What is the amount of fines assessed by Finra this year? Thus far, 2016 has been a banner year for the Financial Industry Regulatory Authority ("FINRA"). Buoyed in part by a handful of large penalties, the self-regulatory watchdog is on pace for a record year as fines could be up by 70 percent when all is said and done. In the first six months of this year, FINRA assessed $79.4 million in fines against member broker-dealers. For the similar period in 2015 that figure was $37.5 million. If this clip continues, FINRA could net $159 million in fines, a 69 percent spike over 2015. This is not without precedent, however, because the previous record was in 2014, when the total amount of fines assessed was $134 million. That said, this year's total could eclipse that mark by 19 percent. Large Finra Fines in 2015 As we have previously reported  in May, FINRA fined two units of Raymond James a total of $17 million over compliance breakdowns related to its anti-money laundering programs. At that time, FINRA also slapped MetLife with a $25 million fine, the second largest by the SRO,  for misleading thousands of its variable annuity customers. We also reported on the $6 million penalty assessed to Deutsche Bank over blue sheet lapses. Combined, these fines account for more than 60 percent of the fines assessed in the first 6 months of 2016, in addition to 8 other supersized fines (those exceeding $1 million). However, there has been a slight decline in the total number of disciplinary actions taken by FINRA this year even though smaller fines on broker-dealers are having a cumulative effect. Finra Sanctions Guidelines According to some observers, FINRA has taken a very aggressive approach since it published the 2015 sanctions guidelines, and is sending a message to the Street. However, FINRA has not been as busy on the restitution front so far. It is on pace to order a return of $28 million to customers, far less than the $96 million in restitution ordered in 2015. These figures are bound to change as FINRA is reportedly gearing up for larger restitution awards this year. While not offering specific details, there could also be a greater emphasis on variable annuity cases this year. It is unclear if these cases are connected to the efforts to step up enforcement activity with respect to elder financial abuse. The Takeaway Given that the Dodd-Frank regime has continued to unfold, the spike in fines assessed by FINRA this year should come as no surprise. At this juncture, it is unclear if and to what extent that regulatory framework will be scaled back under a new presidential administration. (This Blog recently discussed possible implications with respect to the SEC whistleblower program here .) In the meantime, broker-dealers and other member financial services providers should proceed with caution.

The Financial Industry Regulatory Authority ("FINRA") recently announced that the new Capital Acquisition Broker ("CAB") Rules will become effective April 14, 2017. While CABs still must be registered with the Securities and Exchange Commission, they will be subjected to a reduced series of FINRA rules and compliance obligations. Capital Acquisition Brokers at a Glance Capital Acquisition Brokers are those involved in private placements and mergers and acquisitions involving institutional investors and qualified purchasers. CABs are barred from engaging in both proprietary trading and secondary sales and limited to the following activities: Advising companies on mergers and acquisitions Advising issuers on raising debt and equity capital in private placements Acting as placement agent Providing strategic and financial advisory services It is important to note that FINRA emphasized the word "solely" in its announcement, which means for all intents and purposes that a CAB may engage only in business activities related to the securities industry and not other businesses, such as insurance or real estate. Moreover, in its capacity as a placement agent, a CAB can make offerings only to institutional investors, including: Any bank, savings and loan association, insurance company or registered investment company Any governmental entity or subdivision of a governmental entity Certain employee benefit, stock bonus or profit-sharing plans Any individual or entity having total assets of at least $50 million Any “qualified purchaser” as defined under Investment Company Act Broker-dealers that carry customer accounts, accept purchase and sale orders, hold or handle customer funds or that engage in a range of other activities specified in FINRA's rule do not meet the definition of a CAB. At the same time, CABs may engage in activities in the normal course of conducting business, such as such as opening bank accounts, renting or owning office space and entering into arrangements with third-party vendors. The Takeaway While the FINRA By-Laws and other core rules will still apply to CABs, certain other rules will be tailored to the specific activities, dealings and communications with institutional investors. For example, CABs will be permitted to provide forecasts and projections in offering materials and there is no requirement to file advertising or sales literature with FINRA. Lastly, CABs will have reduced supervisory requirements with respect to annual meetings and internal inspections. While the rule does not become effective until April 14, 2017, FINRA will begin accepting applications beginning January 3, 2017. If you further questions about the CAB rules or need assistance with the application process, you should engage the services of an attorney with expeience in FINRA rules and regulations.

New York, NY ( Law Firm Newswire ) November 22, 2016 - Freiberger Haber LLP is pleased to announce that Freiberger Haber LLP, the firm’s principal, has been quoted in a two-part series appearing in the ctnews.com blog, “Getting Personal About Business.” The article is about the importance of business owners retaining legal counsel before a dispute arises and the available methods of dispute resolution once dissension occurs. In part one, Freiberger Haber LLP discusses how significant it is for a business owner to establish a relationship with a capable attorney before disputes arise. He points out that the attorney consulted should be skilled in strategic approaches and able to assist the business owner in prioritizing and achieving his or her personal goals. In part two, Freiberger Haber LLP discusses the available methods of dispute resolution, as well as the advantages and disadvantages of each. To read the articles, visit http://blog.ctnews.com/zahn/2016/11/15/ounce-of-prevention/ and http://blog.ctnews.com/zahn/2016/11/15/adr-is-a-ok/ . About Freiberger Haber LLP Located in New York City, Freiberger Haber LLP is dedicated to representing corporations, small businesses, partnerships and individuals engaged in a broad range of business and litigation matters. For over 25 years, Freiberger Haber LLP has been involved in high-profile complex litigations and arbitrations. He has served in various roles in both individual and class action lawsuits resulting in million and multimillion-dollar settlements and awards. Freiberger Haber LLP’s practice combines the sophistication and counsel of a large national law firm with the economy, flexibility, commitment, and personal attention of a small firm. ATTORNEY ADVERTISING. © 2016 Freiberger Haber LLP. The law firm responsible for this advertisement is Freiberger Haber LLP, 708 Third Avenue, 5th Floor, New York, New York 10017, (212) 209-1005. Prior results do not guarantee or predict a similar outcome with respect to any future matter. Contact Freiberger Haber LLP Freiberger Haber LLP 708 Third Avenue, 5th Floor New York, N.Y. 10017 Email:info@jhaberlaw.com Tel: (212) 209-1005 Fax: (212) 209-7101

What are the seal provisions in a complaint? The U.S. Supreme Court is weighing the conditions under which a federal court should dismiss lawsuits brought by whistleblowers who violate the law's non-disclosure requirements. In short, a complaint must be filed and remain under seal for sixty days. During this period, the government investigates the allegations and decides whether to intervene while the plaintiff is barred from publicly disclosing the suit. In November, the Court heard argument in over the Act's seal provision. The case involves a complaint brought by plaintiffs Cori and Kerri Rigsby against State Farm. The Rigsbys, sisters and former claims adjustors for Allstate, claimed the company fraudulently mischaracterized wind damages caused by Hurricane Katrina as flood damages. Instead of Allstate being responsible for paying the damages, the cost would be covered by the government's flood insurance program. While the plaintiffs filed the lawsuit under seal, it was allegedly disclosed shortly thereafter to several news outlets by the Rigsby's prior counsel. State Farm then moved for a dismissal which was declined by the district court (which also awarded the plaintiffs 30 percent of the $758,250 award against State Farm and $2.9 million in attorney fees and costs). On appeal, the Fifth Circuit rejected the insurer's argument that a seal violation mandated dismissal and affirmed the trial judge's discretion in rejecting a "per se" dismissal rule. The court also applied a balancing test in finding that the disclosures were not revealed by the media and that the government's investigation had not been compromised. The overarching issue before the Supreme Court is whether all violations of the seal requirement should be dismissed or if a balancing test similar to that of the Fifth Circuit's should be adopted. The Court must also consider a number of other factors such as the plaintiff's intent, whether the disclosure was limited or inadvertent, and the potential harm to the defendant or to the government's investigation. Why This Matters This case amplifies the high stakes of claims brought under the False Claims Act. While it is unclear at this time how the Supreme Court will rule, claims are unlikely to be rolled back. That being said, it is crucial for parties who bring claims under the Act to be aware of the seal requirement and that a violation of this provision could lead to a case being dismissed. If you are considering bringing a claim of fraud against the government, you should consult with an experienced whistleblower attorney .

On November 4, 2016, a judge sitting in the United States District Court for the District of Columbia upheld the Department of Labor’s (“DOL”) fiduciary duty rules that were adopted to curtail conflicts of interest by financial advisors providing investment recommendations for retirement accounts.  In a 92-page ruling, Judge Randolph Moss rejected arguments that the new rules would have “catastrophic consequences” for the fixed indexed annuities industry, that the DOL exceeded its authority in promulgating the rules, and that the industry could not meet the April 2017 effective date. The rules, which took six years to craft, require financial advisors to act in the “best interest” of their client when, among other things, they provide investment recommendations for retirement accounts.  (This Blog wrote about the new rules in May 2016.  See here .) In the National Association for Fixed Annuities v. Perez , No. CV 16-1035 (RDM) (D.D.C. Nov. 4, 2016), Judge Moss granted the DOL’s motion for summary judgment and dismissed the claims brought by the National Association for Fixed Annuities (“NAFA”).  The ruling can be found here . In granting summary judgment, Judge Moss reviewed the legislative history of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq., and the DOL’s rulemaking authority.  The court ruled that, among other things, the DOL’s decision to hold financial advisors who recommend retirement investments to a fiduciary standard was reasonable considering the growth of IRAs (since first introduced in 1974) and other retirement plans as a future source of income. NAFA has announced that it will appeal the decision. The Challenges and Ruling: NAFA brought its action under the Administrative Procedures Act, the Regulatory Flexibility Act (“RFA”) and the Due Process Clause of the Fifth Amendment to challenge three rules promulgated by the DOL on April 8, 2016. NAFA argued that: (i) the DOL exceeded its authority by replacing an established regulation that, among other things, made a financial advisor a “fiduciary” only if she or he rendered “investment advice” for a fee “on a regular basis”; (ii) the DOL improperly applied the new rules to IRAs and other retirement plans that are not subject to Title I of the ERISA statute; (iii) the written contract requirement contained in the Best Interest Contract (“BIC”) Exemption impermissibly created a private right of action; (iv) the “reasonable compensation” condition set forth in the BIC Exemption is constitutionally vague; (v) the decision to move fixed indexed annuities (“FIAs”) to the BIC Exemption was improper; and (vi) the DOL failed to conduct a regulatory impact analysis required by the RFA. Judge Moss rejected each of the foregoing challenges. The DOL Did Not Exceed its Authority by Replacing a 1975 Regulation with the New Rules and the Definitions Set Forth Therein The court rejected NAFA’s argument that the DOL exceeded its rule-making authority by, among other things, discarding the limitations set forth in a 1975 regulation. The regulation in question created a five-part test to determine whether an advisor “renders investment advice” to a plan or IRA. The test limited the fiduciary duty reach of ERISA to only those advisors who rendered investment advice “on a regular basis.” The new rules eliminate that limitation “in favor of a definition that encompasses, among other activity, ‘ recommendation as to the advisability of acquiring . . . investment property’ that is rendered ‘pursuant to . . . understanding that the advice is based on the particular investment needs of the advice recipient.’” The new rules define “investment advice” to include advice even if not given “on a regular basis.” In ruling against NAFA, the court held that the DOL was entitled to deference in its interpretation of the term “investment advice” under the two-step framework established in Chevron, USA, Inc., v. Natural Resources Defense Council, Inc. , 467 U.S. 837 (1984), and that nothing in the ERISA statute foreclosed the DOL’s interpretation.  In fact, the court concluded that the DOL’s interpretation hews closer to the text and purpose of ERISA than the 1975 rule. As to step one of the Chevron analysis, the court held that there is nothing in the ERISA statute that “forecloses the Department’s current interpretation.” Indeed, the court found that “ he statute does not define the phrase ‘investment advice,’ and the ERISA statute expressly authorizes the Secretary to adopt regulations defining ‘technical and trade terms used’ in the statute.”  Those terms, which the new rules define, the court held, comport with their ordinary usage: “Indeed, if anything, it is the five-part test—and not the current rule—that is difficult to reconcile with the statutory text. Nothing in the phrase ‘renders investment advice’ suggests that the statute applies only to advice provided ‘on a regular basis.’” As to step two of the Chevron analysis, the court deferred to the DOL’s interpretation of the ERISA statute. The court found that the DOL’s interpretation was “reasonable and reasonably explained.” The new interpretation, rather than the five-part test embraced by NAFA, fit comfortably with the text and purpose of ERISA to protect the interests of retirement plan participants. The court rejected NAFA’s contention that market changes alone could justify the change in the definition of “fiduciary”, finding that the DOL did not distort the statutory meaning of “rendering investment advice” simply to achieve a regulatory end. In fact, the DOL supported the change with an extensive explanation of the relationship between advisers and investors and how that relationship has changed. Further, citing to the commentary accompanying the new rules, the court further rejected NAFA’s argument that the definition of “rendering investment advice” is too broad, sweeping up “relationships that are not appropriately regarded as fiduciary in nature and that the Department does not believe Congress intended to cover as fiduciary relationships.” (Internal quotation marks omitted.) The DOL Did Not Exceed its Authority By  Requiring Financial Advisers Who Provide Advice Regarding Investments Held in IRAs and other Non-Title I Plans to Comply with the Duties of Loyalty and Prudence to Qualify for the BIC Exemption The court rejected NAFA’s argument that the DOL exceeded its rule making authority by extending the duties of loyalty and prudence found in Title I of ERISA to individuals who advise IRAs and other non-Title I plans.  The court determined that the DOL had the authority to condition prohibited transaction exemptions on compliance with ERISA’s duties of loyalty and prudence. The court reasoned that “the mere fact that title I imposes certain duties or obligations on employee benefit plans does not, as a matter of logic or the rules of statutory interpretation, mean that Congress intended to preclude the Department from imposing a similar duty or obligation as a condition of granting an exemption under 26 U.S.C. § 4975(c)(2).” Indeed, the ERISA statute authorizes the DOL to adopt non-statutory exemptions and limitations on those transactions. Subjecting financial advisers who recommend Title II plans to ERISA duties only if they are paid commissions is the point of the exemption, since the DOL is concerned about conflicted advice resulting from commission arrangements: “Importantly, there is also a clear nexus between the risk that commission-based compensation will skew investment advice and the condition that advisers paid on a commission basis must provide advice that satisfies the duties of loyalty and prudence.” Although it “may be difficult and costly for financial institutions to move away from that model of compensation, the prospect of alternative compensation methods is not illusory. The choice may not be pleasant one, but it is real.” The Written Contract Requirement Contained In The BIC Exemption Does Not Create a Private Cause Of Action The court rejected NAFA’s argument that the new rules “impermissibly creates a private right of action” for violations of the BIC Exemption.  The court found that the BIC Exemption “merely dictates terms that otherwise conflicted financial institutions must include in written contracts with IRA and other non-title I owners in order to qualify for the exemption.” Enforcement of these contractual terms “would be brought under state law,” which both parties agreed during oral argument would occur. As such, the court concluded that “although the BIC Exemption dictates what must be included in the contract, the cause of action and right to recover are dictated by state law. Federal law merely requires the inclusion of specific contractual terms as a condition of the prohibited transaction exemption.” The “Reasonable Compensation” Condition in the BIC Exemption is not Void for Vagueness The court rejected NAFA’s argument that the “reasonable compensation” requirement of the BIC Exemption was void for vagueness under the Due Process Clause of the Constitution. “Under that condition, a financial institution must agree in writing that ‘ he recommended transaction will not cause , dviser or their ffiliates or elated ntites to receive, directly or indirectly, compensation for their services that is in excess of reasonable compensation within the meaning of <29 u.s.c. § 1108(b)(2)> and <26 u.s.c. §> 4975(d)(2).’” The court found that the concept of “reasonable compensation” is commonly used throughout the U.S. Code, including in the ERISA statute, and “is sufficiently clear to provide financial institutions with ‘fair warning of what the regulations require.’” (Citation omitted.) Indeed, the phrase is one that “a reasonably prudent person, familiar with the conditions the BIC Exemption is meant to address and the objectives the exemption and conditions are meant to achieve, would have fair warning of what the regulations require.” The Industry Had Ample Time to Comment on The New Rules The court rejected NAFA’s argument that the DOL failed to give it an opportunity to comment on the decision to make FIAs ineligible for PTE 84-24.  PTE 84-24 created a limited exemption to the prohibited transaction rules set forth in Title I and Title II of the ERISA statute.  Under PTE 84-24, it was permissible to compensate investment advisors and their employees and agents “on a commission basis for sales of variable and fixed annuity products held in ERISA employee benefit plans and IRAs, as long as either (1) the relevant investment advice was not provided ‘on a regular basis,’ or (2) the terms of the transaction were at least as favorable as those offered in arm's-length transactions and the relevant fees and commissions were reasonable.” NAFA challenged the new rules on the grounds that the decision to subject FIAs to the BIC Exemption was different than originally proposed. The court dismissed this challenge noting that the DOL “expressly requested comment on its decision to ‘continue to allow IRA transactions involving’ fixed indexed annuities ‘to occur under the conditions of PTE 84-24,’ while requiring that similar transactions involving variable annuities occur under the conditions contained in the proposed BIC Exemption.” In fact, to remove any doubt about the bankruptcy of NAFA’s argument, the court observed that “NAFA, along with other industry groups, provided comments on that very issue.” The DOL Did Not Violate the RFA The court rejected NAFA’s argument that the DOL failed to accompany the final rule with a “final regulatory flexibility analysis” required by the RFA – that is, an assessment of the impact of the new rules on small businesses.  According to the court, the final regulatory flexibility analysis is only a procedural requirement, not a substantive one. In any event, the court found that DOL put forth a reasonable good-faith effort to comply with the statute, as evidenced by the DOL’s “382-page final Regulatory Impact Analysis.” Takeaway: The NAFA decision is thoughtful and well-reasoned. It is not only a win for the DOL, but also a victory for investors looking for retirement investment opportunities.  As such, it could influence and inform the decisions of other courts that are also considering the legality of the new rules. To date, there are six cases filed by industry professionals and state attorneys general against the DOL’s new rules. Three were consolidated into one case in the United States District Court for the Northern District of Texas. Oral argument was heard the Texas consolidated action and in the Kansas action (one of the remaining cases). Decisions are likely in the coming months. As the NAFA action shows, whatever the results in those cases, appeals will likely follow, ultimately creating an opportunity for the Supreme Court to weigh. All though the DOL has won round one in the courts, there is also a legislative fight that could spell the end of the new rules. The Republican-controlled Congress previously passed legislation to nullify the new rules; President Obama vetoed that legislation. It stands to reason that the newly elected Republican-controlled Congress will do same once Donald J. Trump is inaugurated. Though there is no indication of what the new president will do, he has already expressed an interest in reducing jobs-killing regulations during the campaign and transition. ( See , e.g. , https://www.greatagain.gov/policy/regulatory-reform.html.) One thing is for certain: despite the win, the DOL’s new fiduciary duty rules remain in jeopardy.

On November 14, 2016, the Securities and Exchange Commission (“SEC”) announced that it had awarded more than $20 million to a whistleblower “who promptly came forward with valuable information that enabled the to move quickly and initiate an enforcement action against wrongdoers before they could squander” their ill-gotten gains. The award “is the third-highest since the SEC’s whistleblower program issued its first award in 2012.” To date, the SEC has paid “more than $130 million to whistleblowers who voluntarily provided the with unique and useful information that led to a successful enforcement action.” The SEC declined to identify the whistleblower or the wrongdoers. By law, the SEC protects the confidentiality of whistleblowers and does not release information that might directly or indirectly reveal the whistleblower’s identity. Commenting on the award, Jane Norberg, Chief of the SEC’s Office of the Whistleblower, stated: “This whistleblower alerted us with a valuable tip that led to a near total recovery of investor funds.  Sizeable awards like this one should encourage whistleblowers everywhere that there are real financial incentives to promptly reporting potential securities law violations to the SEC.” Under the program, whistleblowers are eligible for an award if they voluntarily provide the SEC with original information that leads to a successful enforcement action that exceeds $1 million. The award can range from 10 percent to 30 percent of the money collected. All payments come from an investor protection fund established by Congress that is financed through monetary sanctions paid to the SEC by securities law violators.  No money is taken or withheld from harmed investors to pay whistleblower awards. The SEC Whistleblower Program Is Successful, Yet It May Be in Danger of Being Eliminated? The SEC’s whistleblower program is, by all accounts, a success . From the SEC’s perspective, it has: (a) provided a mechanism by which it can receive information about illegal conduct that, under most circumstances, would go undetected, particularly with regard to accounting fraud and valuation issues involving complex securities; (b) enhanced the SEC’s ability to move forward quickly against wrongdoers, thereby reducing the cost to prosecute cases; (c) increased the quality of information submitted to the agency for investigation, prompting the current SEC Chairwoman, Mary Jo White, to call the program a “game changer”; and (d) increased the deterrent effect of engaging in unlawful conduct. From the whistleblower’s perspective, it has: (a) demonstrated an unyielding effort to protect their identities; (b) shielded them from retaliation and pre-retaliation (attempts to discourage and/or prevent whistleblowing with the SEC – a topic this Blog discussed here ); and rewarded them for coming forward as insurance against retaliation and other consequences they could suffer. In short, as noted by the SEC’s Director of the Division of Enforcement, Andrew Ceresney, the SEC whistleblower program has had a “transformative impact,” not only in the United States but also around the world as numerous regulatory agencies are looking to implement similar programs. (This Blog wrote about Director Ceresney’s speech here .) Despite the success of the program, its continued existence has come into question by the recent election of Donald J. Trump. During the long campaign season, as well as during the current transition period, President-elect Trump has spoken about repealing the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act” or the “Act”). Although he has attacked many aspects of the Act, he has been silent about the SEC whistleblower program. Indeed, the President-elect has stated that he intends to replace the Dodd-Frank Act with “new policies to encourage economic growth and job creation,” according to his transition website, GreatAgain.gov, citing the Consumer Financial Protection Bureau and restrictions on banks’ trading activity as targets for repeal or replacement. This position has been further reinforced by Mr. Trump in a post-election interview with The Wall Street Journal ( here ). Additionally, the transition team appointed by President-elect Trump is made up of people who do not support the Dodd-Frank Act, including the SEC whistleblower program. One member of the team, Paul Atkins, a former Securities and Exchange Commissioner under President George W. Bush, has often harshly critiqued the Dodd-Frank Act, including the structure of the whistleblower program. Testifying before the Senate banking committee in 2011, Atkins stated that the whistleblower program (a) “create perverse incentives” for whistleblowers; (b) “set[] up a system that has many inherent problems,” such as “undermin internal compliance programs, and failing to create a system that protects companies “from disclosure of confidential information”; and (c) created a boondoggle for plaintiff’s lawyers who would be “inject into the mix” and “increase[] the potential for specious claims to get traction and win a settlement, especially if the complainant is anonymous.” Against this negativity stands Senator Charles Grassley of Iowa and Representative Jeb Hensarling of Texas, two Republican lawmakers who appear to have the ear of the President-elect’s camp.  Both have previously voiced support for whistleblower programs. It is difficult to know how the new administration will approach the SEC whistleblower program. It can be a long time before legislation is enacted to address the whistleblower program, especially given the new administration’s stated priorities of job growth, the repeal and replacement of the Affordable Care Act, and the establishment of a nationwide infrastructure program. Still, the hope is that the whistleblower programs established under the Dodd-Frank Act will survive, especially given the long history of bipartisan support for programs that fight government waste, fraud and abuse.