FINRA Fines Brokerage Firm For Reverse Churning

FINRA fined Robert W. Baird & Co. $500,000 for supervisory violations relating to its fee-based brokerage accounts. FINRA also ordered Baird to return $434,510 in fees to 154 customers. FINRA found that customers were charged fees in accounts that were not generating any activity, otherwise known as “reverse churning.”

According to FINRA Baird failed to adequately review or supervise its fee accounts and allowed numerous customers to remain in the program despite conducting no trades for at least eight consecutive quarters. These accounts paid over $269,000 in fees during the inactive quarters.

According to Andrew Stoltmann at Investmentfraud.PRO, this type of fee based account has become more prevalent in the past 7 years and Baird is only one firm out of many who engaged in so-called reverse churning. Recent actions involving firms such as AXA Advisors, Morgan Stanley, SunTrust Investment and Wachovia Securities ranged from $700,000 to $6.1 million.

...continue

Interim CEO Of FINRA Testifies Before US House Of Rep Re Madoff

Although Luparello's testimony was comprehensive, the overarching theme was that disparate treatment by fractured regulatory authorities fosters failed oversight. His testimony emphasized the need for "a consistent level of protection no matter which financial professionals or products [investors] choose." See his entire testimony here.

...continue

Securities Litigators in High Demand

Experienced securities litigation practitioners have been in high demand due to many factors, including the Madoff scandal, poor economy, and changing regulatory environment. According to the Legal Intelligencer (password required), this fact has lead to prominent securities litigators trading their smaller, regional firms to firms with a national or international arena.

The article cites the recent moves of Alexander Bono (previously of Schnader Harrison Segal & Lewis, now Duane Morris), Tim Hoeffner (formerly of Saul Ewing, now DLA Piper), and M. Norman Goldberger (formerly of Hangley Aronchick Segal & Pudlin, now Ballard Spahr Andrews & Ingersoll) (seen here). Bono cites the larger capacity of Duane Morris over his previous firm as a deciding factor in his departure. Bono points to non-litigation support that arise out of securities litigation cases that a major firm can supply, including Sarbanes-Oxley concerns, corporate governance matters, filing regulations and other non-litigation securities assistance.

He also feels that it will become increasingly difficult for smaller firms to manage the work coming from companies as litigation looms. Ralph Wellington, chairman of Schnader Harrison disagrees, stating that clients care mostly about the reputation and strength of the representing firm, not the firm size.



...continue

SEC Sides With Executives Despite Institutional Investors' Efforts To Rein In Compensation

According to a recent Wall Street Journal article, unions and pension funds are attempting to harness executive compensation through shareholder proposals and resolutions. The funds argue that despite shareholders losing millions, executives incur little or no personal monetary loss and often maintain their high salaries, bonuses, and lucrative severance packages.

Charlie Tharp, executive vice president for policy at the Center on Executive Compensation, maintains that compensation decisions are best left to corporate directors: "It would be unwise to usurp the duty of the board to represent the interests of all shareholders rather than the interests expressed by one group of shareholders."

The corporations are resisting the recent push and have successfully persuaded the SEC (in all its infinite wisdom) to block shareholder voting on the proposals that would limit executive pay. To be sure, shareholders are anticipating more support from the SEC once the Obama administration takes the helm. Until then, it's business as usual:

...continue