On January 8, 2013, the United States Supreme Court heard oral arguments in the case of SEC v. Gabelli, 11-274, related to when the clock begins to run for the Securities and Exchange Commission (SEC) to bring a fraud suit. In Gabelli, the Obama administration asserts that the time limit accrues from the time the government discovers the wrongdoing–a contrast from the traditional view that the limitations period begins at the time of a fraudulent transaction.
The SEC complaint was filed in 2008 and centered on conduct occurring between 1999 and 2002, calling into question the five-year limitations period of 28 U.S.C. § 2462. The SEC alleges that two officials of Gabelli Funds LLC secretly allowed market timing practices by a client.
Although the “discovery” rule does apply in private actions brought by investors, the Gabelli case implicates only governmental actions brought to impose fines, not to disgorge profits or impose criminal penalties.
The Court’s ruling is not expected to come until June, but the Justices’ questions seemed to indicate that many of them disagreed with the Obama administration’s stance. The Justices further hinted that their decision could have broad implications applying to time limitations imposed on actions brought by other governmental agencies like the Federal Trade Commission and Defense Department, among others.
For more information and to listen to the oral arguments before the Supreme Court click here.
In October 2012, at the Public Investors Arbitration Bar Association meeting in Austin, Texas, FINRA Dispute Resolution President Linda Fienberg announced that FINRA will now accept disputes between Investors and Investment Advisers. FINRA is the self-regulatory organization that oversees brokers, while Investment Advisers are regulated directly by the Securities Exchange Commission. Before this announcement, FINRA was only open as a dispute resolution forum to investors and their brokers. Although Investment Advisers still will not be subject to the regulatory powers of FINRA, FINRA Dispute Resolution will accept their disputes on a voluntary, case-by-case basis if the parties meet the following requirements:
- The Investment Adviser and investor submit a post-dispute agreement to arbitrate
- The Investment Adviser or other parties agree to pay all arbitration surcharge fees
- The investor files a special written submission agreement to submit the dispute to FINRA Dispute Resolution
FINRA explained that it has received inquiries from lawyers who represent investors and those who represent advisers which are not FINRA members about the availablity of FINRA’s arbitration and mediation dispute resolution forums.
This announcement may bring FINRA one step closer to assuming regulatory oversight over Investment Advisers. For now, though, FINRA will not have authority to enforce awards rendered against Investment Advisers who are not registered with the organization. Instead, Investors will have to go to court to enforce an arbitration award.
To read FINRA’s guidance on these disputes, click here.
Chapter 825 of the Florida Statutes provides extra protection for elderly investors in Florida. When filing claims against their brokers before FINRA, elderly persons in Florida may seek treble damages for financial exploitation under Florida Statutes § 825.103. This section imposes liability for exploitation of an elderly person or disabled adult, which is defined in part as
Knowingly, by deception or intimidation, obtaining or using, or endeavoring to obtain or use, an elderly person’s or disabled adult’s funds, assets, or property with the intent to temporarily or permanently deprive the elderly person or disabled adult of the use, benefit, or possession of the funds, assets, or property, or to benefit someone other than the elderly person or disabled adult, by a person who:
1. Stands in a position of trust and confidence with the elderly person or disabled adult; or
2. Has a business relationship with the elderly person or disabled adult. . .
Under Florida Statutes § 772.11, treble damages may be imposed for violations of § 825.103(1). Punitive damage awards in FINRA cases are rare, perhaps in part due to the requirement that arbitrators produce a reasoned opinion for the award. By awarding treble damages under Florida law, a FINRA arbitrator is able to impose particularly steep penalties for broker misconduct while bypassing the reasoned opinion requirement.
Such an award in the amount of $800,000 was imposed this month against Raymond James Financial Services and two of its brokers, Jodi Isidith and Mitchell Holeve. The award related to Isidith’s alleged conversion of an elderly claimant’s funds, however, no explanation was given for the award. For a copy of the award, see in the Matter of the Arbitration Between Wechsler v. Isideth, Holeve, and Raymond James Financial Services.
If you are an elderly investor in Florida and think you may have been exploited by your broker, please contact the Investor Rights Clinic.
Broker Thomas Casper recently consented to the entry of findings and violations and the imposition of sanctions for his misconduct relating to loans from customers. In January of 2012, FINRA launched disciplinary proceeding No. 2010025125101 against the broker. Casper had borrowed money from customers, including three elderly widows, without the approval of his firm Stifel Nicolaus, Inc. Casper’s actions demonstrate a violation of numerous FINRA and NASD rules. As a result, on August 29, 2012, FINRA barred Casper from associating with any FINRA member firm in any capacity.
For FINRA’s Order Accepting Offer of Settlement, click here.
Did you know that the Financial Industry Regulatory Authority provides investors with a multitude of resources to educate and protect themselves? Free investor publications can be downloaded from FINRA’s website and cover a wide range of topics including job loss, smart investing, investor alerts and research.
To browse and download these publications, click here.
Professor Scott Eichhorn
Now in its second semester, the Investor Rights Clinic welcomed attorney Scott Eichhorn as Practitioner in Residence and Supervising Attorney in August. Professor Eichhorn will work with IRC Director Teresa Verges to teach and supervise the clinic’s student interns. Professor Eichhorn has over seven years experience in securities litigation and arbitration and will be a great resource to the clinic. With the addition of Professor Eichhorn, the IRC is able to staff more student interns, thereby helping more underserved investors in the community.
For more coverage on Professor Eichhorn, click here.
Jeff Zbar of the South Florida Business Journal recently covered the Investor Rights Clinic, explaining that the IRC helps victims of financial and investment abuse. Zbar reports that the “clinic helps investors realize the difference between fraud and market losses, for example, and help those who may have claims against their brokers, but who cannot find a lawyer to represent them.”
For the full story, click here.