New York Securities Lawyers Blog

Malecki Law, a New York securities law firm based in Manhattan, is currently investigating claims against IRA Services Trust Company and Fiserv, Inc. arising out of investments solicited and promissory notes issued through the Van Zandt Agency in relation to real estate investments in the Bronx, New York and elsewhere.

The Attorney General of the State of New York is currently investigating the practices of the Van Zandts and on April 6, 2011, filed an application in the Supreme Court of the State of New York for an order of discovery and preliminary injunction against the Van Zandts and other related agencies.

Based on the initial inquiry of the securities fraud lawyers of Malecki Law and the Attorney General's investigation, there are questions about whether or not the Van Zandt Agency broke the law by engaging in the fraudulent issuance, promotion offer and sale of securities to the public in the State of New York. It is believed that hundreds and possibly thousands of investors may have lost money invested with the Van Zandts.

There may be claims against IRA Services and Fiserv for failing in their due diligence, supervision and providing a facility for an alleged fraud by an unregistered investment advisor that was also not a broker dealer. The lawyers at Malecki Law are focusing on potential claims against IRA Services and Fiserv, who may have breached various duties to individual investors, as they may be the only hope of a recovery for those who lost money.

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The talk among New York securities lawyers this week was all about the Financial Industry Regulatory Authority (FINRA) release of Regulatory Notice 11-39 addressing business use of social media website in the wake of surging popularity of social media tools such as Facebook and Google+. These social media tools make connecting with friends, colleagues and third-parties easy, but also raise novel questions related to the extent to which associated persons may use these sites for business use and registered principals must supervise such use.

Securities Exchange Act Rule 17a-4(b)(4), which requires the retention of copies of communications between members, brokers or dealers and the public of "business as such," underlies Regulatory Notice 11-39. Thus, a firm's or an associated person's communications with the public through social media posts may require pre-approval by the firm and/or registered principal, and be subject to regulation by FINRA, depending on whether the communication is related to the firm's "business as such" and is "static" as opposed to "interactive." Generally, all communications related to a firm's business as such must be recorded and preserved, while all static posting is deemed an advertisement requiring the firm's pre-approval under NASD Rule 2210.

Regulatory Notice 11-39 begins to address the grey area of posting to message boards. Associated persons, be they advertising in the first place or responding to questions via such message boards, are limited to what they can say and claim. Thus, postings in static forums or blogs on websites would require pre-approval of all statements made relating to the firm's business.

In today's brave new electronic world, it is not uncommon to have introduction to brokers and registered representatives through the use of social media websites. If such an acquaintance has made boasts or promises of business performance, such statements may violate FINRA and SEC laws and regulations and may constitute "red flags" of further inappropriate behavior.

FINRA Regulatory Notice 11-39 is available here.

Today, the SEC's new whistleblower program under the Dodd-Frank Act becomes effective, and is on the minds of many New York securities lawyers. These new rules were devised in such a way to provide an incentive for would-be whistleblowers to come forward and assist the SEC with investigations of possible securities law violations. Under these new rules, if an individual provides the SEC with original information about possible federal securities laws violations, and that information leads to a recovery by the SEC of $1 million or more, that individual would be entitled to receive up to 30% of the sanctions received by the SEC.

Under the new rules, internal reporting is encouraged, but it is not required. Individuals may instead go directly to the SEC. However, the value of internal compliance programs is addressed in the release, and there are incentives in place in the new rules to urge whistleblowers to report internally first.

There are also a few groups of individual who, for public policy reasons, are excluded from participation under the new rules. These include: compliance and internal audit personnel; officers, directors, trustees and partners who only discover the violations as a result of internal compliance procedures; public auditors who learn of the violations in the course of an engagement. However, these people may be eligible under certain circumstances, such as: they reasonably believe that disclosure is necessary to prevent the company from causing substantial injury to the property or financial interests of the company or investors; they reasonably believe that the company is impeding an investigation of the misconduct; or at least 120 days have passed since the initial internal report. Attorneys are also excluded, provided that they learned of the violations directly from attorney-client communications.

The new rules also provide substantial protection for individuals who do come forward, in order to prevent retaliation from their employer. Even if a whistleblower's tip only relates to possible violations and the SEC investigation is unsuccessful, that individual is now protected from retaliation by a new express private right of action. Whistleblowers may sue their employer and seek remedies including two times their back pay and reinstatement. However, this protection is only for individuals who go directly to the SEC, not for those who report only internally.

Given these new rules, it is now much safer for individuals who have information about suspected federal securities law violations to come forward, and whistleblowers now have the opportunity to be compensated for their efforts in aiding the SEC. Yet it is important for potential whistleblowers to ensure that they proceed through the appropriate channels. For that reason, individuals who wish to contact the SEC to report securities violations should consult with an attorney before doing so to ensure that their rights are protected.

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