What's Happening In the Securities Industry This Month
January 2021
Welcome to the inaugural 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:
- Record margin usage, options trading volume and leveraged ETF investments -- the next wave of litigation?
- Learn about required pre-mediation disclosures for California clients
- Aequitas Class Settlement update -- payment arriving soon!
- FINRA statistic of the month -- Cases compelled to virtual arbitration by FINRA panels
- Introducing Online Booking for Mediations!
- LinkedIn Poll Results -- Experience with Virtual Mediation
- Link to California's statute and approved language for pre-mediation disclosures
- This month's poll: How likely are you to engage in settlement discussions as a result of being compelled to a virtual arbitration hearing?
Investors Drive Record Margin Debit Balances, Options Volume and Investments in Leveraged ETFs in 2020
Are these cases the next wave in FINRA ligitation?
According to FINRA, investors' use of margin reached an all-time high of $722.1 billion by November 2020. Options volume rose to an average of 29 million contracts per day. And investors flooded $14 billion into leveraged and inverse ETFs. The stock market's meteoric rise, despite a raging global pandemic, has enticed investors to double down on ways to increase their returns. At some point, the tide will turn and we will see what we've seen before -- portfolio-crushing capital calls and forced liquidations. As I read through the attached recent WSJ article (see below link), I was reminded of similar articles that cropped up in the years leading up to the crashes of 2000 and 2008. Mr. Burnworth, who is the picture of the regular guy, reportedly turned at $23,000 options play into almost $2 million last year. He has been using using margin and options to leverage his existing Tesla stock. He even sold his home and used some of the proceeds to buy more Tesla options. The article -- and hopefully Mr. Burnworth's brokerage firm -- provide ample warnings about the serious hazards of leverage and concentration. But there are plenty more Mr. Burnworths our there -- and we will all be talking with and about them soon.
Take a Look at the WSJ Article
Do You Know About California's Required Statutory Pre-Mediation Written Disclosures to Clients?
Read about the required disclosures
California's mediation confidentiality laws are some of the broadest in the country and can limit evidence that can be introduced in all types of actions, including actions for malpractice against the attorney who represented a client in a mediation. To be sure that clients understand that extent of the state's protections, California Evidence Code 1129 requires that attorneys provide clients with pre-mediation disclosures explaining mediation confidentiality and obtain client signatures on the disclosure. If you an attorney licensed to practice in the State of California, you should be aware of this requirement. If you are not licensed to practice in California, you should ensure that your associated California counsel complies. And while this provision was enacted with California attorneys in mind, if you represent a client in a California mediation, compliance with Evidence Code 1129 is advisable. The statute provides model disclosure language that has been deemed to comply with the statutory requirements. I am attaching a link to the statue and the approved language later in this newsletter.
Read An Article from the Orange County Bar Association about California Evidence Code 1122 and 1129
Aequitas Class Action Settlement Update -- Distributions Coming Soon
Investors in the Aequitas Class Action set to receive payment soon!
The Aequitas investments have been lurking around in FINRA cases for a while now. This Portland-based class action is now wrapping up. On December 30, 2020, Class Counsel applied to the U.S. District Court in Oregon for an order of distribution of the net settlement funds. Once approved by the court, investors should expect to receive checks from the Settlement Fund in the estimated amount of 50%-60% of their net losses.
Go to the Aequitas Settlement Website
FINRA Statistic of the Month -- Cases Compelled to Virtual Arbitration
How likely is a FINRA panel to compel a case to virtual arbitration? At least 70%!
According to FINRA's latest statistics, chances are quite high that you will be required to proceed to a virtual arbitration hearing via FINRA's Zoom platform if one party brings a motion to do so. On the customer side, 120 out of 171 (total contested motions minus open/undecided motions) contested motions for virtual hearings were granted -- that's over a 70% grant rate! FINRA also noted that 43 joint motions for virtual hearings of customer cases were granted and that 51 customer cases had proceeded in whole or in part through the virtual platform by the end of November. The takeaway? Don't expect your FINRA panel to deny a request for a virtual hearing just because you don't want to participate in one or just because your firm doesn't like using the Zoom platform. Maybe it's time to explore mediation?
See FINRA's Latest Case Statistics
Introducing ONLINE BOOKING at Kathy Adams Dispute Resolution Services!
You can now hold and book mediation dates on my website!
I am accepting online bookings through my website! Check availability, hold a date or request to book a date using my easy-to-use online calendar. No more going back and forth over dates, start times, venues, etc. Simply select "hold a date" or "book a mediation," choose your date, complete the brief intake form and look for your confirmation email. The calendar is optimized for mobile devices, too, so it's just as easy to use on the go. I look forward to working with you in 2021!
Results of My LinkedIn Poll about Your Experiences with Virtual Mediation
Most Will Continue to Use Virtual Mediation In the Future
I posted a poll on LinkedIn last month asking about people's experiences so far with virtual mediation. Thank you to those who participated. Here are the results: 69% will continue to use virtual mediation post-COVID 8% are not huge fans 23% say it's a mixed bag and depends on the case
This Month's Free Resource
Approved Language for Compliance with California Evidence Code 1129