It Only Took Four Cases...

After advocating in four U.S. Supreme Court matters: one on the merits; one as an amicus; and two cert petition battles, I finally can put one in the W column.

Petition for Certiorari in the matter of Campbell-Ponstingle v. Kovacic (Sup. Ct. Case No. 13-933), denied.

Had to wait through two conferences for the results, but as they say, better late than never...

Ehhh, ohhhh, way to go, O-hi-o...

While my plate has been full of late with appeals and dispositive motion practice and deadlines assuredly loom, I was troubled to learn today from my learned and esteemed friend and colleague, Peter Traska, Esq. that his admirable advocacy on behalf of consumers before the Supreme Court of Ohio was unsuccessful.  Regrettably, the Buckeye State's high court determined recently:

A judgment decree in foreclosure that allows as part of recoverable damages unspecified amounts advanced by the mortgagee for inspections, appraisals, property protection, and maintenance is a final, appealable order pursuant to R.C. 2505.02(B)(1).

That seemingly translates into foreclosure judgments with indefinite amounts subject to lender calculations for various categories.  It seems reasonable to expect uncertainty and more litigation over these "unspecified amounts" which now have the court's imprimatur as being part of "final" judgments, at least in Ohio.

What could possibly go wrong?

Meanwhile, New York jurists have proposed recently what appears to be a vastly more enlightened perspective on alleged debt-related litigation, calling for putative creditors to submit "affidavits of facts" before judgment, "based on personal knowledge detailing the date and amount of the last payment and the itemization of how the amount was calculated."

So I say, ehhh, ohhhh, way to go, O-hi-o...

Bill Singer Reflects on Stone v. Bear Stearns

Former Forbes columnist and veteran securities practitioner and pundit Bill Singer summarized his view of the pending dispute in Stone v. Bear Stearns, et al. as follows:

"Many commercial and residential premises are required to maintain smoke detectors as a first-line of defense; however, you pull the fire alarm after the smoke detector goes off.  Seems to me that the EDPA and [Third] Circuit failed to take into account that to some extent Marston's relatively limited disclosure and FINRA's fumbling disconnected Stone's smoke detector. To now blame him for not having pulled the fire alarm sooner seems unfair and unreasonable."

Read the full Broker and Broker post here.

Bloomberg's Cohan Dissects Customer Claims Versus Wall Street "Overlords"

William Cohan concludes that "mandatory" arbitration (and FINRA itself) should be abolished in his observations about a case on which I am a member of the appellate advocacy team, and in which a customer's rights were abused throughout the process.
Read Cohan's column here.

Son of SOES Bandit is a “Flash Boy”

Michael Lewis, market critic and celebrated author of Moneyball, Liar’s Poker, and The Big Short, offered a revealing look into some of the shadowy synapses of High-Frequency Trading (“HFT”) Sunday night on 60 Minutes in support of his newest work, Flash Boys (view interview here).  His eye-opening findings and rhetoric about the algorithm-driven fiber-fed flim-flams by HFTers using technology and light to perpetrate one of the oldest scams in the market—front-running.

I co-authored a piece for the NYSBA Securities Litigation & Arbitration website on the controversial HFT practice called, “Quote Stuffing,” a Recipe for Regulation, which you can read here.

Law School Clinics' Well-Deserved Recognition for Well-Reasoned SCOTUS Advocacy

Among my morning reading was this gem:

The Pittsburgh Post-Gazette reported in today's edition about the efforts of law students from the Univ. of Pittsburgh Law School and Pace Law School as amici advocates in the pending matter of Stone v. Bear Stearns, et al., Case No. 13-959, involving a "public" arbitrator in FINRA arbitration with numerous undisclosed conflicts of interest.  Pitt 2L Sydney Normil from Jamesburg, NJ, said, "It's the best practical experience I've had in law school."

Pace Law School Investor Rights Clinic Director, Prof. Jill I. Gross said, "It's an issue we think is in dire need of addressing.  [Mr. Stone] was supposed to get a neutral panel of arbitrators.  He did not get a neutral panel of arbitrators and he lost."

Pitt Law students and Professor Stewart pose with a brief they authored for the U.S. Supreme Court. From back to front, Kieran O'Leary, Jeremy Papp, Stuart Carney, Fangxing (James) Li, Kelly Horejs, Joseph Fladung, Sydney Normil, Joseph O'Neill, and Professor Alice Stewart. Andrew Karas not pictured.  Connor Mulvaney/Post-Gazette

Read the full Post-Gazette article here.

Fifteen Years and Roughly 40+ Arbitrations Before FINRA Removed Arbitrator Posing as a Lawyer

Not the former fake lawyer / arbitrator.

Sheeesh.

A Santa Barbara man removed from FINRA arbitrator roster claimed to be licensed in California, Florida, and New York, which was news to California, Florida, and New York.

Full InvestmentNews article here.

Florida Supremes: Consumer Arb Clause Must Be In Language Customer Speaks

Not the actual car dealer.

The Florida Supreme Court ruled yesterday in Basulto v. Hialeah Auto., LLC that use of an English-only pre-dispute arbitration clause with customers who do not speak English (N.B. all of the contract documents were English-only) does not create a contractual "meeting of the minds," the offending clause is unenforceable, and the auto dealer's attempts to compel arbitration were denied.

The detailed opinion in Basulto v. Hialeah Auto., LLC, Case No. SC09-2358 (March 20, 2014), can be accessed aqui.

Ameriprise Broker Used Customer Cash to Pay Plastic... But Wait, There's More!

Bill Singer of Broke and Broker expertly dissects the case of In the Matter of Jeffrey Scott Davis, Respondent (Letter of Acceptance, Waiver & Consent ("AWC") 2013037743101).

Jeffrey Scott Davis was formerly associated with Ameriprise, you know, Tommy Lee Jones' friends who are always there to help you with retirement, and last week he submitted his AWC, which FINRA accepted, and with that, Mr. Davis was banned for life from the business.

Mr. Davis did this voluntarily, instead of having the regulatory process against him continue. Once you read Bill Singer's analysis that decision begins to make perfect sense. It involved allegations that he went on a spree using customers' money to make electronic ACH payments of his credit card accounts.

According to FINRA, Mr. Davis had no prior regulatory events in his sixteen-year history in the securities industry.  According to Mr. Singer, what went missing from the AWC is far more troubling than what appeared.

Read the whole story at BrokeandBroker.

The Bling is Always Real; the Promises are Almost Always Lies.

Canadian Scammer Petar Vucicevich seen before sentencing.
Photographer: Nick Brancaccio / Source: The Windsor Star

“Become a Millionaire.” Sounds great, right?  Who doesn’t want a secure financial future.  There was even a hugely popular game show hosted by the venerable, amiable and seemingly trustworthy Regis Philbin.  But when someone makes a pitch of this nature regarding investments, it should give you pause.  And when that seemingly dubious, too-good-to-be-true pitch is featured prominently right at the top of the pitchman’s website, in my estimation it is probably time to run in the other direction.  Consider a Netflix rental of "Boiler Room" this weekend as your primer for this shadowy world where the promises are usually fake, but the losses and related misery are very, very real.

When such a pitchman makes defensive and boastful statements like, “You haters out there will hate me even more in the coming years as I create more millionaires with my teachings, get excited,” [sic] it smacks of empty infomercial rhetoric that one cannot ever reasonably perceive as a credible source for advice regarding your nest egg.  If they are legitimate, why are they defensive?  At a minimum, it begs the question, if you’re so good at this, why are you trying to sell your “system” to me instead of simply becoming the next Warren Buffet, or perhaps the lesser-known Benjamin Graham who authored the investing classic, The Intelligent Investor?  Incidentally, one can buy that bit of 65-year-old time-tested wisdom for about six bucks on Amazon.com.

Famed stock fraudster Jesse Livermore preyed on the short memory of investors and relied on markets moving as a herd and in cycles.  Livermore said famously, “I learned early that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”

Fabulist Fine

SDNY Judge Katherine Forrest imposed an $825K penalty yesterday on the “fabulous Fab” as a sanction for his role in pushing the built-to-fail Abacus MBS fund, which hedge fund Paulson (no affiliation with the Dartmouth man who brought us all TARP) shorted through strategic CDS and participated in the selection of the subprime securities that would inevitably implode.

Some say bitcoin is a “Ponzi,” FINRA issues an alert, but CTFC chief hints it may regulate the newest “currency”

Source: Mashable.com

The regulator that completely missed the MF Global implosion (which I commented on for CNN, ABC News, Law 360, and Progressive Farmer News, among other places) is now mulling a new bitcoin regulatory regime.  Acting Commodity Futures Trading Commission chairman, Mark Wetjen, informed reporters this week, "We are looking into that." 

Credit Suisse executive: “Our [mortgage] diligence process [wa]s such a joke.”

Intrepid New York Times investigative journalist, Gretchen Morganson, published a report recently revealing sweeping failures within the mortgage underwriting division at Credit Suisse which parallel many of the horror stories reported about banking misconduct, cited by many as the main cause of the 2008 economic collapse.

False Claims Act Whistleblower to Receive $64M of JPM Fraud Settlement

Former J.P. Morgan employee Keith Edwards alleged the mega-bank falsely certified FHA and Veterans Affairs-backed mortgages dating back to at least 2002, resulting in "substantial losses" for the federal agencies.  Edwards worked for J.P. Morgan (and/or predecessors) from 2003-08 and sued the bank under the False Claims Act in January 2013 for the suspected malfeasance; the U.S. government later joined him in the litigation.  The U.S. Dept. of Justice obtained roughly $3.8B in False Claims Act settlements and judgments in 2013 alone.

Investment Adviser Assoc Exec Says FINRA Playing "Long Game" to Gain Adviser SRO InvestmentOversight

Source: InvestmentNews

Neil Simon (no, not that Neil Simon), vice president of government relations for the Investment Adviser Association, told the audience at yesterday's IAA Compliance Conference in the Washington D.C. area, FINRA is "playing the long game, [by] laying the groundwork for a future lobbying effort. It views advisers as a regulatory and revenue opportunity.”

Read full InvestmentNews report here.

New Consumer Advocate Lawyers' Study Challenges BrokerCheck System

The Public Investors Arbitration Bar Association (PIABA), is hosting a media call at 1:00 p.m. today to provide details regarding a recent study conducted by PIABA that compares the FINRA BrokerCheck database with the Central Registration Depository (CRD). The study will be released publicly today.

According to Reuters, FINRA a substantial amount of CRD data to populate the BrokerCheck system, but does not include as much detail.  For example, BrokerCheck discloses information about a broker's licenses as well as customer arbitration complaints, but excludes information about licensing exam scores, or if a broker satisfied a tax lien.  Other advocates have criticized the BrokerCheck system for lacking the features of a “relational” database, to search, for example, all brokers who ever worked with “The Wolf of Wall Street,” Jordan Belfort, or Bernie Madoff.

Read the full Reuters report here and here.

Read the PIABA press release here.

UPDATE: Wall Street Journal report regarding new PIABA BrokerCheck study available here.

InvestmentNews published detailed coverage here.

BrokerCheck Under the Microscope by WSJ; 1600+ Brokers Have Undisclosed Criminal Records, Bankruptcies

The Wall Street Journal analyzed data from just 21 states and cross-referenced criminal and bankruptcy-court filings. The study revealed over 1600 currently-licensed brokers had undisclosed criminal charges, convictions and bankruptcy filings. Brokers are required to disclose bankruptcy petitions filed within the last decade.

An unidentified FINRA spokesperson told the Journal, "We are deeply concerned by these reporting failures, which are inconsistent with the regulatory responsibility of both firms and their registered persons," adding, "This situation is unacceptable."  According to the regulatory spokesperson, FINRA will be "bringing swift disciplinary actions where appropriate."

Read the full WSJ article here.

Former Broker Who Agreed to SRO Discipline Now Wants Privacy and Sues SRO

Source: FINRA.org

Alan Mark Santos-Buch (CRD# 1534115) seems to want a judicial search engine "scrub" to remove online references to a FINRA (then-NASD) disciplinary action resulting in an "AWC" (Acceptance, Waiver and Consent) to resolve the matter with a censure, $10K fine and 30-day suspension from the industry.  The AWC included the determination that Mr. Santos-Buch "consented to the described sanctions and to the entry of findings that he signed and delivered to a public customer a memorandum that stated that the customer’s account would be guaranteed against losses."  Of course it is impermissible for brokers to induce unsuspecting customers with guarantees against market losses, but Santos-Buch did not admit or deny any violations.

Santos-Buch walked away from the securities business the year before the AWC was issued and sanctions against him levied, and the Norwalk, Connecticut brokerage (Moran & Assocs. – CRD# 19378) that once employed him no longer exists.  Santos-Buch apparently perceives the AWC, which he signed voluntarily to avoid further SRO disciplinary proceedings against him, as something of an unfair "scarlet letter" and maintains that when FINRA informs the investing public of his disciplinary record it violates his privacy rights and thwarts his employment prospects.  His apparent strategy to recapture his pre-disciplinary record privacy was to initiate litigation against FINRA in the United States District Court for the Southern District of New York to prevent the SRO from disclosing the disciplinary proceedings summary about him, such as the periodic report found here.

FINRA often supports its use of the BrokerCheck disclosure system as a means to inform the investing public of former brokers who flee the industry and later set up shop as investment advisers, financial planners, and the like, with newfound access to customer investment funds.  Incidentally, it seems Santos-Buch did just that in the 90s, creating the Greenwich-based Santos-Buch Investment Advisers, Inc., a Delaware corporation, according to public records.

Santos-Buch filed his case (no. 2014-cv-651) earlier this month, which is now pending before the Hon. Shira A. Scheindlin, captioned Santos-Buch v. Financial Industry Regulatory Authority.

Read more at Reuters, Ex-Broker tries to use privacy lawsuit to clean up record.

UPDATE: FINRA maintains it should receive "absolute immunity" for its regulatory activities. Read the Law360 report here.

SCOTUS Says SLUSA Doesn't Impede Stanford Victims from Claims Against Law Firms and Insurers

Source: CNBC.com

The U.S. Supreme Court determined yesterday the Securities Litigation Uniform Standards Act (“SLUSA”) does not prevent Ponzi scheme victims from seeking redress against third parties who worked with a Ponzi schemer, when the nature of the scheme does not involve securities within the ambit of the Act.  SLUSA bars state-law claims when alleged misrepresentations and/or omissions are made "in connection with" purchase(s) or sale(s) of any security(ies) listed on any U.S. national exchange(s) when the alleged misconduct was committed.  (Sir) Allen Stanford was convicted of swindling investors with fake CDs issued by Stanford International Bank, an Antigua-based financial front institution which he controlled.

For the SEC, it means the Court did not curtail its ability to enforce securities laws, for Proskauer Rose LLP, and others, it means they now face prospective civil liability for their alleged role(s) in facilitating Stanford’s $7.5B fraud, for which he was sentenced to 110 years of incarceration.  Tom Goldstein, a lawyer representing the former Stanford clients and founder of SCOTUSBlog.com, told Reuters, "It's clear the justices understood that ruling for the defendants would create an immunity that Congress never imagined."

Justice Stephen Breyer wrote the opinion of the 7-Justice majority, noting that because the phony CDs were never traded on U.S. exchanges, "it is difficult to see why the federal securities laws would be - or should be - concerned with shielding such entities from lawsuits."  Representatives for the implicated law firms maintained they would move to dismiss the suit on other grounds when the case is remanded.

Read more about the cases at Reuters.

MarketWatch Cited Pekarek for Dimon Double-Fault Holiday Card Criticism

Source: MarketWatch.com

Was traveling at the time and missed this MarketWatch article which cited me criticizing the obtuse "let them eat cake" holiday card from the formerly rumored (and oft-touted by CNBC) Treasury Secretary front-runner and Too Big To Fail CEO.  Keep your eye on the ball Ahab, and watch out for the next Too Big To [London] Whale.

Read more >>> Plenty of fault in Dimon's tennis-themed holiday card by David Weidner.

Second Circuit Determines Insider Trading Sanctions Include Disgorged Profits, Not Avoided Losses

Hon. Gerard Lynch  law.columbia.edu

Former Jeffries & Co. managing director Joseph Contorinis gained $7.2 million in profits for the Jeffries Paragon Fund while avoiding $5.3 million in losses on the basis of material nonpublic tips he received from a UBS employee.  Contorinis was convicted of conspiracy and securities fraud in 2010 and sentenced to six years incarceration and criminal forfeiture of roughly $12.5 million—the amount of profits and avoided losses the insider trading produced.

Contorinis appealed the conviction and the Second Circuit vacated the forfeiture order (while upholding the conviction) because the benefits did not accrue to him personally.  The District Court determined on remand the appropriate forfeiture for Contorinis was the roughly $423K he realized in the insider trade-related compensation.  Meanwhile, in a separate action before SDNY Judge Richard Sullivan, the SEC sought disgorgement of the $7.2 million in profits he obtained for the ironically-named Paragon Fund; Judge Sullivan ordered him to disgorge those profits, along with another $2.4 million in pre-judgment interest.

Contorinis appealed, maintaining he never controlled Paragon Fund profits, and should not be responsible for disgorgement as a result. An unpersuaded Circuit Judge Gerard Lynch opined, “The insider who, rather than passing the tip along to another, directly trades for that other’s account must equally disgorge the benefits he obtains for his favored beneficiary.”

Read more @ The American Lawyer.

Failures to Supervise Sales of ETFs, REIT Shares, Result in Almost $1M Fines by FINRA, State Securities Watchdogs, Against Berthel Fisher

FINRA fined Iowa-based Berthel Fisher yesterday for various supervisory deficiencies, including "failure to supervise the sale of non-traded real estate investment trusts (REITs), and leveraged  and inverse exchange-traded funds (ETFs). As part of the settlement, Berthel Fisher must retain an independent consultant to improve its supervisory procedures relating to its sale of alternative investments."

FINRA Executive Enforcement VP, Brad Bennett, said in a statement, "A strong culture of compliance is an essential element of the proper marketing of complex products. Berthel's supervision of the sales of nontraded REITs, inverse ETFs and other products fell short of this standard, as it failed to ensure that its registered representatives understood the unique features and risks of these products before presenting them to retail clients."

According to a report by InvestmentNews, Berthel Fisher did not admit or deny culpability, and instead claimed the regulatory investigation was “a result of a 'sweep' done by FINRA throughout the industry” and settled the enforcement action out of a desire “to eliminate any on-going legal expenses.” Berthel Fisher's BrokerCheck record indicates various state regulators have also fined the firm for sales of "unsuitable" investment products.

See also, Darwin or Dodo? Non-Traded REITS Will Reform or Perish.

"Maria" Gabelli

One of the first guests on Bartiromo's new FBN morning show:

It works on a variety of levels.  

h/t BusinessInsider's Julia La Roche (aka @SallyPancakes)

Groupon Offering $599 "Value" Online Trading "Course" for $29

With a 95% discounted tuition for this supposed "Academy," Groupon promises "Professional trader seen on Million Dollar Traders teaches novices to turn profits and design balanced portfolios in five steps."

This "deal" seems to be salient commentary about the current state of our economy, persistent unemployment and monetary policy-ginned markets, and I suspect will lead to heartache for 95%.  "Novices," your chance to throw away some of your money is right here.

Presumably, supplies are unlimited...

Should High Frequency Traders be FINRA-registered Broker-Dealers?

WASHINGTON, D.C.—A ranking U.S. Securities and Exchange Commission official indicated last Friday the SEC is weighing whether compulsory FINRA registration for High Frequency Trading (HFT) firms is an appropriate measure to protect the investing public. Outgoing acting director of the SEC's Trading and Markets Division, John Ramsay, said Friday during the Practising Law Institute's annual "SEC Speaks" conference, it "is something we are looking at carefully."

HFT has been a focus of regulatory debate since the May 6, 2010 "Flash Crash," during which the Dow Jones Industrial Average plummeted over 700 points in mere minutes.  It was later determine HFT was not the crash catalyst, but the en masse "running for the exits" by HFT traders exacerbated the plunge as liquidity evaporated.  Read the full Reuters coverage here.

Read an article by Ed Pekarek and Brody Tice about HFT "Quote Stuffing" @ the NYSBA Securities Litigation and Arbitration Blog.

Darwin or Dodo? Non-Traded REITs Will Reform or Perish

Do you want a safe "middle of the road" investment that isn't affected by ups and downs on Wall Street? Do you want 7-8% dividends? Do you want the peace of mind that comes from putting your hard-earned cash in a proven investment featuring years and years and years of stable stock prices and returns? Then you need to invest in non-traded REITs right now! Variations of this "too good to be true" sales pitch have been the sales siren for many of the non-traded Real Estate Investment Trusts sold domestically to thousands of elder investors seeking steady income in an unprecedented low interest rate environment.

FINRA has focused enforcement efforts on deceptive sales of these illiquid shares, charging Long Island-based brokerage David Lerner Associates (DLA) (CRD #5397), and its namesake CEO (CRD #307120), in a highly publicized 2011 enforcement action with misconduct related to its sales of allegedly unsuitable "Apple" (no, not that Apple) non-traded REIT shares. A FINRA arbitrator awarded equitable rescission relief to a pair of Apple REIT shareholders, enabling them tender the stock and be refunded their original investment. Not surprisingly, a DLA lawyer told the Wall Street Journal that the FINRA member headquartered in Syosset, NY "disagrees with the decision." A number of class actions are pending presently.

View full article by Ed Pekarek and David Haimi @ NYSBA Securities Litigation &  Arbitration Blog

Pekarek Part of Team Advocating for Investor Rights in U.S. Supreme Court with "Evident Partiality" Questions Regarding "Public" Arbitrator

WASHINGTON, D.C. -- Former Law Professor Ed Pekarek was recently part of the team that prepared a petition for a writ of certiorari in the United States Supreme Court on behalf of a Philadelphia-area investor who is challenging the propriety of an arbitration award issued by a panel on which one "public" member had numerous undisclosed material conflicts of interest, including that her husband was a director of a FINRA member Broker-Dealer at all times during the arbitration hearing, one of a number of facts which disqualified the arbitrator from participation as a "public" arbitrator.  Federal (and some state) courts are sharply split on how to resolve questions pertaining to arbitrator "evident partiality" through varying applications of the Federal Arbitration Act and the Court's opinion in the alliterative Commonweatlh Coatings v. Continental Casualty Co., et al., 393 U.S. 145, 89 S.Ct. 337, 21 L.Ed.2d 301 (1968).

You can read the petition at Howard Bashman's How Appealing blawg.

The Stone v. Bear Stearns, et al. docket is available here.