Brokers should never allow or ask a client to sign an account opening document in blank, with the information to be completed at a later time.  Despite this, brokers sometimes do so, reasoning the practice is more convenient for clients (and brokers) and saves time.

Allowing client documents to be signed in blank can expose you to claims that can easily be avoided. Examples of risks associated with having clients sign documents that are not fully completed include:

Control Over the Clients’ Financial Affairs

Allowing account forms to be signed in blank leaves you in sole control of the content, thus exposing yourself to a claim that the client relied on your discretion and professional judgment in managing his or her accounts.  The more control you possess, the greater your duties to your client.

Effective December 3, 2012, FINRA Rule 5123 requires broker-dealers to file certain documents related to the sale of private placements with FINRA.

According to the rule, documents that must be filed include a copy of any private placement memorandum, term sheet or other offering document, including any materially amended versions thereof, used in connection with such sale.  The documents must be filed within 15 calendar days of the date of first sale.

A number of private placements are exempt from the requirements of the Rule.  Exemptions include, but are not limited to sales to certain:

• institutional accounts
• qualified purchasers
• qualified institutional buyers
• investment companies
• an entity composed exclusively of qualified institutional buyers
• banks
• employees and affiliates
• knowledgeable employees
• eligible contract participants
• accredited investors

View the full list of exemptions here.

In addition to the list of exemptions, FINRA may exercise its power to exempt a member or association person from the provisions of the Rule for good cause shown, according to the Rule 9600 Series.

FINRA is required to maintain confidential treatment to all documents and information filed in to the Rule.

View the full FINRA Rule 5123 here.

FINRA has also published Frequently Asked Questions (“FAQ”) to provide guidance to broker-dealers and registered representatives regarding Rule 5123.

About Moulton & Arney, LLP

Moulton & Arney is a boutique litigation and arbitration firm founded on a genuine commitment to providing superior, personalized representation. We are at our best handling complex cases that require ingenuity and experience. Our focus is on understanding each client’s needs, providing clear direction and achieving RESULTS efficiently and effectively.

Attorney Cynthia R. Levin Moulton, the firm’s founder, has a proven track record in investment fraud claims involving an array of complex investment products. She has been named a Texas Super Lawyer in 2004, 2005, 2007, 2009, 2010, and 2011 a Thomson Reuters Service, is rated 5 out of 5 by Martindale.com, and is rated a 10.0 by AVVO.com.

To contact Moulton & Arney, LLP, visit http://www.moultonarney.com or, call (866) 378-4465, or (713) 353-6699.

Over the past two years, the U.S. Securities and Exchange Commission has seen an increase in enforcement actions against investment advisors, broker-dealers and senior executives, according to the agency.

In the fiscal years ending September 30, 2011 and September 30, 2012, the SEC filed a total of more than 1,400 enforcement actions, including 293 enforcement actions against investment advisors and 242 actions against brokers. The agency recovered about $6 billion in penalties and disgorgements over the two fiscal years.

The SEC used the following as examples of the success of its enforcement actions:

• Case against UBS Financial Services of Puerto Rico in which the SEC recovered $26 million due to UBS’s disclosure violations in connection with sales of close-end mutual funds.
• Case against OppenheimerFunds in which the SEC recovered $35 million due to OppenheimerFunds misleading investors in two funds that suffered substantial declines during the financial crisis.

It is uncommon for affected investors to recover their entire loss as the result of a successful SEC enforcement action.  In order to recover a larger amount of their loss, investors with valid claims against an investment firm or investment professional are often required to participate in private litigation in arbitration or court, depending on the case.

About Moulton & Arney, LLP

Moulton & Arney is a boutique litigation and arbitration firm founded on a genuine commitment to providing superior, personalized representation. We are at our best handling complex cases that require ingenuity and experience. Our focus is on understanding each client’s needs, providing clear direction and achieving RESULTS efficiently and effectively.

Attorney Cynthia R. Levin Moulton, the firm’s founder, has a proven track record in investment fraudclaims involving an array of complex investment products. She has been named a Texas Super Lawyer in 2004, 2005, 2007, 2009, 2010, 2011, and 2012 a Thomson Reuters Service, is rated 5 out of 5 by Martindale.com, and is rated a 10.0 by AVVO.com.

To contact Moulton & Arney, LLP, visit http://www.moultonarney.com or, call (866) 378-4465, or (713) 353-6699.

A recent California state appellate court’s decision in Lickiss v. FINRA has opened the door to the possibility that information in a broker’s Central Registration Depository (CRD) System record might not need to be erroneous in order for the broker to seek expungement.

Expungement is the removal of information from a broker’s record in the CRD System, typically involving customer complaints or involuntary termination.  FINRA Rule 2080 states that although FINRA must usually be named as an additional party in an expungement proceeding, FINRA may waive this requirement if the broker’s request for expungement is based upon at least one of the following affirmative findings by a judge or arbitration panel:

• The claim, allegation or information is factually impossible or clearly erroneous.
• The registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds.
• The claim, allegation or information is false.