The Law Planet Blog

This is exciting for me and not just because it might make my mother proud. I have read Registered Rep for almost as long as I've been in this business. Sometimes I agree with what is written, sometimes not.

I was called a few weeks ago and asked questions about Gary Gross, a broker with a reputation in Boca Raton, Florida. He has a significant number of customer complaints on his record. I was asked how this could happen. I explained that there were likely a number of small miscues along the way that resulted in what the article described as a massive blow-up. I called it the "failure chain" after something that I heard on a PBS special about plane crashes.

Lo and behold, the article is published. The cover of the magazine says "The Failure Chain." If you read the article, you will see how the term came up. I actually got emails from two lawyers in other parts of the country asking if I got extra credit for writing the cover headline. I didn't.

How does this count towards my 15 minutes of fame?

That's the view from The Law Planet - Jupiter, Florida.

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In another installment of the incompetent/malevolent broker/dealer guidebook, Barclays Capital partially prevailed on a Motion to Vacate Arbitration Award filed against one of its former employees. In Barclays Capital Inc. vs. Elizabeth Bing Shen, 2008 N.Y. Misc. LEXIS 2327, a NY Supreme Court judge (the lowest level trial court, interestingly enough) found that the ruling in Rosenberg v. MetLife barred recovery of punitive damages.

Rosenberg, as those who have been following this issue will recall, held that incorrect statements on a U-5 Termination Notice were absolutely privileged. In my opinion, regardless of whether you represent a firm or the broker, this is a wrong-headed decision that was decided by judges who ignored the impact on a broker's life a U-5 can have. There has been some discussion by commentators that there are ways "around" Rosenberg. Certainly, one of them is to avoid New York law in contracts. There are others as well, but if I shared them I'd have to shoot you.

Back to Ms. Shen. She was apparently owed a bonus and her U-5 was found to be erroneous by the arbitrators. By the description in the court's opinion, she does not qualify for "Employee of the Year" status by any means, but the arbitrators clearly felt that she didn't deserve the disclosure she received. They awarded her punitive damages.

The court found that the punitive damages could only have been for the U-5 defamation claim and, therefore, vacated that part of the award. We are currently representing brokers whose U-5s, we believe, are defamatory. We are not concerned about the New York choice of law provision because we feel that there are valid arguments against it when the the broker is in Florida. Nevertheless, this creates more stress and anxiety and creates a "free defamation zone" for broker-dealers, honorable and not.

That's the view from The Law Planet - Jupiter, Florida.

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Posted In: Labor & Employment , Securities Arbitration , Securities Industry , Stockbroker Issues

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In an email from FINRA, formerly NASD, dated April 14, 2008, the agency announced that the arbitrators' procedures on damages and closing the hearing will be changing. This is, ostensibly, to unify the scripts between NASD and NYSE arbitration codes.

The first change has to do with damages. In an effort to have the percentage "win" rate more accurately reflect what was sought at hearing, the arbitrators will be asking for a summary of the "final request" for damages. It is off of this amount that the statisticians calculate customer "win" rates and percentages. Since the statisticians use the amount sought as described in the award, this amount will now be based upon what the party asks for at hearing.

Frankly, I don't see how this will make a difference. If it makes FINRA feel better, so be it.

The next change is more interesting. The NASD script always ended with the chairperson asking the parties if they had a "full and fair opportunity to be heard." Every once in a while a party would say "no." Interestingly, there's nothing that I recall from the chair's script that tells the arbitrators what to do in the case of "no." Basically, it causes a fire drill. Or the chair says that the objection is not relevant or necessary. I once used the threat of a "no" in a case where I felt the arbitrator was being unfair in the allocation of time to present my case. The arbitrator, an otherwise fair-minded individual, changed course and I was given the opportunity to present my client's case in full (successfully, as well).

The new script will ask the following "Do the parties have any other issues or objections that you would like to raise that you have not previously raised?" This was, I think, the intent of the prior question anyway. But there is a big perceived difference between "full and fair" and "any other issues or objections."

FINRA states that "full and fair" is nowhere to be found in its arbitration codes. Given some of the results I've received, "fair" certainly isn't in there.

These are hardly earth-shattering changes. But ever since I attended my first arbitration (when dinosaurs roamed the earth) I have heard the "full and fair" language. I'll miss it.

That's the view from The Law Planet - Jupiter, Florida.

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Posted In: Securities Arbitration

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I admit that there are times when I am easily entertained. And I am an avowed Microsoft-disliker. But I have to hand it to the folks in Redmond, they've got me interested in something. Click on this link. Then hover over the pushpin and select Zoom to Street level.

Here's the fun part. Then click on "Bird's Eye" view. That's Dobin & Jenks world HQ. The picture was taken since last October. I think this is very cool. I've used this feature to find sports fields and locate restaurants. It's much better than the plain old aerial view or map. I've used it to see my house (and the landscaping the builder added before I bought it).

The main URL is http;//maps.live.com. Enjoy it and use it well.

That's the bird's-eye view from The Law Planet, Jupiter, Florida.

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When I'm not practicing law, you might find me at a Suncoast High School girls' lacrosse game, where I am an assistant coach. Truth be told, I have no special lacrosse talents, but I go there to help, provide some organization and maybe a few tips I've learned over the years as an amateur sports coach.

But, today, I'm writing about one of the players, Kelsey Sheridan. Kelsey is a senior who has been accepted to Northwestern University. Kelsey is the unofficial cheerleader of the team. She also was involved in getting the team started, I understand.

Tomorrow, Kelsey will be getting her head shaved for the St. Baldrick's Foundation. My head is going that way slowly and naturally, so I will stay with what I have. And I have some clients who look like they've already participated.

Ah, to have youth on your side for regrowth.

You can make donations for Kelsey's head shaving here. Kelsey's a great kid and very spunky. If any of my three readers can donate a little bit, that would be great.

That's the view from The Law Planet, Jupiter, Florida.

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I just read another article about how Apple is going to take over the business desktop. Maybe I'm just getting old and surly, but I'm not convinced it's an enterprise device. Here's why.

1) The iPhone keyboard sucks. That's the only word for it. If you like guessing where on the touchscreen you have to put your finger to press the letter "k", then enjoy. Me, I like a keyboard that gives me a "k" when I hit a "k".

2) The iPhone is fragile. How many manufacturers have come out with skins, condoms, buffers, and other devices to prevent your pretty little iPhone from suffering from the ravages of gravity and a pavement parking lot? Now, see how many you can find for a Blackberry. There's a reason folks. You can drop a Blackberry. Drop an iPhone and it will make a nice paperweight for your desk. (I can hear it now "That one I dropped on the way to court. That one I dropped on the way to an important meeting. My cat knocked that one off the counter.")

3) The iPhone is a phone, not an email device. See remarks re: keyboard above. Business users want email first and a pretty phone second. If they wanted a pretty phone all the time, they'd carry a RAZR. (Which I do, but not just because it's pretty).

4) The mirror slick exterior surface. What genius came up with that? Oh yeah, the people whose friends are selling the skins, condoms and other things to wrap around the pretty piece of artwork. It was really stupid to take a device that doesn't like to be dropped and wrap it in something that makes ice look like an OSHA-complaint stair tread.

Yes, my kids want iPhones. And it sure is purty. But give me a break. A business device? No way.

That's the extraordinarily crotchety view from The Law Planet - Jupiter, Florida.

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Since just about the beginning of time, FINRA (formerly NASD) fines were viewed as a mere nuisance by out-of-business firms and former registered persons. FINRA has been criticized in the past for not collecting regulatory fines or fees from arbitration proceedings. At least in one case, this seems to have changed.

FINRA filed, and won, an enforcement action against John Fiero and Fiero Brothers, the broker-dealer he controlled, obtaining an award for over $1,000,000 in fines and costs. In the past, this would have been a pyrrhic victory for FINRA as it was well-known that they would not pursue collection if the firm was out of business. Well, it looks like this is no longer the case. FINRA filed a lawsuit in New York state court to collect the award.

FINRA was successful in the lower court and the appellate level. There were various defenses raised by Fiero and his company -- all of which were nice attempts but hard to fathom. Their success, perhaps temporary, came at the Court of Appeals, New York's highest court. For the first time in this matter, it appears, a court addressed the issue of jurisdiction over the action. The Court of Appeals found that Section 27 of the Exchange Act of 1934 specifically provides for "exclusive jurisdiction" in Federal Court. Boom, like that, FINRA was foiled.

Probably not for long. And this will be a lesson for those of us who practice in this area. We can no longer advise clients that, out of the business means that FINRA won't come after you. Maybe it's based on dollar level, but we'll see.

That's the view from The Law Planet -- Jupiter, Florida.

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There has been a huge shift in the United States from defined benefit retirement plans, where an employee is guaranteed a fixed payment upon retirement, to defined contribution plans, where the employee makes the contribution and maybe the employer makes a matching payment. Defined contribution plans are considered cheaper for the employer.

The best known defined contribution plan is the 401(k). In a 401(k), the employee contributes to the plan and chooses the investment strategy. A plan administrator offers a variety of investment vehicles, usually associated with mutual fund-type investments, and the employer may offer to match a percentage of the employee's contribution. The employer is called the plan sponsor.

There was some discussion in legal circles as to whether or not an employee, the "plan participant," could bring an action against the plan administrator regarding administration of the plan. ERISA lawyers, who are apparently immune to boredom, batted this around at some length for a while. The Supreme Court brought an end to this discussion and made a logical decision in my view.

In Larue v. DeWolff, the Supreme Court held that an administrator can be held liable to an individual participant, not just the plan, if the administrator screws up. Now how hard was that? Logic would tell you that if it's the participant's money, and the administrator is responsible for dealing directly with the participant, then the administrator has a problem if they/he/she don't listen to the participant's instructions, which was the case in LaRue.

This is what's wrong with the law. Logic gets suspended while egghead lawyers sit around and argue about the placement of a comma in a sentence or the meaning or a single word in a paragraph. Why couldn't someone just say "duh" (not "doh!")? I, for one, am glad to see that our Supreme Court got it right this time. Now, if we could only get Congress to worry about something other than flawed arbitration studies....

That's the view from The Law Planet - Jupiter, Florida.

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You may ask, what does a securities and employment firm like Dobin & Jenks, located in Jupiter, Florida, have to do with a girls' softball team in Royal Palm Beach, some 25 or 30 miles away? It's a long story, for which I will only brag about the highlights.

One of the softball boosters is the neighbor of one of our lawyers. I met this booster at a social function and he mentioned that the boys' baseball field has lights but the girls' team doesn't. He went on to explain how they have fofeited games on account of darkness. Now, I may not be sharpest knife in the drawer, but that didn't seem right, fair or legal.

We did some research, and Brian Buckstein of our office sent a letter to the school's principal. After a couple more letters, the School Board advised us that the boys were not permitted to use their lights until the girls' field was similarly equipped. We didn't like disadvantaging the boys in the process, but the two teams needed to be treated equally.

Over the summer and into the fall, the school board put up lights. The parents renovated other sections of the field and turned it into their "Field of Dreams." Brian, his family and I went to the first night game held at the field. It was gratifying to see tangible results of our successful work which, so often, is only represented in a check and a settlement agreement. The team was clearly enjoying its newly-refurbished home and we were glad to be a part of it.

By the way, the team won their first nighttime game.

That's the view from The Law Planet, Jupiter, Florida.

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Since time immemorial, brokers who left their prior firms have taken copies of customer information. In the "old days", brokers copied their holding pages, new account forms and last monthly statements of their customers. With the advances made in the industry, a broker only needs a customer name, address, account number and phone number to accomplish the transfer. Sure, there's plenty of other data, but it's not needed to effect the transfer. This has been going on since I started as a paralegal in the Prudential-Bache Securities law department in 1983.

The SEC sounds like it wants to change all that. Last month, an administrative law judge held a hearing in a case brought by the SEC against NEXT Financial, a brokerage firm from Texas using the independent contractor model. In that case, the SEC's lawyers maintained that all information is confidential and cannot be transferred without the customer's permission. It is unclear whether this includes names and addresses.

In 2007, we successfully defended two cases brought by major wirehouses against their smaller competitors. In both cases, the firms complained about the transfer of "confidential" information. In both cases, we pointed out the hypocrisy of the argument as those same firms use the same "confidential" information when they recruit from other firms. As I said, this has been going on since time immemorial. The arbitrators in both cases, recognizing that this is the custom and practice in the industry, awarded nominal damages to the wirehouses, not the hundreds of thousands or millions that were sought.

The brokerage industry has been able to deal with this issue, on its own, for years and years. The problem, of course, is that NEXT's alleged conduct was wrong and the firm did not own up to its failings. As we sometimes say in the practice "Bad cases make bad law." From what the SEC alleged, this was a "bad case" and the industry may find itself suffering from its impact.

That's the view from The Law Planet - Jupiter, Florida

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The broadcast television world will change on February 17, 2009, when traditional analog television will go "dark." For information on the changeover, see the NAB website DTVAnswers. How does this affect the practice of law, one might ask.

If you received a small portable television, for watching the news, weather or for emergencies, on February 18, 2009, that TV will no longer work, other than as a paperweight. Remember all those "cute" small color TVs that could be held in your hand? Well, they'll be dead, too. So will the TVs that are mounted in your car, RV or your conference room.

The one saving grace is that this applies only to over-the-air broadcasts. Most cable systems, for now, will continue to broadcast both analog and digital signals. If you've never seen an HD broadcast, which is a high definition digital signal, you are missing out on something. The picture and sound quality are better than anything that you've ever seen.

The federal government is assisting in the conversion. The government is giving away 40 dollar coupons that you can use towards the purchase of a digital converter box. You can make old TVs compatible with DTV by purchasing a converter box. The basic boxes are rumored to be priced between 50 and 70 dollars. Simply hook up the box to your antenna and your old TV and "voila" - digital TV. It is reported that even old TVs will display a better picture with digital signals.

Here in Florida, I'm thinking hurricane preparedness. If the power goes out, the cable goes out. If the cable is out, I need to receive over-the-air television. To do that, I have a couple older TVs that will need converter boxes (it's a REALLY BAD IDEA to hook up big screen TVs to a portable generator). So I'll be signing up for the coupons and getting at least one converter box.

That's the rabbit-eared view from The Law Planet, Jupiter, Florida.

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Is it me? The CEO of Merrill Lynch steps way out of line, while presiding over a disastrous business strategy, and he gets $160 MILLION dollars when he's shown the door. In very recent news, the now-former chairman, president and CEO of H&R Block will receive a package worth $2.55 Million, including his health benefits. This kind of corporate gifting to inept CEOs is outrageous.

In our labor and employment practice, we regularly represent individuals who have been terminated for no reason. Under Florida law, absent other circumstances, an employee can be fired "at-will." No $162 Million severance packages to cushion the fall. Sometimes our clients are living paycheck to paycheck when their boss decides that our client is no longer useful. Other times, clients come to us because the boss decided to not pay overtime or their last paycheck. The disparity in treatment is offensive.

What, exactly, did Mr. O'Neal do to deserve the $162 Million? Was it Merrill's expensive failure in the subprime market? Perhaps it was the disastrous purchase of Advest? No, according to press reports, it was neither. He spoke to executives at Wachovia about a possible business combination without the approval of the Board of Directors. I sincerely hope that I can get fired and be paid $162 Million for speaking without permission. It used to simply result in dirty looks from my parents.

And Mr. Ernst from H&R Block, what was his offense? Subprime mortgages, too. He must feel like a piker, only getting 1.5% of the deal that Mr. O'Neal received. My goodness, how will he be able to raise his head in pride at the club?

It was also just announced that Mitchell H. Caplan, the former chief executive of E*Trade Financial Corp., will receive $10.9 million in severance pay. And the cherry on top of his cake is that he is receiving $10,000 to reimburse him for legal fees to negotiate his severance from the firm. And a good thing, too. Otherwise, his severance would have only netted him $10.89 million. That extra $10K could mean the difference between 19" and 20" wheels on his next BMW.

When the pundits say that Wall Street is out of touch with Main Street, they need only look at the obscene severance packages paid to the bigwigs. While foreclosures in this country are trending alarmingly upward, it is unlikely that deposed Wall Street honchos will have that worry. But if you ask the folks that were working in their respective mortgage divisions who are now without jobs, the answer is quite different.

That's the outraged view from The Law Planet, Jupiter, Florida.

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Posted In: Securities Industry

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