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May 2013 Archives

Will Spotlight Be Placed on Dark Pools?

The Financial Industry Regulatory Authority (FINRA) is considering new rules that would require additional reporting requirements for dark pool trades made by broker-dealers.  This announcement was made recently by Richard G. Ketchum, chief executive officer of FINRA, largely in response to Credit Suise Group AG’s decision to stop sharing data on the volume of its trades.  Credit Suisse currently operates the largest U.S. dark pool.

FINRA Levies Heavy Fines Against LPL for Failure to Maintain and Supervise Emails

This week, LPL Financial LLC (“LPL”) was fined $7.5 million by The Financial Industry Regulatory Authority (“FINRA”) who cited LPL for thirty-five (35) separate email system failures.  FINRA asserted that these actions were a violation of the record keeping provisions of the federal securities laws and FINRA rules, as well as supervisory requirements under FINRA rules.  According to FINRA, these failures prevented LPL from accessing hundreds of millions of emails and reviewing tens of millions of other emails.  Additionally, LPL made material misstatements to FINRA during its investigation of the firm's email failures (LPL was also ordered to establish a $1.5 million fund to compensate brokerage customer claimants potentially affected by its failure to produce email).According to FINRA, the rapid growth of LPL and its failure to devote sufficient resources to update its email systems caused significant failures to those systems preventing LPL from capturing and retaining emails.  As a result, these emails were not subject to supervisory review and could not be produced upon request by FINRA investigators.  While LPL neither admitted nor denied the charges, Brad Bennett, the Executive Vice President and Chief of Enforcement for LPL, stated “as LPL grew, it did not expand its compliance and technology infrastructure; and as a result, LPL failed in its responsibility to provide complete responses to regulatory and other requests for emails. This case sends a strong message to firms to make sure your business does not outgrow your compliance systems.”For further information on this, or other related topics, please contact us at [email protected] or (619)298-2880.

Understanding Who Speaks for Your Company

It’s a phrase often heard in business, “know who speaks for your company.”  On its face, it sounds like a simple question, whose answer is easily ascertained.  However, all too often, a business finds itself committed to an unwanted agreement; or liable for upholding promises made by one of its agents whom the firm did not realize had the power to bind the company.  The law of agency describes the relationship between two parties, where one is a principal and the other is an agent who represents the principal in transactions with a third party.  Understanding when an agent acts within the scope of authority granted by the principal when dealing with third parties, and therefore can bind the company, requires further discussion.  The following is a short summation of the different ways an agent may obtain authority:

Extra, Extra, Read All About It: Guidance on Registration Requirement for Publishers of Newsletters

Oftentimes the question arises as to whether or not the publisher of an investment newsletter is required to register as an investment adviser.  Section 202(a)(11) of the Investment Advisers Act of 1940 (the "Act") broadly defines an investment adviser as "any person who, for compensation engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities."  On first reading this definition, it may appear as though a publisher would fall within this general definition.  However, specifically excluded from the definition is "the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation."  This exemption is often referred to as the "publisher's exemption," and its purpose is to ensure First Amendment protection of financial and investment publications.   In Lowe v. Securities and Exchange Commission, the US Supreme Court allowed the petitioners to publish investment advice and commentary in newsletters without registering as investment advisers so long as:

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