Bilked and Bullied by Wall Street
The goal at Bragança Law is to provide exemplary services by obtaining the best possible result, by exceeding client expectations, by addressing the needs of clients as businesspeople as well as human beings. We understand that the events that brought you to us are stressful and potentially disastrous. We take the time to understand the specific goals of each client and to ensure those goals inform everything that we do. We take the time to explain what to expect and to answer our client’s questions.
We understand that our clients are not in the business of litigation. We know that when someone contacts us, this is one of the most stressful times of their life. That is true whether they are being investigated by the government or a self-regulatory organization, whether they are deciding whether to blow the whistle on their employer, or whether they are seeking to recover funds lost because of broker misconduct. We work in partnership with each client to ensure that whatever steps we take are cost effective and appropriate to advance that client’s particular goals. We identify those tasks that a client can do in order to keep the cost as low as possible.
The U.S. Securities and Exchange Commission is a powerful agency tasked with policing the securities marketplace. That is not just the NASDAQ and New York Stock Exchange, but the offer, purchase, and sale of any securities. We have decades of experience in SEC and other investigations. Lisa served as a Branch Chief for the SEC Division of Enforcement where she supervised and conducted investigations into unregistered offerings, unregistered broker-dealers, insider trading, offering fraud, accounting fraud, and other potential violations of the federal securities laws. Since leaving the SEC, Lisa has represented senior executives (CEOs, CFOs), officers, employees, and others in SEC investigations as well as related investigations by other federal regulators, state regulators, criminal authorities, and bankruptcy examiners.
It is extremely important to get off on the right foot in an SEC investigation. Just like the police officer on the beat, the SEC Staff tasked with conducting investigations of potential violations have tremendous discretion. The early impression that the Staff gets of an individual’s or business’s cooperation can greatly influence the type of charges the Staff decides to bring or whether to bring any charges at all. Getting off on the wrong foot with the Staff can lead to a prolonged and more expensive investigation process and potentially more serious charges than might otherwise have been brought.
The SEC has wide jurisdiction over lots of things that people think are not securities. There are many people who discover that the SEC considers their participation in various investment activities to constitute acting as an unregistered broker-dealer or participating in the offer, purchase, or sale of unregistered securities. Many people become aware of how broad the definition of “securities” is when they receive an SEC investigative subpoena. Investments like promissory notes, digital tokens (crypto), nonfungible tokens (NFTs) and even real estate investments can satisfy the definition of a “security” under the federal securities laws. The SEC’s application of the “Howey” test to determine whether a particular investment contract is a security can vary widely from a lay person’s application of the test.
People are also surprised to learn that they can be liable for substantial sums (disgorgement and penalties) even if they had no intent to violate the law. The SEC does not have to prove someone intended to break the law to charge them with unlawfully participating in an unregistered offering or unlawfully acting as an unregistered broker-dealer. While these are “strict liability” charges, the SEC may seek astronomical amounts in disgorgement and penalties.
The SEC also has primary regulatory responsibility for federally registered investment advisers. The SEC conducts examinations of those investment advisory firms and can investigate potential violations of fiduciary duty as well as violations of federal securities laws.
One of the most important things an SEC defense attorney must do is advise a client on whether, because of the possibility of criminal fraud charges, to invoke their Fifth Amendment Privilege against self-incrimination. In some cases, there is little to no risk of criminal charges. In others, the very same conduct the SEC is investigating could form the basis of criminal wire fraud or securities fraud charges. In those situations, the client and lawyer must decide whether the risk of criminal prosecutors using documents or testimony against a client is sufficient to make it worth invoking the Fifth Amendment Privilege in the SEC investigation.
FINRA, previously called the NASD, is the self-regulatory organization tasked with policing certain securities exchanges and all broker-dealers. Acting under the supervision of the SEC, FINRA is the police officer on the beat for the brokerage industry. FINRA Enforcement Staff investigate potential violations of FINRA Rules as well as federal securities laws.
FINRA Enforcement Staff have tremendous discretion in the type of charges they bring or whether to bring any charges at all. FINRA can investigate and charge current and former financial advisors. In many ways a FINRA investigation proceeds like an SEC investigation. FINRA uses its Rule 8210 authority to obtain documents and information from brokerage firms and those individuals associated with the firms. Even individuals who are not registered representatives of a brokerage firm – those who are back office or administrative personnel – may be investigated by FINRA.
Refusing to comply with a FINRA Rule 8210 request for information can result in an individual or firm being permanently barred from association with a brokerage firm. A permanent bar can be a career death sentence for a securities professional. Even though the bar does not by its terms prohibit an individual or firm from acting as an investment advisor or in the insurance industry, it can lead to additional investigations by the SEC and insurance regulators who may impose their own bars. The bar may also lead state securities regulators to conduct their own investigations and ultimately to impose their own bars.
Each U.S. state and territory has its own securities regulatory commission or agency. Those state regulators have different powers and policies. Every state has its own set of securities laws commonly referred to as “blue sky” laws. State securities regulators investigate investor complaints, enforce securities laws, and impose penalties on individuals and firms who violate state securities laws just like the SEC does for federal securities laws.
In addition, states often conduct coordinated investigations with each other, with the SEC, or with self-regulatory organizations like FINRA. It’s important to keep in mind that state regulators can also provide information that they obtain to state and federal criminal law enforcement agencies.
States all require registration and disclosures similar to federal law, but about forty states also enforce merit review laws which regulate the merits and fairness of securities offerings to investors.
Whistleblowers are the people who report illegal activity in both the public and private sectors. Many whistleblowers do not see themselves as whistleblowers – until they experience retaliation. Whistleblowers can risk their careers and reputations to do what they believe is right.
There are over 50 different whistleblower laws at the federal level alone. Each law is different, with different procedures and requirements. The SEC recently announced it was awarding $279 million to a single whistleblower whose information and assistance led to multiple successful actions, even though the SEC’s investigation was underway before the whistleblower came forward. The compensation that a whistleblower may receive depends on the applicable law and on the nature and quality of the evidence provided. It also may depend on the experience and legal skills of the whistleblower’s lawyer because the whistleblower’s lawyer may have to convince the government to take steps to recover the losses that resulted from the reported fraud/misconduct.
But being a whistleblower can be risky. Even though under some laws whistleblowers may not be fired or disciplined in any way, such retaliation is still quite common. And under other laws, whistleblowers may not have any real protections.
Brokers owe special duties to their customers. Those duties mean not only that a broker is prohibited from defrauding a customer, but that a broker must adhere to “just and equitable” principles, act in the customer’s best interest, and only recommend “suitable” investment products to a customer.
While investments almost always carry some degree of risk, that does not mean you should suffer losses because of the negligence, fraud, or misconduct of a financial advisor or a broker, including investing your money in investments that are inappropriate for you.
In most cases, disputes you may have with your financial advisor and his firm must be settled through arbitration, often through FINRA (the Financial Industry Regulatory Authority) Dispute Resolution, but sometimes with AAA (American Arbitration Association) or JAMS (Judicial Arbitration and Mediation Services). While there are procedural differences in arbitrating before FINRA, AAA, or JAMS, the decisions of the arbitration panel are ordinarily final and cannot be appealed.
In some cases, the arbitration forum is not specified, and in other situations, you may be entitled to file your case in state or federal court. That is why it is important for you to seek the advice of an experienced attorney before you take any steps to recover your investment losses.
Unfortunately, one of the basic truisms about being in business is that you are inevitably going to get into disputes with other businesses, employees, customers, and any other party with whom the business deals. Whether your business has a potential claim against someone else, or is facing a claim being made against it, having the right lawyer representing you at the start of the dispute can make all the difference. Often, getting a good result depends on the first steps you take.
Lisa and David have handled a wide range of business disputes in their combined over 60 years of experience. These disputes have included complex business disputes, like suing the former directors of LTV Steel for breach of their duties to unsecured creditors during the bankruptcy to partnership and breach of contract.
Fill out the contact form or call us at (847) 906-3460 to schedule your free consultation.