Bull or Bear: Your Securities Litigation Resource - June - July 2021

Bull or Bear: Your Securities Litigation Resource - June - July 2021

What's Happening In the Securities Industry

June/July 2021

100 FINRA Awards in July!

FINRA issued 100 awards in July -- fall is almost upon us, the end of the year coming and cases are backed up. Virtual hearings are proceeding and some in-person hearings are also scheduled, to everyone's delight! Looks to me like it's time to schedule mediations . . .

Schedule your In-Person, Hybrid or Virtual Mediation


Welcome to the June/July 2021 issue of my 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:

  • What questions should you ask yourself and your clients about participating in in-person proceedings?
  • An open call for increased advocacy for women mediators and experts in securities litigation
  • Interesting statistics about U-5 termination language and FINRA investigations
  • Accredited Investors -- should investors be able to "test in" to being accredited? And the SEC considers changing the financial profile requirements for accredited investors  
  • Credit Suisse releases outside study on Archegos and what went wrong with controls inside the bank
  • FINRA's Arbitration Statistics through June 2021
  • This Month's Free Resources


In-Person Proceedings in the Time of Delta -- Have You Considered These Real-Life Issues?

Interesting and Sticky Issues to Think About

Some interesting situations have presented themselves in my recent travels that warrant discussion when deciding whether to participate in in-person arbitrations and mediations. Ideally, we would like to transport ourselves back to December 2019 and our pre-COVID lives. With that option sadly unavailable, you may want to ask yourselves -- and your clients -- some important questions. Will you be comfortable participating in in-person proceedings if another participant is not vaccinated? Are you comfortable not knowing whether participants are vaccinated? What is your preference with respect to mask-wearing? Will you participate in-person if some participants want to or are only cleared to participate via video platform? FINRA's COVID measures are evolving and, with the return to in-person proceedings, they will also be contemplating these issues.

Link to FINRA's COVID-19 Page for Arbitration and Mediation


I Invite You To Advocate for the Women Mediators and Experts

An Open Call to Lawyers to Expand Their Horizons

We have had successful careers as lawyers and have tried and negotiated tough cases. We excel as litigators and we work harder than many of you know to make sure we know every fact, every argument, every potential pitfall. Yet when we change roles and move to mediation or to expert work, we are often overlooked. Not consciously disregarded, just not thought of top of mind as part of the club of "regulars," not pushed for to the other side. I am often invited to speak about ways to increase the number of women who are mediators and experts. I'm asked because I'm one of very few women who have had the courage to enter my field, especially this niche. Initially, I was reluctant to speak out because hard work should yield positive results no matter who you are, right? But if I can raise consciousness about this issue, then I'm happy to stand up for those of us who have worked tirelessly to be on the list of "regulars" and for those women who will follow -- my daughters and yours, too. If you've worked with us, you know what we can do and we ask for your advocacy. If you haven't worked with us, we invite you to do so and are confident you will respect our work.

Read "Where Are the Women Arbitrators?"


FINRA Enforcement and U-5 Termination Language

FINRA Looks for Specificity and "True Harm" on U-5 Filings

According to a recent interview with Steven Price of FINRA's National Cause Program for FINRA Member Supervision, U-5 filings are a top trigger of FINRA investigations. FINRA says it will call a firm if it can't "reasonably determine what happened" with respect to a termination. The lights flash at FINRA when a U-5 filing seems to indicate "true harm" to customers or serious rule violations. Price reports that [remove comma] roughly 8,000 of the 25,000 matters brought to FINRA's attention in a given year are tagged for investigation. 10% of those investigations are considered serious and are referred to FINRA Enforcement. Enforcement brings 700-800 disciplinary actions each year and conducts 700-900 OTRs. Enforcement resolves 95%+  actions with an AWC and usually holds fewer than 20 full hearing per year.  Recently, FINRA established an "early issue identification team" to spot situations where it believes an investor is facing imminent harm.

"Form U-5 a Top Trigger of FINRA Investigations" from ThinkAdvisor


Expanding the Accredited Investor Pool -- by Exam

Proposed Legislation Would Establish An Exam to Certify Accredited Investors

The debate over whether the requirements to be deemed an accredited investor protect investors or unfairly exclude knowledgeable investors from participating in complex investments continues with the introduction of the Equal Opportunity for All Investors Act of 2021. This proposed legislation would direct the SEC to create an exam that would allow "investors with knowledge and expertise" to become certified as accredited investors without meeting the current income and net worth thresholds if they can pass the exam. This proposed legislation comes on the heels of the SEC's June announcement that it plans to revisit the income/net worth thresholds and other parts of the accredited investor rules.

Read ThinkAdvisor's Article about the Legislation


Archegos Update -- Take-Aways from the Credit Suisse Outside Investigation

Some Lessons from the Archegos Collapse

Credit Suisse was hit the hardest by the March 2021 collapse of Archegos Capital Management, which caused $10 billion in losses all across Wall Street. How did this happen and what controls failed? Credit Suisse hired Paul Weiss to spearhead the outside investigation into what went wrong. This WSJ article summarizes the findings. The full report can be found in This Month's Free Resources

The WSJ Summary of the Credit Suisse Archegos Investigation (email me if you'd like a free link to the article)


FINRA Dispute Resolution Statistics Through June 2021

Filings Down, Awards in Favor of Customers in Virtual Hearings at 49%

FINRA has released its statistics through June 2021. So far in 2021, only 1,533 cases have been filed. in 2020, 3,902 cases were filed, which puts filings through June 2021 418 behind the 2020 pace. Only 49 Zoom hearings have been held in 2021 and the result are almost evenly split, with 24 awards resulting in an award to Claimants and 25 resulting in defense awards. Note that July is the first month back to some in-person hearings and 100 awards (not all customer cases) appear on FINRA's database as of COB 7/30. Next month will present our first opportunity to compare in-person and Zoom results, although anecdotally, it seems that many cases are still being tried via Zoom in July.

See FINRA's June Statistics


This Month's Free Resources

Take the SEC's July "Investing Quiz"

Credit Suisse Archegos Information Kit -- The Full Study

Interview with Prof. Iris Bohnet -- Promoting Gender Equality and Closing the Gender Gap


If you have a topic you'd like to see featured in a future newsletter, please let me know.  New ideas are always welcome!

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