Holland & Hart Securities Defense Blog

Proposed Imposition of Fiduciary Duties on Brokers

          President Obama’s blueprint for financial reform includes a proposal to impose a fiduciary standard on securities brokers who currently are subject only to a suitability standard requiring them to make recommendations that fit a client’s risk tolerance, objectives and financial status.  This proposal would represent a victory for both brokerage customers and financial planners registered as investment advisers who have long argued that brokers who offer investment advice should be subject to the more fiduciary duties.  The SEC has excluded brokers from the definition of investment advisers as long as they did not receive special compensation for investment advice, and such advice was “solely incidental” to their brokerage services.

SEC Survives Attempts to Eliminate It, But Challenges to its Powers Continue

The Obama administration apparently has decided against eliminating the SEC as part of an anticipated package of financial regulatory reforms to be submitted to Congress.   Instead, the administration will focus on increasing the powers of regulators.

            As recently as early 2008, the very existence of the SEC was threatened by then- Treasury Secretary Henry Paulson, who called for its abolition as part of his Blueprint for Financial Regulatory Reform.  Paulson proposed a dedicated business conduct regulator with the responsibility of protecting consumers and investors across all types of financial institutions and entities.  This agency would assume many of the roles of the CFTC, the SEC, and the consumer protection and enforcement roles of the nation’s  insurance and banking regulators.  

Colorado Division of Securities Cease and Desist Proceedings

            The economic crisis has exposed an unprecedented number of securities frauds around the country.  Consistent with national trends, the Colorado Division of Securities has reported a sharp increase in the number of securities fraud investigations and cases in 2009.   Administrative cease and desist proceedings are an important weapon in the Division’s arsenal. 

SEC’s Unpopularity at an All-Time High

        A recent national survey of potential jurors by Dr. Kevin Boully of Persuasion Strategies emphasizes the challenges facing the SEC in rehabilitating its image in the wake of the economic collapse and the Madoff scandal.  The survey asked respondents about their opinions of six federal agencies, including the SEC and the IRS.  The SEC was the most negatively viewed federal agency of the six, with 55% of respondents expressing an unfavorable opinion, compared with 46% of respondents expressing an unfavorable opinion towards the always-hated IRS.  The percentage of potential jurors with unfavorable opinions has increased almost 20% from 2006.   The survey suggests that it may be difficult for the SEC to persuade investors and other members of the public to cooperate with the staff in its investigations.  It also suggests that defendants with the resources to litigate may encounter sympathetic juries.  A blog post describing Kevin’s complete survey results may be viewed at http://www.litigationps.com/.

Did SEC Enforcement Lawyers Engage in Insider Trading?

            An article posted on today’s CBS website reports that the FBI is investigating two attorneys in the SEC’s Enforcement Division for insider trading.   If these lawyers did indeed trade in the stocks of companies under investigation, this would amount to a shocking betrayal of the public trust and would further tarnish the reputation of a once-proud agency now viewed more negatively than the IRS.[1]   The Inspector General's report is available at http://www.cbsnews.com/htdocs/pdf/051409_ak_sec.pdf