News & Media
Preparing for alternative dispute resolution

What is the first step towards preparing for the alternative dispute resolution process? Business disputes routinely arise as business owners navigate relationships with other partners, customers, employees, contractors, vendors, and many others. While business disputes are almost a given, business owners can avoid the courtroom by pursuing one of many forms of alternative dispute resolution […]

Illinois Appellate Court Extends Common Interest Doctrine

The Appellate Court for the Second District of Illinois recently expanded the reach of Illinois’ “common interest” doctrine in a professional negligence case against an insurance broker. In The Robert R. McCormick Foundation v. Arthur J. Gallagher Risk Management Services, Inc., 2018 IL App (2d) 170939 (July 20, 2018), the Court held that an insurance […]

Recent Enforcement Orders Remind FCMs: Train Your Brokers on Post- Execution Allocation Rules.

On May 29, 2018, the CFTC and NFA1, respectively, issued enforcement decisions against Chicago-based Xchange Financial Access, LLC (“XFA”) that should serve as a cautionary tale for Futures Commission Merchants, and other registrants, about the importance of training, updating supervisory procedures, and appropriately maintaining records. According to the regulators, XFA failed to supervise its staff […]

With the Imminent Rollout of the New AML Rules, Compliance Training is Key

The new AML rules significantly expand the obligations of FCMs and IBs when taking in new clients, opening new accounts for existing clients, and even updating the information on existing clients’ existing accounts – through the Customer Due Diligence (CDD) requirements for financial institutions. The new rules make two major changes to the existing AML […]

Illinois Distributor’s Statute: Navigating the Litigation “Off Ramp” for Non-Manufacturer Defendants After Cassidy v. China Vitamins LLC

In Cassidy v. China Vitamins LLC, 2017 IL App (1st) 160933 (“China Vitamins”), the First District Appellate Court made it a lot harder for non-manufacturers to free themselves from litigation through the Illinois Distributor’s statute (sometimes referred to as the “innocent seller’s statute” or “seller’s exception”). Under China Vitamins’ new interpretation of the statute, a […]

Equity Indexed and Variable Annuities: What are the Limitations of a State Securities Regulator’s Authority Over Their Sales Practices? (The ABA Blue Sky Bugle Newsletter, March 2018)

Two Illinois cases, Van Dyke v. Jesse White, 2016 IL App (4th) 141109 (currently pending before the Illinois Supreme Court as Docket No. 121452) and Thrivent Investment Management v. Illinois Securities Department, Circuit Court of Cook County Case No. 2016-CH-16406 (currently pending before the First District Appellate Court as Docket No. 1-17-1913), could have broad-reaching […]

Consider Yourself Warned: Evolution and Future of the Post-Sale Duty

The post-sale duty to warn has been the subject of intense debate ever since it was included in the Restatement (Third) of Torts: Products Liability (1997) (hereinafter “Third Restatement”). This article provides an overview of the history and nature of the post-sale duty, summarizes some of the challenges it creates for practitioners, seeks to predict […]

Supreme Court Confirms that Assets Held in an Inherited Individual Retirement Account Are Not Exempt From a Debtor’s Bankruptcy Estate

On June 12, 2014, the Supreme Court ruled that inherited IRAs, unlike traditional IRAs, do not receive protection in bankruptcy. Depending on the size of the IRA and the age of the intended beneficiary(ies) and estate planning considerations, IRA holders may wish to consider creating a trust for each intended beneficiary, and designating those trusts […]

SEC Amends Financial Responsibility Rules, Customer Asset Protection, the Early Notification Rule and the Books & Records Rules for Broker-Dealers

During the last five years, the securities and futures industry has been rocked by highly publicized insolvencies of several major broker-dealers and futures commission merchants. These events have highlighted deficiencies in the customer asset protection schemes of both the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”). On July 31, 2013, […]

2013 Estate And Income Tax Laws

Even though Washington addressed part of the “fiscal cliff” by permanently extending several tax-saving provisions, tax planning remains very important. This article lists reasons for tax planning and provides a brief summary of current tax laws.  

Expiring Tax Saving Opportunities

Did you know that on January 1, 2013 (just ten months from now), our tax laws in the U.S. will be changing? Based on the increases required under the Patient Protection and Affordable Care Act passed in 2010 and expiring Bush tax cuts, our taxes will change dramatically.

Recent Changes to Illinois’ Estate Tax Laws

On December 16, 2011 Governor Quinn signed legislation that will increase the Illinois’ estate and generation-skipping transfer tax exemptions. What this means is that one can leave more money to one’s family and friends ($1.5 million more next year and $2 million more in 2013) without incurring any Illinois estate or GST tax.

Outside Business Activity*, Practical Compliance and Risk Management for the Securities Industry

The Financial Industry Regulatory Authority (“FINRA”)1 has adopted and proposed important changes to the current regulatory scheme and obligations relating to notice and supervision of outside business activities and private securities transactions. For a number of years, the National Association of Securities Dealers, Inc. (“NASD”) rules 3030, 3040 and 3050 were the principal rules of […]

When Does A Broker-Dealer Become an Investment Adviser?

The answer to this question is unclear as a result of the SEC interpretation of the statutory broker-dealer exemption from investment adviser registration and changed brokerage and investment adviser business practices in the securities industry. Although the SEC has attempted to clarify the broker-dealer exemption through informal interpretations and a forma Rule 202(a)(11)-1 (the “Vacated […]

Recent Net Capital Increases for FCMs and IBs, Futures & Derivatives Law Report

The Commodity Futures Trading Commission (“CFTC”) adopted rules, effective March 31, 2010, which significantly increase net capital requirements for both futures commission merchants (“FCMs”) and introducing brokers (“IBs”). The National Futures Association (“NFA”) has also imposed parallel higher capital requirements for futures commission merchants (“FCMs”) effective March 31, 2010.  

Clearing Arrangement for Introducing Broker-Dealers, Chapter 17A, Broker-Dealer Regulation

This article highlights key business and regulatory developments and issues relevant to the clearing arrangement between an introducing broker-dealer (“introducing broker”) and a clearing broker-dealer (“clearing firm”). It details clearing firm operations and regulations, clearing agency membership, and securities clearance and settlement, only as is relevant to introducing broker-dealers.  

Registration and Compliance Issues Facing Foreign Broker Dealers

In today’s global economy, compliance officers may encounter questions concerning foreign broker-dealers directing investment opportunities to United States residents. These foreign broker-dealers may seek to enlist a United States firm or resident in their activities. Compliance issues arise whether sales activities are conducted in person, by telephone or e-mail, or through a website.

Outside Business Activity (Part 3 of 3)

Part 3 of this article series deals with supervision and compliance procedures applicable to outside business activities, including the changes necessary to procedures as a result of the proposed FINRA rule changes.  

Outside Business Activity (Part 1 of 3)

Part 1 of this article series describes the applicable self-regulatory organization rules, particularly FINRA and NYSE rules. In addition, it discusses proposed revisions to those rules and applicable NASD Notices to Members dealing with personal outside business activities of associated persons of broker-dealers.  

National Society of Compliance Professionals: Outside Business Activity

This article focuses on outside business activities, particularly selling away issues, and discusses the language and interpretations of FINRA Rules 3030, 3040, and 3050. It provides an overview of how and when mandatory arbitration applies to selling away cases, sets forth legal views which may impose civil or regulatory liability against a firm for outside […]

FINRA Substantially Revises Customer Arbitration Rules

While the new Customer Code, under terms of the SEC Release No. 34-55158 (January 24, 2007), codifies certain well-known practices and limits other more controversial customs, it also imposes new restrictions and duties – in particular upon industry participants – which may affect the way in which brokerage firms approach and handle securities arbitrations in […]

Securities Mediation: An Alternative Path to Claims Resolution

In 2004, securities customers filed over 9000 arbitration claims with the NASD Dispute Resolution and the New York Stock Exchange. Although 2003 and 2004 represent the high-water mark for securities arbitrations, a broker-dealer must anticipate that it will regularly be sued by disgruntled customers. Accordingly, a firm must establish and maintain a protocol for quickly […]

Mediation of Securities Disputes: Views from the Advocate and the Mediator

Despite its growing importance, mediation continues to be used ineffectively by many litigants and their counsel. Commonly, ineffective counsel fails to focus on the roles and differing goals that they, their client and the mediator have in mediation. This article offers compelling insight and effective strategies from the viewpoints of both an experienced client advocate […]

Bankruptcy Judge Preliminarily Holds REFCO’s Unregulated Unit to be a “Stockbroker” for Purposes of the Bankruptcy Code

In the Chapter 11 proceeding in the matter of Refco, Inc., et al., case number 05-6006 (RDD), involving not only Refco, Inc., but its unregulated affiliate Refco Capital Markets, Ltd. (“RCM”), the Court found that RCM was a “stockbroker” under the Bankruptcy Code. Although the Court ruled, it postponed the effective date of its ruling […]

When is an Unregulated Derivatives Dealer Considered to be a “Stockbroker” for Purposes of the Bankruptcy Code?, Thomson/West Legalworks

In the Chapter 11 proceeding in the matter of Refco, Inc., et al., case number 05-6006 (RDD), involving not only Refco, Inc., but its unregulated affiliate Refco Capital Markets, Ltd. (“RCM”), a number of issues were raised after the Court initially held that RCM, a Bermuda company, was a “stockbroker” under the Bankruptcy Code. The […]

Impact on Broker-Dealers From the New SEC Rule Narrowing the Exemption for Broker-Dealers From the Investment Advisers Act, NSCP Currents, May/June 2005

The SEC substantially narrowed the exemption from the Investment Advisers Act of 1940 for broker-dealer activity by adopting a new Rule 202(a)(11)-1. Among the many changes is a requirement that any discretionary account will be considered and advisory account requiring a broker-dealer to register as an investment adviser.  

Who is a Proprietary Trader 2004?, Futures & Derivatives Law Report

In a 2000 article, we noted increasing attention and focus on whether individuals described as “proprietary traders” were truly trading on behalf of a firm or were, in fact, customers trading under the guise of proprietary trader. Nearly four years later, regulatory guidance in this area remains inconsistent and continues to result in uncertainty and […]

Broker-Dealer Supervision of Branch and Remote Offices

The purpose of this panel and the accompanying outline, presented to the National Regulatory Service, is to focus on various areas of advanced broker-dealer compliance, including supervisory responsibilities, key supervisory issues for remote office branches, and marketing issues.  

A Trap for the Unwary Attorney SEC Rule 13b2-2: Improper Influence on Conduct of Audits, American Bar Association, Section of Litigation, Securities Litigation Committee, Securities Litigation, Vol. 15, No. 1, Fall 2004

The SEC adopted Rule 13b2-2 as part of the Sarbanes-Oxley Act of 2002, with the intention of precluding issuers, their officers, directors and others, including attorneys, from misleading independent public accountants. The Rule affects attorneys representing issuers, private or public, including broker-dealers and investment advisers that file with the SEC financial statements audited or reviewed […]

Personal Trading Policies and Procedures Including Insider Trading Rules, National Society of Compliance Professionals – National Membership Meeting, Fall 2003

The Securities and Exchange Commission (“SEC”) has placed a significant amount of enforcement and examination emphasis on personal trading and insider trading policies and procedures of investment advisers. Investment advisers are required to have written supervisory procedures to prevent insider trading and to prevent vicarious liability for personal trading. The absence of procedures and policies […]

Research Analyst Conflicts, National Society of Compliance Professionals – 2003 Midwest Regional Meeting

Conflicts between research recommendations and the other activities of a broker-dealer, such as investment banking, market making and proprietary trading, have been a long-standing issue in the securities industry. Because of the Enron debacle and its resulting publicity, and because of Congressional, SEC and industry pressure, the NASD and NYSE developed and submitted to the […]

Broker-Dealer Compliance I, Futures Industry Association – Law & Compliance Division 25th Annual Workshop

The purpose of this panel and the accompanying outline, presented at the Futures Industry Association’s Law & Compliance Division 25th Annual Workshop, is to focus on various areas of advanced broker-dealer compliance, including supervisory responsibilities, new books and records rules, key supervisory issues for remote branches, marketing, mandatory disclosure of order execution and routing practices, […]

SEC Proposed Rule 13b2-2: Improper Influence on Conduct on Audits, American Bar Association Regulation of Futures and Derivatives Instruments Committee Meeting

The SEC’s proposed Rule 13b2-2 will have an impact on attorneys representing issuers, private or public, including broker-dealers and investment advisers filing with the SEC financial statements audited or reviewed by independent public accountants. Audit letter responses, opinions and oral conversations by an attorney with an independent public account are within the scope of the […]

The Sarbanes-Oxley Act of 2002 Impact on Broker-Dealers, NSCP Currents

While the Sarbanes-Oxley Act (the “Act”) was directed primarily to publicly held companies and regulation of independent public accountants, it has a number of other provisions that impact privately owned and publicly held broker-dealers. This article discusses some of the key provisions that affect all broker-dealers.  

A Pool Too Big for a FCM or a Broker-Dealer, Futures & Derivatives Law Report, Vol. 22, No. 5

Broad definitions of “commodity pool operator” and “commodity trading adviser”, together with the very broad interpretations of these terms by the CFTC staff, has led to the “inadvertent pool” problem for many registered broker-dealers and futures commission merchants (“FCM”) engaged in proprietary trading activities. These problems have increased significantly over the last five years as […]

Investment Adviser Conflicts, NSCP Midwest Regional Meeting

In the normal course of business, investment advisers face an increasing number of potential conflicts of interest between the investment adviser and the client. These conflicts arise in several areas and in connection with other activities, such as investment banking, if an investment adviser is part of or affiliated with a broker-dealer.  

Capital, Customer Funds and Margin After the Commodity Futures Modernization Act of 2000, Futures & Derivatives Law Report, Vol. 21, No. 7

The Commodity Futures Modernization Act of 2000 (“CFMA”) made fundamental changes in several federal acts, including the CEA, SEC “34 Act” and the Investment Advisers Act of 1940,6. This article focuses on changes affecting the financial responsibility requirements of broker-dealers, futures commission merchants, and introducing brokers as a result of CFMA and subsequent regulations, as […]

Managing Regulatory Investigations and Examinations for Cause, National Regulatory Service Fall Compliance Conference

It is critically important that broker-dealers and investment advisers recognize when an examination by the SEC, an SRO, or a state is an examination for cause and how to deal with such an examination or investigation. This article details how the SEC, the SROs and states conduct for-cause examinations and investigations, and provides practical advice […]

Supervision of Branch Offices, OSJ’s and Offsite Brokers and Independent Contractors, National Regulatory Services Branch Office Compliance Practice Conference

Supervisory responsibilities in connection with branch offices, offices of supervisory jurisdiction (“OSJs”), and offsite brokers, including independent contractors, can be particularly challenging. Without on-site supervisors and compliance personnel, there are more opportunities for supervisory failures and sales practice abuse. The most serious of these problems is selling away of securities products or Ponzi schemes, many […]

Broker-Dealer Customer and Recruiting Disputes, Glasser LegalWorks, Broker Dealer Litigation

This article focuses on selected customer litigation issues that arise in customer disputes and unfair competition. The areas covered include controversies dealing with arbitrator selection, discovery in arbitration, emerging on-line brokerage litigation issues, clearing firm liability, and correspondent arbitration agreement coverage under clearing firm customer agreements. The content sets forth the procedural or substantive rules […]

“The Post-Sale Duty to Warn and Recall: Are They Preempted When NHTSA or the CPSC Oversees the Manufacturer’s Conduct?”, Defense Research Institute Products Liability Conference, Juvenile Products Breakout Session

When the American Law Institute introduced the Restatement 3rd of Torts (the “Third Restatement”), which included, for the first time, sections proclaiming that sellers of commercial products had post-sale duties to consumers, it announced a manufacturer’s post-sale duty to warn of product risks, whether or not the product was defective at the time sold. This […]

Who is a Proprietary Trader? A Changing and Rocky Landscape., Futures & Derivatives Law Report, Vol 20, No. 8

The SEC and the CFTC have brought proceedings and focused investigations on an issue which had previously received little, if any, attention: whether individuals described as “proprietary traders” are truly trading on behalf of a firm or are, in fact, customers trading under the guise of proprietary trader. Because regulators have provided little guidance in […]

Securities Sites and Online Trading Become Regulatory Priorities, Journal of Taxation of Investments

Issues faced by regulators include the validity of electronic signatures, disclosures required in online trading, whether hyperlinks are regulated with the documents in which they are embedded, what obligations online sites have to day traders, when offers to buy can be accepted in IPOs, and more. Inconsistencies between the U.S. and other national and regional […]

Regulation of Electronic Communication, Execution and Delivery of Documents to Customers of FCM/Bds, American Bar Association Annual Meeting, International Law Section Panel on Securities Transactions and Securities Markets in the Age of Cyberspace

The CFTC has taken a definitive position that electronic signatures are permitted for customer agreements, required disclosure consents and other documents where signatures were previously required. CFTC Rule 1.4, 17 C.F.R. 1.4. Neither the CFTC nor the National Futures Association (“NFA’) mandates customer agreements; however, they do mandate customer acknowledgment of margin disclosures and agreements […]

When is an FCM, CTA or Pool a Securities Broker-Dealer, an Investment Adviser or an Investment Company Under the Securities Laws?, Futures & Derivatives Law Report

Futures Commission Merchants (“FCMs”), Commodity Trading Advisers (“CTAs”), Commodity Pool Operators (“CPOs”) and commodity pools frequently deal with securities incidental to futures and futures activities. Considerable uncertainty exists as to when these securities activities trigger registration as a broker-dealer, investment adviser or investment company. These uncertainties have increased dramatically in the last year, as electronic […]

State and Federal Court Litigation Involving Futures and Derivatives, 8 Securities News, No. 2

This article compares the advantages and disadvantages of litigation in federal or state court with reparations proceedings under the Commodities Exchange Act (“CEA”) and arbitration under the rules of futures exchanges or the National Futures Association (“NFA”). The content discusses the jurisdictional basis for litigation and the substantive claims that may be filed in state […]

Lawrence Kamin maintains this website to provide general information about its services and legal expertise. While we try to keep the information timely and accurate, we make no guarantees. We make every effort to correct errors brought to our attention.  Full Disclaimer