True, the prospect of litigating a case brought by the Securities and Exchange Commission or the Financial Industry Regulatory Authority against a b/d or advisory firm is not a pleasant one, and an automatic reflex may be to settle.
Not so fast, Washington-based law firm Sutherland Asbill & Brennan LLP counsels. It may, in fact, pay to fight charges in some trials and appeals, particularly in cases involving fraud, according to the firm's annual review of litigated cases brought by the SEC and FINRA against broker-dealers and advisors.
Of the 237 charges brought by the SEC and FINRA that resulted in SEC administrative law judge (ALJ) or FINRA hearing panel decisions between October 2008 and September 2010, approximately 13 percent of the of the charges were dismissed. And when respondents challenged SEC or FINRA charges that resulted in a fine before a judge, panel or full commission, they won a lower fine than the agencies originally sought one-third of the time.
“While firms and individuals often think that settling with the SEC and FINRA makes the most sense, our studies continue to show that in some circumstances, respondents will be better off if they try their cases and tell their stories in front of judges or hearing panels, especially when fraud is charged,” said Sutherland partner Brian Rubin in a statement.
The study also found that there may not be what Rubin called a “settlement discount.” Even if respondents are unsuccessful on the merits, he said, they “may get reduced sanctions if they litigate rather than settle.”
SEC staff failed to prove fraud charges about 57 percent of the time, according to the study. And FINRA respondents with counsel were significantly more successful than those without. Nearly 10 percent of charges were dismissed for respondents who had attorneys, while only one pro se FINRA respondent has succeeded in getting any charge dismissed since January 2006. — CP
Come Down to Mother Earth
Hedge fund firm Juno Mother Earth Asset Management and its two founders were slammed with a fraud charge by the SEC. It claims Eugenio Verzili and Arturo Rodriguez misappropriated client assets, inflated assets under management, and filed false information with the agency.
Using about $1.8 million of assets from a hedge fund they managed, the two founders spent it on payroll, rent, travel, meals and entertainment, the SEC said. They also issued promissory notes to cover up their misuse of assets, and claimed some Juno partners had invested more than they had.