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Article
Publication date: 6 September 2018

Aegis Frumento and Stephanie Korenman

The purpose of this paper is to analyze the Supreme Court’s recent decision in Digital Realty Trust, Inc v. Somers and its significance for whistleblower retaliation remedies and…

Abstract

Purpose

The purpose of this paper is to analyze the Supreme Court’s recent decision in Digital Realty Trust, Inc v. Somers and its significance for whistleblower retaliation remedies and securities law interpretation generally.

Design methodology approach

The authors review the statutory, regulatory and decisional history of the anti-whistleblower retaliation remedies of the Sarbanes–Oxley Act and the Dodd–Frank Act; how they were seen by the US Securities and Exchange Commission (SEC) and most courts to be in conflict, and how they were ultimately harmonized by the Supreme Court in Digital Realty.

Findings

In Digital Realty, the Supreme Court ruled against the SEC and the leading Courts of Appeal and established that only one who reports securities law violations to the SEC can sue in federal court under the Dodd–Frank Act; all others are limited to the lesser remedies provided by the Sarbanes–Oxley Act. This simple conclusion raises a number of unresolved questions, which the authors identify and discuss. Also, the Supreme Court unanimously continued the pattern of federal securities laws decisions marked by a close reading of the text and a desire to limit private litigants’ access to the federal courts.

Originality value

This paper provides valuable information and insights about the legal protections for SEC whistleblowers from experienced securities lawyers and more generally on the principles that appear to guide securities law decisions in the Supreme Court.

Article
Publication date: 27 November 2019

Aegis Frumento and Stephanie Korenman

The purpose of this paper is to review the first two years of the US Securities and Exchange Commission (SEC) efforts to regulate cryptosecurities to assess the trends of that…

Abstract

Purpose

The purpose of this paper is to review the first two years of the US Securities and Exchange Commission (SEC) efforts to regulate cryptosecurities to assess the trends of that regulation.

Design/methodology/approach

The authors review the SEC’s official pronouncements and informal statements about, and its enforcement actions against participants in, various early experiments in cryptosecurities.

Findings

The SEC has been evolving how to apply the US securities laws to cryptosecurities since its report on The DAO two years ago. When “coins” on a blockchain meet the traditional Howey Test, it is easy to categorize them as “securities.” However, the bedrock regulatory principle that some person must account for violations is frustrated by automated blockchain transactions, where no human is in control. This tension risks a “moral crumple zone” arising around cryptosecurities, in which persons might become liable for violations that they cannot fairly be said to have caused.

Originality/value

This paper provides valuable information and insights about the beginnings of US regulation of cryptosecurities and how the evolution of that regulation is trending after two years.

Details

Journal of Investment Compliance, vol. 20 no. 4
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 1 April 2003

Aegis J. Frumento and Stephanie Korenman

Few things are more perplexing for a brokerage firm than being sued by someone who is not its customer, for a security it did not sell. The prohibited sales practice formally…

Abstract

Few things are more perplexing for a brokerage firm than being sued by someone who is not its customer, for a security it did not sell. The prohibited sales practice formally known as private securities transactions, or more colloquially as “selling away,” often results in just that. And, even worse, the statistical odds are against the firm in the resulting arbitration. The vast majority of such cases in recent years have resulted in a loss to the firm. That is a sobering statistic, for it is difficult, if not impossible, for a firm to prevent a determined broker from selling away. As we show in this article, a firm should be able to protect itself against the acts of an errant broker, but success in doing so requires the firm (a) to establish and diligently execute strong supervisory procedures, and (b) to shoulder the burden of proving to arbitration panels that the broker’s evasion of those procedures could not reasonably have been avoided. Both are essential tasks. The need to be proactive in proving the firm’s defense is perhaps counterintuitive to many defense attorneys. In theory the customer bears the burden of proof on all elements of his claim, and the firm should succeed by merely rebutting the customer’s case. But the recent cases suggest that arbitrators are viscerally sympathetic to customers duped by brokers who sell away from their firms, and in some cases appear to impose liability on the firm not so much in response to the technical weight of evidence, but simply as a “fair” allocation of risk. The cost of the errant broker’s acts probably are visited upon the firm because arbitrators instinctively assume that the firm is better able than the customer both to bear those costs and to police the broker. In evidentiary terms, one could say that, in selling away cases, a presumption has evolved that the firm could have done something to detect and prevent the broker’s acts.

Details

Journal of Investment Compliance, vol. 4 no. 2
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 2 November 2015

Aegis Frumento and Stephanie Korenman

To review and analyze the implications for rendering opinions in connection with the sale of securities in the wake of the US Supreme Court’s decision in Omnicare, Inc. et al. v…

244

Abstract

Purpose

To review and analyze the implications for rendering opinions in connection with the sale of securities in the wake of the US Supreme Court’s decision in Omnicare, Inc. et al. v. Laborers District Council Constr. Ind. Pension Fund, et al.

Design/methodology/approach

Analyzes the Omnicare holding and dissent in light of past practices and decisions and discusses how the case changes the risks of liability for rendering opinions in registration statements, and by necessary implication in other contexts where the securities laws proscribe either the statement of untrue “facts” or, by omissions, the making of misleading “statements.”

Findings

Omnicare opens issuers and securities professionals to liability for rendering opinions that are not reasonably based in facts and rationality. Because the measure of such reasonableness depends on the reasonable investor, makers of opinions will need to take more matters into consideration in rendering opinions than they might have previously, when the only test of an opinion was whether it was genuinely believed by its maker. This creates a number of unresolved issues, but it also suggests that prudence will dictate more detailed disclosure and documentation of the bases of opinions than has been thought necessary until now.

Originality/value

Practical guidance from experienced securities and financial services lawyers.

Details

Journal of Investment Compliance, vol. 16 no. 4
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 26 April 2013

Aegis J. Frumento and Stephanie Korenman

The purpose of this paper is to introduce the concept of professionalism into the current discussion of the proper scope of regulation of investment advisers.

2085

Abstract

Purpose

The purpose of this paper is to introduce the concept of professionalism into the current discussion of the proper scope of regulation of investment advisers.

Design/methodology/approach

The authors reviewed the scholarly literature on what constitutes a profession, the debates over the two bills introduced in Congress in 2012 concerning investment adviser regulation, and some of the studies that led up to those bills.

Findings

The authors concluded that professionalism could apply to some investment advisers, particularly financial planners, and that the development of such a profession should be encouraged. However, they found that such a profession would threaten the economic interests of broker‐dealers and their registered representatives, whose routine use of such titles as “financial advisor” or “investment consultant” has led to consumer confusion over the different roles of brokers and advisers. Therefore broker‐dealer interests favor more intense regulation of investment advisers by an SRO such as FINRA, presuming that would impair the development of a true profession of investment advisers.

Practical implications

This paper aims to ensure that the development of a true profession of investment advisers and/or financial planners is openly and fully debated if and when consideration of investment adviser regulation is reintroduced.

Originality/value

The role that professionalism can and should play in investment adviser regulation has not been previously discussed, even though broker‐dealer registered representatives routinely use confusingly professional‐sounding titles to compete against independent investment advisers.

Content available
Article
Publication date: 26 April 2013

Henry A. Davis

43

Abstract

Details

Journal of Investment Compliance, vol. 14 no. 1
Type: Research Article
ISSN: 1528-5812

Content available
Article
Publication date: 2 November 2015

Henry A Davis

229

Abstract

Details

Journal of Investment Compliance, vol. 16 no. 4
Type: Research Article
ISSN: 1528-5812

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