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June 2013 Archives

State Developments May Have Big Impact on FINRA Arbitration Proceedings

Recently, the Florida Supreme Court issued a decision ruling that the state's statute of limitations ("SOLs"), or laws that limit the time within which a party can bring a lawsuit against another party, applies not only to court proceedings, but also to securities arbitration cases between investors and their brokers.  As such, this ruling allows securities arbitrators in Florida to cut the time investors have to file a complaint with the Financial Industry Regulatory Authority's ("FINRAs") arbitration division.  This ruling may have a significant impact on those seeking to file such a complaint due to the large disparity between Florida and FINRA SOLs.  Whereas FINRA typically allows investors to bring a claim if they are filed within six (6) years from the event giving rise to the claim, Florida law imposes a four (4) year deadline to file a negligence case, and a two (2) year deadline to bring a claim under Florida's securities fraud law.  Florida is not the only state implementing such rules, however.  In Washington State, previous state court rulings have held that Washington's SOLs should not be applied to arbitration proceedings that would prohibit claims otherwise valid if brought under FINRA's SOL rules.  In response to these cases, the state legislature recently amended its Uniform Arbitration Act, allowing Washington's SOLs to apply to such arbitration proceedings.  The rule, which will become effective on July 28, 2013, states "a claim sought to be arbitrated is subject to the same limitations of time for the commencement of actions as if the claim had been asserted in court."  Washington did provide additional protection for investors, though, by allowing pre-dispute arbitration agreements to specify what the SOL governing the agreement will be, so long as such agreements are "reasonable."  It remains to be seen just how large an impact these developments may have, or how many other states may follow suit.  However, broker-dealers and investors should be aware of the regulations in their respective states, and be sure that any contracts that include a pre-dispute arbitration provision specify what rules are to govern. For further information on this, or other related topics, please contact us at [email protected] or (619) 298-2880.

Recent Events Portray Importance of Conducting Proper Due Diligence Prior to Investing in Securities

Recently, the Securities and Exchange Commission (“SEC”) charged a penny stock promoter, David F. Bahr of Rancho Santa Fe, California, with fraudulently arranging the purchase of over $2.5million worth of shares in a penny stock company in an attempt to generate the false appearance of market interest and induce other investors to purchase stock.  In doing so, Mr. Bahr allegedly violated Section 17(a)(1) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  According to the claim, Mr. Bahr conspired with a purported business man with access to a network of “corrupt brokers” to artificially increase the trading price and volume of the company. In a twist worthy of Hollywood however, this businessman was actually an undercover FBI agent, who was gathering evidence against Mr. Bahr, and prevented the execution of the fraudulent plan.

Supreme Court Ruling May Have Big Impact on How Investors View Biotech Market

This week, the US Supreme Court (the "Court") delivered their opinion in the matter of Association for Molecular Pathology v. Myriad Genetics, 12-398.  Going against years of precedent set by lower courts and the United States Patent and Trademark Office, the Court unanimously held that naturally occurring DNA sequences are "products of nature" and therefore cannot be patented.  This ruling marks a potentially major transition in patent law, and may greatly limit the scope of patentable subject matter in the biotech industry.

Recent SEC Case Exemplifies Importance of Policies & Procedures Designed to Protect Clients and Monitor Third-Party Vendors

Recently, the Securities and Exchange Commission (SEC) brought charges against Institutional Shareholder Services Inc. (ISS), a company that advises large investors on corporate proxy issues, claiming that ISS failed to safeguard its clients' confidential votes.  Specifically, the SEC claimed that an employee at ISS provided a proxy solicitor with material, non-public information revealing how more than 100 ISS clients intended to vote their proxy ballots, and thus violated Section 204A of the Investment Advisers Act of 1940.  In exchange for this information, the employee received more than $30,000 worth of benefits including meals, tickets to concerts and sporting events, and an airline ticket.  The SEC said that this breach was made possible because ISS lacked sufficient controls over employees' access to confidential client vote information.  While ISS neither admitted nor denied the charges, it agreed to a settlement with the SEC whereby ISS is required to pay $300,000 and retain an independent compliance consultant.

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