Corporate Defense and Disputes

Important developments in U.S. securities law, white collar criminal defense, regulatory enforcement and other emerging issues impacting financial services institutions, publicly traded companies and private investment funds

Category Archives: Financial Services

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The Battle Lines Continue to Form Over the DOL’s Fiduciary Proposal

Earlier this month, the Securities Industry and Financial Markets Association (“SIFMA”) released its “Proposed Best Interests of the Customer Standard for Broker-Dealers” – an alternative to the U.S. Department of Labor’s (“DOL”) proposed regulation addressing the standard of care for broker-dealers and other financial professionals who provide retirement investment advice.  Unlike the DOL’s proposed rule, … Continue Reading

UK Regulators Address Manipulation of Trading Benchmarks and Other Misconduct

Concluding a year-long review, UK regulators issued the final report of the Fair and Effective Markets Review Committee last week, making a number of recommendations intended to restore confidence in the trading markets for fixed income, currency and commodities (“FICC”) in the wake of past misconduct. The report noted the substantial fines that have been … Continue Reading

FINRA CEO Criticizes DOL Fiduciary Proposal (Again)

Last week, Richard Ketchum, Chairman and CEO of the Financial Industry Regulatory Authority (“FINRA”), doubled-down on his recent criticism of the U.S. Department of Labor’s (“DOL”) proposed regulation addressing the standard of care for broker-dealers providing retirement investment advice. Speaking at FINRA’s annual conference, Chairman Ketchum said that, while he supports a “best interests of … Continue Reading

FINRA Introduces Revised Sanction Guidelines

FINRA recently released updated and revised Sanction Guidelines and an accompanying Regulatory Notice that, among other things, call for stricter penalties against broker-dealers who commit fraud or violate suitability rules. The revisions are effective as of May 12, 2015. The Sanction Guidelines, first published in 1993, are intended to assist FINRA’s adjudicators in determining the … Continue Reading

FINRA Chairman: SEC Should Lead on Uniform Fiduciary Standard

On May 1, 2015, Richard Ketchum, Chairman and CEO of the Financial Industry Regulatory Authority (“FINRA”), reaffirmed his support for a uniform fiduciary standard for broker-dealers. Testifying before the House Financial Services Committee, Chairman Ketchum emphasized that the U.S. Securities and Exchange Commission (the “SEC”) – and not the U.S. Department of Labor (the “DOL”) … Continue Reading

Cyber Security Regulations Ahead Says New York State’s Dept. of Financial Services

Based on a report released last week about cyber security vulnerabilities faced by financial institutions, New York State Department of Financial Services (“NYDFS”) Superintendent Benjamin Lawsky signaled that the agency will soon move forward with cyber security regulations.  The report concluded that banks’ third-party vendors have significant potential cyber security vulnerabilities.  Superintendent Lawsky said that … Continue Reading

New DOJ Policy on Asset Forfeiture in Structuring Offenses

In an effort to lessen the risk that businesses and individuals performing legitimate financial transactions will have funds frozen through a prosecutor’s use of forfeiture laws, on March 31, Attorney General Eric Holder issued new guidance concerning asset forfeiture in structuring offenses.  The new policy restricts the use by prosecutors of civil or criminal asset forfeiture … Continue Reading

SEC Rule Change Would Require High-Frequency Traders to Register with FINRA

On March 25, 2015, the SEC proposed an amendment to Rule 15b9-1 that would require high-frequency trading firms to register with FINRA.  According to the SEC, the proposed amendment will better align the scope of Rule 15b9-1 with today’s market structure. Rule 15b9-1, as presently written, exempts certain market participants from the requirement under the … Continue Reading

Proposed FINRA Rule Would Require Associated Persons Who Develop Algorithmic Trading Strategies To Register as Equity Traders

In the latest regulatory action addressing high frequency and other algorithmic trading, a recent FINRA Regulatory Notice seeks comment on a proposed rule change under which persons associated with a member firm would be required to register as Equity Traders under Rule 1032(f) if they are primarily responsible for the design, development or significant modification … Continue Reading

SEC Approval of New FINRA Public Arbitrator Rule Imposes New Limits on the Pool of Potential Public Arbitrators

The SEC recently approved FINRA’s proposed new rule changes to the definitions of public arbitrator (FINRA Rules 12100(u) and 13100(u)) and non-public arbitrator (FINRA Rules 12100(p) and 13100(p)), after receiving over 300 comment letters in addition to two letters from FINRA responding to the comment letters.  The new rule significantly limits the pool of potential … Continue Reading

New York AG May Face A Tough Road In High Frequency Trading Case Against Barclays

Ruling on Barclays’ motion to dismiss the action brought by the New York Attorney General regarding Barclays’ alternative trading system (“ATS”), Justice Shirley Kornreich suggested that the AG may face substantial hurdles in proving its case, although the Court narrowly upheld the Martin Act claim as a matter of law. The AG based its claim … Continue Reading

SEC Releases Results of Cybersecurity Examination Sweep

On February 3, 2015, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert that summarized its findings about cybersecurity preparedness in the securities industry.  As part of its Cyber Security Examination Initiative, the OCIE collected and analyzed information about cybersecurity practices and trends from over 100 registered investment advisers and broker-dealers.  … Continue Reading

FINRA Cybersecurity Report Highlights Risks, Best Practices

On February 3, 2015, the Financial Industry Regulatory Authority (“FINRA”) issued its Report on Cybersecurity Practices. Reinforcing FINRA’s emphasis on protecting investor information, the report discusses the results of a recent industry-wide cybersecurity examination and presents a list of principles and best practices to guide the industry’s cybersecurity efforts going forward. 2014 Cybersecurity Examination Last year, FINRA … Continue Reading

OCC No Longer Issuing Anti-Money Laundering Recommendations

Office of the Comptroller of the Currency (“OCC”) examiners stated on Monday that they will no longer make recommendations on how banks can better comply with anti-money laundering (“AML”) regulations.  Rather, the policy change designates all AML problems either as matters requiring attention or as violations of law.  Thus, all AML problems could see enforcement … Continue Reading

SEC Examination Priorities in 2015 to Focus on Transparency Issues and the Early Detection of Potential Fraudulent or Other Illegal Activity

On January 13, 2015, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) announced its 2015 examination priorities for investment advisers, broker-dealers and transfer agents.  These priorities emphasize the importance of transparency and seek to identify, through enhancements in technology, potential illegal activity by focusing on the following key areas. Protecting Retail Investors and Investors … Continue Reading

FINRA’s New Background Investigation Rule Will Likely Increase Firms’ Costs and Potentially Increases Exposure for Firms in Customer Disputes

Recently, the SEC approved FINRA’s proposed new Rule 3110(e) relating to background investigations of registered persons.  FINRA Rule 3110(e), which replaces NASD Rule 3010(e) and goes into effect on July 1, 2015, streamlines and clarifies the rule language by providing that “each member shall ascertain by investigation the good character, business reputation, qualifications and experience … Continue Reading

SEC Sanctions Two Exchanges for Failing to Accurately Describe Order Types and Making Preferential Disclosure to High Frequency Traders

On January 12, 2015, the Securities and Exchange Commission announced that it had obtained a $14 million settlement against two exchanges formerly owned by Direct Edge Holdings, EDGA and EDGX (the “Respondent Exchanges”) for their failure to file Exchange Rules that accurately described the order types they offered, and for providing preferential disclosure to certain … Continue Reading

FINRA’s 2015 Examination Priorities Zero In On Abusive Trading Algorithms and Other Issues Involving Trading Technology

FINRA’s recently-released Regulatory and Examinations Priorities Letter for 2015 reflects substantial regulatory interest in high-frequency trading and other issues arising from trading technology.  Regulatory concern over these issues has been previously reported on this blog here and here. The 2015 Letter states that FINRA has adapted its surveillance program to identify potentially violative conduct such … Continue Reading

SEC Working Papers Suggest Market Benefits From Certain Types of High-Frequency and Low-Latency Trading

Bringing quantitative analyses to the debate over high-frequency trading, two working papers recently made available by the SEC’s Division of Economic and Risk Analysis present economic models suggesting that there are market benefits from certain forms of high-frequency and low-latency trading.   In light of the on-going interest in high-frequency trading among various regulators, the recognition of … Continue Reading

Firms Have Roadmap for Expanding Litigation of Customer Disputes After Second Circuit Holds Forum Selection Clauses Trump FINRA’s Mandatory Arbitration Rule

In the recent decision, Goldman Sachs & Co. v. Golden Empire Sch. Fin. Auth., 764 F.3d 210 (2d Cir. 2014), the Second Circuit held that nearly-identical forum selection clauses in broker-dealer agreements between the broker-dealers/underwriters of auction rate securities (“ARS”) and the public financing authorities who issued the ARS superseded the Financial Industry Regulatory Authority, … Continue Reading

Ralph Ferrara on Real-World Crisis Management

Proskauer litigator Ralph Ferrara spoke last week on real-world crisis management – “event horizons and black holes” – at PLI’s 46th Annual Securities Regulation Institute in New York. Recently named to the inaugural class of the Securities Docket’s Enforcement Hall of Fame, Mr. Ferrara presented a complex hypothetical and discussed financial statement disclosure litigation and … Continue Reading

Second Circuit Extends Scope of Federal Jurisdiction In Litigation Arising From The Facebook IPO

In a recent case arising from the Facebook IPO, NASDAQ OMX Group v. UBS Securities, LLC, No. 13-Civ. 2657 (2d Cir. October 31, 2014), the Second Circuit determined that the federal courts had jurisdiction to enjoin an arbitration against NASDAQ, finding that the case implicated important federal issues regarding the regulation of an orderly securities … Continue Reading

Recent Appellate Decisions Limit Access To Customer Assets Held At Foreign Bank Branches

Originally published as a Proskauer Client Alert. On October 23, 2014, the New York Court of Appeals held for the first time that, under New York law, the “separate entity” rule prevents a court from ordering a foreign bank operating branches in New York from restraining a judgment debtor’s assets held in foreign branches of the bank. Motorola … Continue Reading

Regulators Continue To Address High-Frequency Trading

Regulators across markets continue to show interest in high frequency trading and algorithmic trading generally. Recent developments in this area include: On October, 16, 2014, the SEC imposed a $1 million sanction on a high frequency trading firm, Athena Capital Research, which allegedly placed large numbers of rapid-fire orders in the final two seconds of … Continue Reading
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