What's Happening In the Securities Industry This Month
In-Person, Hybrid and Virtual Mediations
Business travel is making a comeback and many of you are excited to negotiate in-person. Others are more hesitant. Some firms have not cleared their employees for business travel yet. I've been traveling to in-person cases and have been so happy to see you! Hybrid mediation -- with some people in person and others virtual -- has developed as an effective way to accommodate more diverse needs. And we've all discovered that many cases are well-suited to virtual platforms and save on expenses. I'm looking forward to working with you in whichever platform works best for your needs.
Welcome to the April/May 2021 issue of my monthly newsletter, where you can read about important developments in the securities industry, learn about laws and decisions that affect your practice, and access free resources. Please feel free to share this newsletter with others who may benefit from the content. In this issue:
- FINRA to resume in-person arbitration hearings July 5 -- check your scheduling orders!
- The Expungement Saga Continues -- FINRA withdraws its revised proposed rule
- Amazon is backing away from mandatory arbitration -- are there implications for securities matters?
- DeFi and how it is affecting the cryptocurrency markets
- The Collapse of Infinity Q's Diversified Alpha Fund
- SIFMA C&L Conference July 20-22 -- I'll be speaking about Negotiation Skills on July 21
- This Month's Free Resources
In-Person Arbitration Hearings Are Finally Back! Check Your Scheduling Orders . . .
Most FINRA hearing locations return to in-person hearing starting July 5
Check your scheduling orders! After 15 months of postponements and virtual hearings, FINRA will reopen for in-person hearings on July 5. Sorry, Philly, Boca, Detroit, Buffalo, Augusta, Providence and Wilmington, you have to wait until August 2 for in-person hearings. SOME SCHEDULING ORDERS PROVIDE FOR VIRTUAL HEARINGS UNLESS FINRA OPENS FOR IN-PERSON HEARINGS, OTHERS KEEP HEARINGS VIRTUAL IF THEY WERE SCHEDULED TO BE VIRTUAL -- SO CHECK YOUR SCHEDULING ORDERS.
The Expungement Rule Sage - FINRA Withdraws Proposed Rule. So what's next?
From the PIABA letter to Notice and Comment to the New PIABA Study . . . to Withdrawal of FINRA's proposed rule
I'll be honest, this particular issue has delayed this newsletter more than a few times. Every time I write something about "the latest news on expungement," there's a new development. After Notice and Comment, FINRA made changes to its proposed rule and extended the comment period. PIABA posted a letter asserting that FINRA wasn't going far enough to protect investors. PIABA's latest study on expungement updates data on the number of expungements granted in 2019-2020 and talks specifically about "straight-in" expungements, where an expungement request if filed as a separate matter, not requested as part of a hearing on the merits during an investor-initiated case. So what happens next? Investor participation in the expungement process is the issue that come up most often, and it is important. FINRA will deny expungement is there is an express agreement that, as part of a settlement, the investor will not oppose an expungement request . . . . If an investor does not appear to testify at an expungement hearing, the broker's testimony comes in largely unopposed. Some panels review documents and inquire more deeply about the merits of the claim. Some Claimants' counsel appear more often for these hearings. But overwhelmingly, the hearing consists of counsel for the broker and counsel for the brokerage firm, with the brokerage firm stating that it will not oppose the expungement request. FINRA cannot compel investors to participate in expungement proceedings. So how does FINRA ensure a robust, yet fair, expungement process. Let's see what happens after they complete their conversations with all the stakeholders.
Amazon Abandons Mandatory Arbitration - A New Trend?
In the face of mass arbitration filings, Amazon changes its terms of service in favor of court
For years, we have been debating whether securities matters should be handled in court or in arbitration. With several class actions filed in the wake of trading restrictions imposed during the MEME stock runup, Senator Warren pressed Robinhood during Congressional hearings about whether its customers should be permitted to file in court, rather than in FINRA. Enter the interesting case of Amazon's sudden change of heart about requiring its customers to arbitrate their disputes with the behemoth that knows way too much about all of our lives. Amazon enforced its customer arbitration clause for years and dealt with a manageable case load -- until a few law firms developed and filed mass arbitration claims. The number of cases was overwhelming and Amazon had agreed to pay all the arbitration fees. Facing enormous costs, Amazon quietly changed its customer agreements to direct customers to file cases in state or federal court in Washington. It was an interesting strategy on both sides. Will its aftermath ultimately affect securities litigation?
DeFi -- How the Use of Cryptocurrency Platforms Fuels Market Volatility
DeFi platforms are growing in popularity but carry serious risks
DeFi has been billed at banking for blockchain users. Users of DeFi apps can connect their digital wallets to a proprietary platform and make payments to companies that accept cryptocurrency. But did you know that DeFi users can also pledge their digital assets as collateral and use large amounts of leverage, as high as 100% on some platforms, to pursue derivative and arbitrage strategies involving cryptocurrencies. With $100 billion pledged on various DeFi platforms, auto-liquidations of bullish bets have increased downward pressure on crypto prices which, in turn, have sparked further liquidations. And while margin debt represents only 2% of the $49 trillion U.S. stock market, the crypto platform version of margin debt comprises about 6% of the $1.6 trillion cryptocurrency market. This is definitely an area and an issue to keep our eyes on.
Infinity Q to Return More Than $500 Million to Investors After Its Diversified Alpha Fund Crash
The Diversified Alpha Fund collapsed -- Infinity Q is returning some investor money and reserving some for potential liability
Infinity Q halted redemptions for its well-subscribed Diversified Alpha Fund in late February after discovering that its chief investment officer had overstated the values of investments within the fund. The SEC is investigating the situation and Infinity Q has been working to properly value the fund and its investments. It is unclear how much investors will recover from Infinity Q but, notably, the company has reserved $750 million for expenses and potential future liabilities.
I'll Be Speaking At SIFMA July 21 -- Join the Virtual Conference
Register for the SIFMA Conference July 20-22 - Virtual Event
I hoped we'd be live in San Diego for this annual event (I don't want to say anything, SIFMA, but the PIABA conference hasn't missed a beat), but I'm honored to be speaking Wednesday, July 21 from 12:05-1:05 on: Negotiating Skills: Learn from the Experts. Please join me, along with my fellow esteemed panelists, Joe Salama, Lisa Bertain, Scott Musoff and Robin Nunn for this timely and informative session!