More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
The Supreme Court issued two rulings on Wednesday: one stating that the Securities and Exchange Commission must bring securities fraud cases within five years of when the fraud occurred, and another making it easier for shareholders to bring class-action lawsuits.
In the first case, Gabelli et al v. the SEC, plaintiffs sought to dismiss the SEC’s 2008 civil case against them for aiding and abetting investment advisor fraud from 1999 to 2002. The plaintiffs invoked the five-year statute of limitations under the Investment Advisers Act and pointed out that the complaint “alleged illegal activity up until August 2002 but was not filed until April 2008.”
The District Court agreed and dismissed the civil penalty claim, but the Second Circuit reversed, accepting the SEC’s argument that because the underlying violations sounded in fraud, the “discovery rule” applied, meaning that the statute of limitations did not begin to run until the SEC discovered or reasonably could have discovered the fraud.
However, the Supreme Court ruled Wednesday that “the five-year clock … begins to tick when the fraud occurs, not when it is discovered.”
In the second case, Amgen Inc. et al. v. Connecticut Retirement Plans and Trust Funds, the Supreme Court ruled that shareholders of Amgen Inc. could sue the biotechnology company as a group without first having to show that misinformation had materially and fraudulently inflated its stock price, according to Reuters.
Shareholders, led by the Connecticut Retirement Plans and Trust Funds, had accused the Thousand Oaks, Calif.-based Amgen of misleading them between April 2004 and May 2007 by exaggerating the safety of its anti-anemia drugs, Aranesp and Epogen, Reuters reported.
Meanwhile, the Financial Industry Regulatory Authority said Tuesday that it is in the process of appealing the recent decision by a FINRA disciplinary panel to uphold Charles Schwab’s decision to include a class-action waiver in its customer arbitration agreements.
The waiver requires that all disputes between Schwab and its customers be arbitrated, and waives each party’s right to bring class-action claims against the other.