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Feature Articles

Supreme Court Rules That State Courts Can Adjudicate Class Actions Under the Securities Act of 1933 (04/09/2018)
By Jonathan E. Richman*
 
The Supreme Court ruled last month that the 1998 amendments to the federal securities laws did not strip state courts of jurisdiction over class actions alleging violations of only the Securities Act of 1933. The Court further held that those amendments do not empower defendants to remove those federal-law cases from state to federal court.
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Back to Arbitration Basics: Recent Federal Decisions (and a SCOTUS preview) (02/12/2018)
By Liz Kramer*

Remember when Maria sang “Let’s start at the very beginning, it’s a very good place to start”? Well, that seems to be what federal circuit courts are doing with their arbitration decisions recently. This article will run through some Do Re Mis of arbitration law, as articulated by those decisions (and will close with some arbitration cases on SCOTUS’s docket).
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Securities Cases to Watch this Term at the Supreme Court (10/16/2017)
By Brad S. Karp, Susanna M. Buergel, Charles E. Davidow, Andrew J. Ehrlich, Roberto J. Gonzalez, Daniel J. Kramer, Richard A. Rosen and Audra J. Soloway*
 
Last Term, the Supreme Court continued its recent trend of taking up significant securities litigation enforcement matters. For the first time in many years, in Salman v. United States, the Court waded into the thorny question of the scope of insider trading liability. It took a strong stand on the statute of repose for private plaintiffs under the Securities Act of 1933 in CalPERS v. ANZ, and imposed limits on the SEC’s ability to obtain disgorgement in Kokesh v. SEC. It was, by any measure, as active a Term as the Court has had in this area in years.

In this respect, the Term beginning this week appears to be a continuation of the last. The Court has already granted certiorari in three significant cases affecting securities litigation and enforcement, and parties have filed numerous additional petitions for certiorari that await decision. In this Alert, we preview the three cases already granted, and highlight a petition for certiorari of note.

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A Broker’s Guide to What Not to Do – FINRA’s Monthly Disciplinary Report (04/24/2017)
By James L. Komie*
 
Each month, FINRA publishes a summary of recent disciplinary actions taken against brokers and firms. It is something like a small-town newspaper police blotter for the industry. But instead of reading about a neighbor who was arrested for DUI, you learn that two brokers were disciplined last month for failing to update their Form U4s to reflect tax liens.
 
The monthly disciplinary report is worth reading for reasons other than prurient interest. It serves as a reminder for both industry professionals and attorneys of common compliance mistakes. It also shows what brings a modest fine or suspension and, more importantly, what can end a career.

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Signs, Signs, Everywhere a Sign: Changes in Store for SEC Enforcement under the Trump Administration (04/17/2017)
By Jodi L. AvergunScott CammarnBret A. CampbellJ. Robert DuncanDouglas H. FischerJoseph V. MorenoNihal S. Patel and Anne Tompkins*
 
Even before President Trump’s nomination of Jay Clayton as the next Chairman of the Securities and Exchange Commission (“SEC” or “Commission”), signs have been appearing that changes are afoot within the Division of Enforcement (“Enforcement Division”). The power of Enforcement Division attorneys in the field to issue subpoenas and open new investigations was recently scaled back, and now will require personal sign-off by the Director of Enforcement in Washington, D.C. With new incoming leadership at the top, and looming legislative proposals by the Republican-majority Congress that promise to take a hard look at the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), the Enforcement Division under the Trump Administration is likely to be more centralized and potentially will focus on a different set of priorities and a different approach than the SEC has taken in recent years.
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Salman v. United States: Supreme Court Considers Heightened Personal Benefit Standard for Tipper/Tippee Insider Trading Liability (10/17/2016)
By Matthew Rossi, Joseph De Simone, Richard M. Rosenfeld, Melanie M. Burke & Brantley Webb*
 
On October 5, 2016, the United States Supreme Court began hearing argument in Salman v. United States,1 one of the most closely watched insider trading cases to reach the high court in recent years. Salman could resolve a circuit split between the Second and Ninth Circuits and clarify generally what constitutes a personal benefit to the insider sufficient to establish insider trading under the longstanding tipper/tippee framework set forth in Dirks v. SEC, 463 U.S. 646 (1983). The personal benefit requirement is the line defining when a tippee trading on material, nonpublic information commits securities fraud. For that reason, lawyers and securities professionals alike hope that the Court’s decision in Salman will clarify the nature and type of personal benefit that must be shown in insider trading cases.

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Seems Like I May Be Right After All on One of My 2015 Predictions – Just a Little Late (09/12/2016)
by George H. Friedman*
SAC Contributing Legal Editor and Board of Editors Member
 
[This is adapted and updated from several postings originally published in the author’s blog at Arbitration Resolution Services, Inc. and in this publication. Reposted with permission of and thanks to ARS!]
 
Readers of my blogs here and at Arbitration Resolution Services may recall how I fared on one of my predictions for 2015. To refresh your recollections, prediction #4 for 2015 was “SCOTUS will rebuke the National Labor Relations Board on its anti-arbitration policy.” That didn’t happen in 2015, but it turns out I may just have been too aggressive in my timetable. In recent weeks, three petitions for certiorari have been filed seeking SCOTUS review of this very issue. And as discussed below I am confident the Supreme Court will take up at least one of these cases to resolve a major split among the Circuits.
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The Evolving Retirement Savings Market, Fiduciary Duty, And Our Capital Markets – Part II (08/22/2016)
By Norman B. Arnoff*

The Department of Labor’s (“DOL”) new Fiduciary Rule that this author reviewed in Part I of this article is conceptually sound in seeking to combine textual clarity, fact-specific inquiries to determine fiduciary status and breaches of the duty and the flexibility to apply norms of aspiration (i.e., a professional without conflict or engaging in conduct that, though it may present a conflict, substantially avoids and mitigates harm, both in perception and reality). Yet, the textually-based rules, at least from our perceptions, do not definitively resolve whether the conduct at issue complies with the appropriate standards of ethical conduct.

The other challenge is to make the forthcoming SEC Fiduciary Duty Rule, applicable to brokers, compatible with the DOL Fiduciary Duty Rule, so as to ensure that the law, regulations, and traditional industry customs and practices are premised on sound principles that are appropriately adaptable whatever the nature of the relationship between the financial service professional and the client–customer and always serve the investor’s best interest.
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The Evolving Retirement Savings Market, Fiduciary Duty, And Our Capital Markets - Part I (08/15/2016)
By Norman B. Arnoff*

This two-part article addresses the Department of Labor's (“DOL”) new Fiduciary Duty Rule for ERISA Plans and IRA accounts, published in April 2016, and its relationship to both the Fiduciary Duty Rule to be promulgated by the Securities and Exchange Commission (“SEC”) in April 2017, and to the broader category of accounts serviced by investment advisers and broker-dealers. Part I describes the scope of the duty created by the DOL Rule.
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A Guide to the Supreme Court’s Notable Decisions this Term — and Cases to Watch Next Term (07/05/2016)
By Brad Karp, Jay Cohen, Michael E. Gertzman, Roberto J. Gonzalez and Jaren Janghorbani*
 
The Supreme Court's 2015-2016 Term will be remembered for the unexpected death of Justice Antonin Scalia on February 13, 2016. Justice Scalia's passing and the delayed confirmation process for Judge Merrick Garland have impacted the Court in a number of ways, including a drop in certiorari grants and affirmances by an equally divided Court, including in the closely watched case United States v. Texas. The Court has nevertheless produced a number of notable decisions, from cases involving topics of broad social interest, such as affirmative action, reproductive rights, and public corruption, to cases relevant to business litigation in a number of areas, including class actions, standing, the False Claims Act, copyright, and employment discrimination. Below, we survey fifteen of these decisions and preview four cases scheduled to be argued next Term.
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Developments in Securities Litigation: A Conversation (02/22/2016)
By Scott Musoff* and Susan Saltzstein**

From the impacts of U.S. Supreme Court Omnicare and Halliburton cases to the uptick in Securities Act class actions, Skadden Arps litigation partners Scott Musoff and Susan Saltzstein discuss the latest securities litigation developments.
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FINRA and MSRB Propose New Pay-to-Play Restrictions on Broker-Dealer Solicitors and Municipal Advisors (01/04/2016)
By Ernesto Lanza*
 
On Dec. 16, 2015, the Financial Industry Regulatory Authority (FINRA) and Municipal Securities Rulemaking Board (MSRB) simultaneously filed with the Securities and Exchange Commission (SEC) rule proposals that will have broad and substantial impacts on the political giving of broker-dealers, investment advisers and municipal advisors and their ability to engage in business with governmental entities under SEC, FINRA and MSRB rules.
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SLUSA in the Age of Madoff (10/12/2015)
By: Seth M. Schwartz* and Jason C. Vigna**

Litigation arising out of Bernard Madoff’s Ponzi scheme has generated multiple legal developments, including new case law regarding the Securities Litigation Uniform Standards Act of 1998 (SLUSA). SLUSA provides a powerful legal defense in securities class actions, often enabling defendants to secure dismissal at the outset of the case.
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The Effect Of The Protocol For Broker Recruiting In Judicial Injuctive Relief Proceedings (07/06/2015)
By:  Paul R. Wood*

 
BACKGROUND
Prior to August 2004, transitions of registered representatives who left one brokerage firm to join another often resulted in litigation. Generally, the former employer sought temporary restraining orders and preliminary injunctions to enforce contractual non-solicitation and non-competition provisions by preventing the departing advisor from contacting the customers he or she served at the former firm. These suits were costly, time consuming and often resulted in injunctions that prevented the departing broker from servicing or even contacting their former customers on behalf of their new firm.
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FINRA Hearing Panel Imposes Significant Sanctions on Firm That Permitted Broker to Have His Own Investment Adviser (04/06/2015)
By Jeffrey A. Ziesman, Jeffrey J. Kalinowski, Richard H. Kuhlman and Mark A. Srere*

A FINRA Hearing Panel issued a decision on March 9, 2015 that will have a potentially significant impact on any broker-dealer that allows its registered representatives to have their own investment adviser.  In light of this decision, broker-dealers should assess and evaluate the adequacy of their supervisory systems and procedures relating to supervision of a representative’s outside advisory activities.
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Dodd-Frank’s Title IX, Investor Protection, Professionalism and Reform (10/01/2014)
By:  Norman B. Arnoff* and Paul A. Immerman**

Title IX of The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) is now the primary and most critical legislation designed to protect investors, address systemic risk, prevent securities fraud and establish and enhance professional standards in our capital markets. Congress has stated its intent that Title IX of Dodd-Frank achieve substantial and significant regulatory reform to avoid a repeat of Enron, Madoff and other notorious Ponzi schemes, financial failures, and the accompanying catastrophic investor losses. Most especially, the statute was intended to correct the organizational inefficiencies that have and will frustrate effective regulation, self-regulation, supervision within financial service firms, and overall compliance.
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Andrew Ceresney: 2014 Enforcement Accomplishments and Priorities Relating to Financial Services Firms (07/01/2014)
By Amy Natterson Kroll* and Elizabeth A. Marino**

Introduction
Andrew Ceresney, Director, Division of Enforcement (the “Division”), Securities and Exchange Commission (“Commission”), recently spoke at Compliance Week 2014 regarding the Division’s accomplishments over the past year and its priorities for the remainder of 2014.1 Of particular interest to anyone in the financial services and investment management industry, Mr. Ceresney indicated that in 2014 the Division has been focusing on certain market structure issues, taking new approaches to settlements and litigation, implementing new technology and bringing cases against legal and compliance professionals, as discussed below.
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The SEC Loses Four High-Profile Trials in a Two-Month Span: Circumstances and Lessons (04/14/2014)
By: Sam Lieberman* and Douglas Hirsch**

The illusion that the SEC always wins in court has been shattered by four high-profile SEC trial losses in a two-month span: SEC v. Steffes, 10-cv-6266 (N.D. Ill., Jan. 27, 2014), SEC v. Schvacho, 12-cv-2557 (N.D. Ga., Jan. 7, 2014), SEC v. Jensen, 11-cv-5316 (C.D. Cal., Dec. 10, 2013) and SEC v. Kovzan, 11-cv-2017 (D. Kan., Dec. 4, 2013). These losses – after the notorious Mark Cuban trial loss on October 16, 2013 – show the SEC is struggling to enforce at trial its more aggressive approach of seeking severe sanctions and industry bars for circumstantial cases. We hope these setbacks will cause the SEC to take a step back from its more aggressive approach. But if not, clients should be aware of the significant possibility of beating the SEC at trial.
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SHH! Managing Confidentiality in Settlements (02/01/2014)
By: Bruce W. Felmly and Jennifer L. Parent*

The thought first hit the company’s in-house counsel late that evening, after the kids had been put to bed.  They had settled the case at mediation earlier that day and had signed a term sheet.  Neither side had actually mentioned a confidentiality agreement as part of the deal.  “But mediation is a confidential matter, so it’s implied...,” she mused hopefully.  A late-night call to her outside counsel was not reassuring. “Let me see what I can do with opposing counsel tomorrow.  Maybe adding a confidentiality agreement won’t be a problem.”
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More Enforcement Proceedings in the SEC’s Compliance Program Initiative (12/01/2013)
By: Steven W. Hansen* and Derek Wolfgruber**

A registered investment adviser’s decision to ignore an SEC examiner’s deficiency findings has long been an invitation to action by the Division of Enforcement. In recent times, that truth has been given a title — the SEC’s “Compliance Program Initiative” — and wider publicity.1
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