutional Investor Securities Fraud, April 28, 2012

Not All Municipal Bond Issuers Are Adjusting Well to the SEC’s Efforts to Make the Market More Transparent, Institutional Investor Securities Fraud, February 22, 2012

District Court Denies UBS Summary Judgment in Sarbanes-Oxley Whistleblower Lawsuit

Published on: June 7, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the District of Connecticut has decided not to grant summary judgment to UBS AG (UBS) and UBS Securities LLC in Mary Barker’s lawsuit claiming that her firing violated the whistleblower provision of the Sarbanes-Oxley Act. Judge Janet Hall found that UBS failed to show that there was “clear and convincing evidence” that the plaintiff would have been let go “regardless of any protected activity.”

Barker, who started working for UBS in 1998, was terminated from her job in 2008 during a “large-scale” layoff. At the time, she was working in the Business Management Group of the Equities Chief Operating Officer’s office as an associate director. Barker filed her complaint the following year contending that she was actually let go because she “discovered reporting discrepancies” while working on a project to “reconcile” UBS’s New York Stock Exchange holdings. Barker contended that after this, she was “retaliated against or constructively discharged.” She also said that one of her bosses not only failed to adequately support her, but also had been “overlooking her for projects.”

Seeking summary judgment, UBS said that Barker failed to show that her “protected” behavior led to her termination. The district court, however, disagreed with UBS, countering that although the financial firm showed that it was undergoing “extreme financial hardship,” this does not show why the plaintiff, in particular, was let go.

Institutional Investor Securities Roundup: SEC Sues Investment Adviser Over $60M Ponzi Scam, Michigan Investment Club Manager Gets Prison Term for Defrauding Over 900 Investors, & IOSCO Seeks Comments on Report About Credit Raters’ Conflicts & Controls

Published on: June 7, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is suing investment adviser John Geringer for allegedly running a $60M investment fund that was actually a Ponzi scheme. Most of Geringer’s fraud victims are from the Santa Cruz, California area.

According to the Commission, Geringer used information in his marketing materials for GLR Growth Fund (including the promise of yearly returns in the double digits) that was allegedly “false and misleading” to draw in investors. He also implied that the fund had SEC approval.

While investors thought the fund was making these supposed returns by placing 75% of its assets in investments connected to major stock indices, per the SEC claims, Geringer’s trading actually resulted in regular losses and he eventually ceased to trade. To hide the fraud, Geringer allegedly paid investors “returns” in the millions of dollars that actually came from the money of new investors. Also, after he stopped trading in 2009, he is accused of having invested in two illiquid private startups and three entities under his control. The SEC is seeking disgorgement of ill-gotten gains, financial penalties, preliminary and permanent injunctions, and other relief.

In an unrelated securities case, this one resulting in criminal charges, Michigan investment club manager Alan James Watson has been sentenced to 12 years behind bars for fraudulently soliciting and accepting $40 million from over 900 investors. Watson, who pleaded guilty to the criminal charges, must also forfeit over $36 million.

Watson ran and funded Cash Flow Financial LLC. According to the US Justice Department, he lost all of the money on risky investments—even as he told investors that their money was going to work through an equity-trading system that would give them a 10% return every month. In truth, Watson only put $6 million in the system, while secretly investing the rest in the undisclosed investments. He would go on to also lose the $6 million when he moved this money into risky investments, too.

Watson ran the club as a Ponzi scam so investors wouldn’t know what he was doing. He is still facing related charges in a securities case brought by the Commodity Futures Trading Commission.

In other institutional investments securities news, the International Organization of Securities Commissions’ technical committee is asking for comments about a new consultation report describing credit rating agencies’ the internal controls over the rating process and the practices they employ to minimize conflicts of interest. The deadline for submitting comments is July 9.

The report was created following the financial crisis due to concerns about the rating process’s integrity. 9 credit rating agencies were surveyed about their internal controls, while 10 agencies were surveyed on how they managed conflict.

IOSCO’s CRA code guides credit raters on how to handle conflict and make sure that employees consistently use their methodologies. Two of the report’s primary goals were to find out how get a “comprehensive and practical understanding” of how these agencies deal with conflict when deciding ratings and find out whether credit ratings agencies have implemented IOSCO’s code and guiding principals.

Read the SEC’s complaint against Geringer (PDF)

Investment Club Manager Sentenced To 12 Years In Prison For $40 Million Fraud, Justice.gov, May 24, 2012

Credit Rating Agencies: Internal Controls Designed to Ensure the Integrity of the Credit Rating Process and Procedures to Manage Conflicts of Interest, IOSCO (PDF)

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Several Claims in Securities Fraud Lawsuit Against Ex-IndyMac Bancorp Executives Are Dismissed by Federal Judge, Institutional Investor Securities Blog, May 30, 2012

Leave The 2nd Circuit Ruling Upholding Madoff Trustee’s “Net Equity” Method for Investor Recovery Alone, Urges SEC to the US Supreme Court, Stockbroker Fraud Blog, June 5, 2012

Leave The 2nd Circuit Ruling Upholding Madoff Trustee’s “Net Equity” Method for Investor Recovery Alone, Urges SEC to the US Supreme Court

Published on: June 5, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission wants the US Supreme Court to leave standing the U.S. Court of Appeals for the Second Circuit’s decision upholding Irving Picard’s “net equity” approach to compensating victims of Bernard Madoff’s Ponzi scam. Picard is the Securities Investor Protection Act trustee of Bernard L. Madoff Investment Securities LLC. Madoff defrauded investors in a multibillion-dollar Ponzi scam.

SIPA lets investors get back their “net equity,” and Picard’s formula for compensation is to calculate a victim’s net losses-how much they put in, minus how much they got from the failed brokerage firm. He then gives these net losers a portion of the available money. Investors that have net gains-meaning they took out more funds than they invested-must wait until the net losers are fully paid. It is these clients with net gains that are appealing the Second Circuit’s decision and contending that their losses should instead be calculated from the last account statement issued by Madoff’s financial firm.

The SEC disagrees with them. In fact, the Commission doesn’t believe that these Madoff investors should be allowed to appeal a decision that won’t let them receive payment for bogus Ponzi profits that were noted on account statements. In its opposition brief to the nation’s highest court, the SEC said the Second Circuit ruling was “correct” and doesn’t conflict with past decisions. It also said that considering the circumstances and the “relevant statutory language,” the “net equity” approach “was legally sound.”