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In a major blow to the Securities and Exchange Commission (SEC), the Supreme Court ruled in SEC v. Jarkesy that defendants against whom the SEC seeks civil penalties for securities fraud are entitled to jury trials under the Seventh Amendment, rather than adjudication through the SEC’s “in-house” administrative law judges. While only time will tell just how impactful the Jarkesy decision will be, this ruling has the potential to dramatically reshape the SEC’s enforcement efforts as we know them today.

Following the Great Recession in 2008, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dobb-Frank), which authorized the SEC to impose civil penalties on defendants through in-house proceedings before administrative law judges or even SEC Commissioners themselves. With this built-in advantage, the SEC’s “win-rate,” as well as its ability to force defendants into unfavorable settlements, rose considerably. In essence, the SEC was authorized to serve as “judge,” “jury,” and “executioner.” If you are the target of an SEC civil action, you should consult an experienced SEC Defense Attorney, like the ones at Malecki Law.

The Jarkesy decision stripped the SEC of this “multi-role” position and relegated the SEC’s civil actions back into federal court, where the SEC was forced to fight its battles for much of its history. In or around 2010, the SEC began investigating Geroge Jarkesy, Jr. (Jarkesy) and his firm, Patriot28, LLC (Patriot28), for suspected securities fraud in connection to two investment funds that Jarkesy managed. The SEC’s enforcement action alleged that Jarkesy and Patriot28 defrauded investors through various misrepresentations and omissions. The case was initially adjudicated by an administrative law judge who submitted an initial decision in 2014. In 2020, the SEC issued its final order against Jarkesy and Patriot28, levying a $300,000 civil penalty against the defendants, disgorging profits earned by Patriot28 and barring Jarkesy from the securities industry.

The securities industry has become known for its “one strike and you’re out” mentality around Form U4 and U5 “marks” resulting from termination and customer complaints. FINRA Rule 4111 makes firms report employee U4/U5 “mark” statistics firmwide and formerly “explainable” situations are now acting like bars to employment in the industry.  Unfortunately, this means that even good, honest registered representatives can face prejudice purely because of erroneous documentation, or defamatory language, particularly from former employers.  If you are a registered representative that has faced unnecessary hardship because of false documentation or defamatory language from an employer, you should contact a securities law attorney, like the lawyers at Malecki Law in New York, to review your case.

The Form U5 is a form that contains mandatory disclosures, which discloses why a registered representative leaves an investment firm.  The Form U5 is available to prospective firm employers, and certain U5 disclosures must also be posted on BrokerCheck, which is publicly available. Investment firm employers generally review the Form U5 of prospective employees meticulously, especially the “Reason for Termination” section.  Language used by a former employer in this section, however minor, may have a significant impact on the future employer’s hiring decision.  There have been 195 defamatory FINRA cases in 2023; 104 of which, were Form U5-based disputes.

Malecki Law recently obtained a favorable FINRA arbitration award in an intra-industry matter, O’Keefe v. UBS Financial Services, Inc.  Malecki Law’s attorneys Jacqueline Candella, and Adam Schreck represented Claimant registered representative O’Keefe. Associates Candella and Schreck tried the case at an in-person hearing in New York City.  O’Keefe requested that his Form U5 be amended to reflect his voluntary termination from his previous employer, and to expunge the false and misleading “Termination Explanation.”  The Chairperson granted Claimant’s request, explaining that the expungement was, “based on the incorrect and defamatory nature of the information,” written on the Form U5.  If you were faced with a similar Form U5 issue, you should consult with FINRA experts, like the lawyers at Malecki Law in New York.

June 15 is recognized as World Elder Abuse Awareness Day.  It was initiated by The International Network for the Prevention of Elder Abuse and is recognized by the United Nations.  Elder abuse is defined as any act or neglect where there is an expectation of trust, which causes harm to an older person.  Harm can be physical or mental, but it can also be financial, especially if there is a designated trustee or power of attorney, who takes advantage of the elderly.  If you, or someone you know was, or may have been the subject of any type of financial elder abuse, you should consult with a knowledgeable securities fraud lawyer, like the lawyers at Malecki Law in New York.

Unfortunately, 60% of abusers are family members, and between 1-2 million people over the age of 65 were victims of elder abuse by someone they depended on for care.  Aside from the tangible repercussions that affect the elderly and their families, it is also greatly immoral.

A power of attorney (POA) is a common, yet important legal instrument that designates a person to oversee someone’s personal and financial affairs by acting as their agent.  POAs are common among elderly people, who become the principal of the POA, and must be of sound mind when executing the POA.  It is a way to relieve the stress of handling their affairs by themselves, or to prepare for any future debilitating disorders, such as dementia.  The agent is usually a person that the principal trusts to handle their affairs fairly, and with their best interest in mind.  If you suspect that an elderly family member was not of sound mind when executing a POA, or if there was any foul play in handling your elderly family member’s financial affairs, you should speak with an investor protection attorney, like the lawyers at Malecki Law in New York.

What might have been a coincidental system glitch of an apparent freeze of E*Trade’s trading platform on May 13, 2024 following Keith Gill’s reappearance on social media, may have been intentional.  Read more about the May 13 event, here. The Wall Street Journal reported on June 3, 2024, about internal discussions to ban Mr. Gill, famously known as “Roaring Kitty” online, from its platform to allegedly prevent market manipulation.  If you have ever been locked out of your online brokerage platform, or ever received notice of an apparent ban, you should consult an Investor Protection law firm in New York, like Malecki Law.

Following Mr. Gill’s screenshot posted online this past weekend of his apparent portfolio, GameStop shares rose 21% in the morning of June 3, 2024.  The screenshot displayed 5 million shares of GameStop worth nearly $116 million, with 120,000 call options purchased for $5.68 each, with a strike price of $20, expiring on June 21, 2024.  Therefore, if Mr. Gill exercises the options, it will leave him with 17 million shares, making him the fourth biggest GameStop shareholder.

In 2021, Mr. Gill appeared at congressional hearings regarding gamifying stock trading and “meme stocks,” while Mr. Gill faced class action lawsuits.  Currently, the recent uptick received backlash from other investors, including large GameStop short seller Citron Research.  There are even discussions that Mr. Gill is not acting alone, as Citron points out that Mr. Gill’s alleged finances do not support his recent trade.  If your broker recommended that you invest in meme stocks against your best interest, you should contact an expert FINRA lawyer, like the lawyers at Malecki Law in New York.

Regulation Best Interest (Reg BI), which was instituted in June 2020, dramatically changed the relationship between broker-dealers and retail investors. Prior to Reg BI, broker-dealers owed a duty to investors to only recommend securities that the broker-dealer believed to be “suitable” for a particular investor based on such investor’s investment profile. Reg BI was implemented to replace the “suitability” standard and to impart on stockbrokers a duty owed to investors that was more analogous to the fiduciary duties owed to clients of financial advisors. Reg BI is made up of four core obligations, including a Disclosure Obligation, a Care Obligation, a Conflict of Interest Obligation, and a Compliance Obligation. If your stockbroker sold you investments that were not in your best interests or in line with your investment profile, you should contact a knowledgeable Securities Fraud Lawyer, like the lawyers at Malecki Law in New York, to determine whether you have a case.

Within Reg BI’s Care Obligation is a seemingly disregarded requirement on broker-dealers to consider “reasonably available alternatives” (RAAs) when making recommendations to retail customers. This requirement applies to recommendations of investments, account types, and even investment strategies made by a broker to their retail investor client. The RAA requirement is encompassed by a broker-dealer’s obligation to “have a reasonable basis to believe that the recommendation is in the best interest of a particular retail customer based on that retail customer’s investment profile and the risks, rewards, and costs associated with the recommendation…”

For a stockbroker to believe that a particular recommendation is in the best interest of an investor, logically the stockbroker must consider other available products that might be able to achieve the investor’s goals with less risk and/or costs. The SEC has described the RAA requirement as a “key component” in achieving compliance with Reg BI’s Care Obligation. If you have experienced investment losses from products recommended by your stockbroker and your broker failed to consider reasonably available alternatives, you should consult a Regulation Best Interest law firm, like Malecki Law in NYC.

In March 2024, Evershed Sutherland (US) LLP released its annual report (the Report) detailing disciplinary and enforcement actions initiated by the Financial Industry Regulatory Authority (“FINRA”) during the 2023 year. The Report outlines how FINRA seemingly stepped up its investigatory efforts in 2023, levying $89 million in fines against member firms and associated persons. Comparatively, FINRA reported just $54.5 million in fines during 2022, representing an increase of over 60%. Over a quarter of the fines handed out by FINRA last year can be attributed to the $24 million fine received by Bank of America Securities, Inc. for engaging in “spoofing” and related supervisory failures.

Despite FINRA’s bolstered fine revenue in 2023, FINRA ordered member firms to pay far less restitution to investors compared to past years. In 2023, FINRA ordered just $7 million in restitution compared to $21 million ordered in 2022, representing a 66% decrease. On December 6, 2023, FINRA announced sanctions against four firms, including M1 Finance LLC, Open to the Public Investing, Inc., SoFi Securities LLC, and SogoTrade, Inc., totaling over $2.6 million, which included $1 million in restitution paid to retail customers. Notably, this was the only million-dollar restitution ordered by FINRA in 2023, a stark decline from 2021 when FINRA handed out ten of such orders. If you are a financial professional who received an 8210 Request from FINRA, you should consult an experienced Securities Industry Regulatory Defense law firm, like Malecki Law in New York, to help navigate you through the process.

FINRA’s increased fine totals in 2023 were surprisingly achieved through comparatively fewer disciplinary actions. 2021 currently represents the high-water mark of FINRA disciplinary actions in recent years, totaling 569 actions. In 2023, FINRA initiated just 453 enforcement and disciplinary actions. This was the fewest number of disciplinary actions initiated by FINRA in the preceding decade and a stark contrast to FINRA’s disciplinary efforts between 2014 and 2017 when FINRA brought over one thousand disciplinary actions annually. The considerable drop-off in FINRA disciplinary actions since 2017 seems to coincide with Robert Cook taking over as FINRA’s President and Chief Executive Officer. Cook joined FINRA in August 2016 with a primary goal of taking “a fresh look at” FINRA’s enforcement program. If you are a stockbroker or financial advisor who is concerned with the language on your Form U5, you should consult a knowledgeable FINRA Expungement Attorney, like the attorneys at Malecki Law, to determine whether you can bring an action to have the concerning language removed from your Central Registration Depository (CRD).

On May 13, 2024, E*Trade’s trading platform was down at market open, which caused its customers to be unable to sign in, halting their ability to buy or sell securities. Many retail investors took social media by storm about the event. If you were locked out of your online brokerage platform, you should consult an Investor Protection law firm in New York, like Malecki Law.

This may remind you of the GameStop short-squeeze and rise of Reddit investors during the wake of COVID, where a trading freeze ensued.

Keith Gill, who led the Reddit craze in 2021, also known as the “Roaring Kitty,” woke up from his social media nap and made his return by posting a picture on Sunday night of a man seemingly leaning forward in his video game chair, indicating the intent to become re-involved. Mr. Gill made a few other cryptic posts, one of which depicted a movie villain stating, “Fine, I’ll do it myself.”

On March 18, 2024, the Securities and Exchange Commission (the SEC) announced that it had settled charges against two registered investment advisers (RIAs) related to false and misleading representations about each RIA’s alleged use of artificial intelligence (AI) in effecting financial services, conduct which the SEC coined as “AI Washing.” In total, the SEC collected $400,000 in civil penalties from the firms, with Delphia (USA) Inc. (Delphia) agreeing to pay $225,000 and Global Predictions Inc. (Global Predictions) agreeing to pay $175,000. As AI increasingly takes over the mainstream in the coming years, investors must remain attentive to the representations RIAs and broker-dealers make about utilizing AI in the financial services they offer to public investors.

Delphia is primarily in the business of offering robo-advisory services to retail investors. “Robo-advisors” are typically algorithm driven platforms that offer investors automated investment advice based on data provided to the platform by the investor with very little, if any, human interaction. In touting its robo-advisory services to the public, Delphia represented that investor data was actively utilized to “train” and “power” its proprietary algorithms that was capable of making investment predictions up to “two years into the future.” In reality, the SEC found that Delphia never successfully implemented its investor data-driven algorithms and misrepresented its AI capabilities to the public. Notably, Delphia was also investigated by the SEC for identical conduct in 2021. If you are being investigated by the SEC, you need skilled Regulatory Lawyers in New York, like Malecki Law, to get you through the investigation.

Global Predictions offers retail investors non-discretionary investment advice, namely portfolio allocation recommendations, through its proprietary investment application PortfolioPilot and the use of proprietary algorithms. Global Predictions represented to the public that it was the “first regulated AI financial advisor” and that it actively utilized AI capabilities in the services offered to investors. After its investigation, the SEC determined that Global Predictions made false and misleading representations on its Form ADV, press releases, website, social media accounts, and paid testimonials about the company’s AI capabilities which Global Predictions was unable to substantiate. The SEC also determined that Global Predictions violated the SEC’s Amended Marketing Rule and failed to implement policies and procedures related to achieve compliance with the same. If you have made investment decisions based on AI-related misrepresentations made to you by your investment adviser or stockbroker, you should consult an experienced, AI-Securities Fraud Attorney, like the ones at New York’s Malecki Law.

On May 6, 2024, Robinhood announced that its crypto unit (Robinhood Crypto) received a Wells Notice from the SEC on May 4, 2024. According to MarketWatch, Robinhood’s stock price dropped more than 9% following the public disclosure of the Wells Notice.

Robinhood further disclosed that the Wells Notice was related to an investigation that was previously disclosed at the end of February, due to receipt of subpoenas related to its crypto operations. If your company received a Wells Notice or a subpoena, you should retain a SEC Regulatory Defense law firm, like Malecki Law in New York, to communicate directly with the SEC on your behalf.

According to CNBC, Robinhood’s disclosure of receipt of the Wells Notice further indicated that the SEC believes it violated both Sections 15(a) and 17A of the Securities Exchange Act of 1934. More specifically, it appears that the SEC believes digital assets offered on the Robinhood Crypto platform qualify as securities, and therefore should have been registered with the SEC. However, it is unclear which digital assets are in question, or if the SEC is simply targeting all digital assets offered on the platform.

Did you notice electronic funds transferred out of your bank account? Did you authorize these transfers? If your answers are yes and no, respectively, you need to reach out to an Unauthorized Electronic Funds Transfers lawyer in New York, like the lawyers at Malecki Law, to review your circumstances.

A threshold determination is whether the account at issue is a consumer account or a commercial/business account. This is because the law generally treats these types of accounts differently. There are two potential avenues for recourse, the Electronic Funds Transfer Act (EFTA) for consumer accounts and Article 4A under the Uniform Commercial Code (UCC) for commercial accounts. Notably, the UCC generally does not apply to scenarios which the EFTA governs. See § 4A-108. Relationship to Electronic Fund Transfer Act for more. You need to have a law firm well-equipped to analyze which law may govern, such as an Unauthorized Electronic Funds Transfers law firm like Malecki Law in New York.

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