The Beck Law Firm, LLC Blog

More Regulation coming to Hedge Funds?

This week, Jim Hamilton over at Jim Hamilton's World of Securities Regulation, posted an article about the recent introduction of a bill by Senators Carl Levin and Charles Grassley, seeking to make hedge funds register with the SEC and to be subject to the SEC's regulations and oversight. Jim also notes what type of information would be required to be made publicly available by the registered funds, and would also grant the SEC authority to obtain additional information.  Its worth a read.  Click the link above.

FINRA Arbitration Announces Effective Date for Rule on Motions to Dismiss

In a Regulatory Notice published recently, FINRA has announced the effective date of its new rule on motions to dismiss in securities arbitration cases.  According to Regulatory Notice 09-07, new rules 12504 and 13504, that were approved by the SEC, become effective on February 23, 2009.  In addition, FINRA has also imposed a moratorium on filing motions to dismiss in arbitration cases until the new rules are effective.

You can read the full notice at the link above.  In a nutshell, motions to dismiss will not be granted until a party finishes presentation of their case-in-chief (i.e. - at a hearing), unless one of 3 exceptions exist: 1) prior settlement or release of party, 2) it is evidence that a respondent was not associated with the account, security or conduct at issue (mistaken identification), or 3) the claim is not eligible for arbitration (for example, the claims are too old).

We'll have to watch and see how this works out.  MTDs can be an effective way to eliminate cases that obviously have no merit.  Now, many of those cases will be forced to hearing, driving up costs for all of the parties involved. 

SEC Adopts Final Rule on Indexed Annuities; Insurers Sue

On January 8, 2009, the SEC adopted as a final rule, Rule 151A of the Securities Act of 1933, which would define indexed annuities as securities, falling under the jurisdiction of the SEC, unless they fall within an exemption for products regulated under insurance laws.  You can find the text of the SEC's release # 33-8996 approving the rule at their website here.   

As you might imagine, this rule has not pleased many insurance companies, who are the issuers of these products.  Last week, several insurers banded together in a lawsuit against the SEC to stop the implementation of the rule because, among other reasons, the SEC overstepped its bounds in promulgating the rule.  Read more about the suit here and here.

Report: Wells Fargo Fires 175 Wachovia Employees

According to a report at Investment News, Wells Fargo has fired 175 Wachovia employees who were former employees of Wells Fargo.  It appears that many of those fired were former brokers at Wells Fargo who had left for Wachovia.  Interesting.  Read the article at the link above.

SEC Approves FINRA Arbitration Rule on Motions to Dismiss

FINRA last week announced that the Securities and Exchange Commission has approved a new rule that will effectively eliminate motions to dismiss in FINRA arbitration cases.  The new rule will require that arbitration panels deny motions to dismiss made before the claimant has presented his case at a hearing unless the motion falls within 3 exceptions:  1) the case has settled, 2) there is a factual impossibility in the case (meaning that it is factually impossible for a certain respondent to have engaged in the alleged wrongdoing) or 3) the case is too old (the case was filed more than six years after the alleged misconduct).  Further, according to the release, a party who brings a MTD that is denied, will be assessed the costs and attorney's fees, and may not file another MTD without the consent of the panel. 

No word yet on the effective date.  FINRA will publish the new rule and effective date in a forthcoming notice.

E*Trade Sanctioned for AML Issues (Again)

As I noted back in July 2008, the SEC settled charges against E*Trade Clearing and E*Trade Securities for AML (anti-money laundering) violations.  In that action, the SEC found that E*Trade failed to comply with rules requiring securities firms to verify the identities of their customers and to document their procedures with complying with AML rule and regulations.  More specifically, the SEC found that, from October 2003 to June 2005, E*Trade failed to verify the identity of over 65,000 customers, in violation of the USA PATRIOT act and SEC rules.  Without admitting or denying anything, E*Trade settled the charges, and was to pay a $1 Million fine.  The SEC noted that E*Trade personnel discovered, and then rediscovered, the deficiency in their CIP (customer identification program) but failed to take any corrective actions for nearly 2 years.

Now, FINRA has extracted their pound of flesh from E*Trade as well for AML issues.  In a press release from FINRA on January 2, 2009, FINRA announced that it is fining E*Trade $1 million for an inadequate AML program.  According to FINRA's release, the two E*Trade units were sanctioned "for failing to establish and implement anti-money laundering (AML) policies and procedures that could reasonably be expected to detect and cause the reporting of suspicious securities transactions" during the period from January 2003 to May 2007.  (Note that this period overlaps the period from the SEC matter).

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