New York Securities Fraud Lawyers Blog

What if a Big Firm Misrepresents Its DEI Initiatives?

November 16, 2023 | Malecki Law Team

In the years following George Floyd’s death, many companies have introduced internal efforts to increase their diversity, equity, and inclusion (“DEI”) initiatives to protect those who have historically been disadvantaged. However, it is important that these companies are honest about their efforts, but in at least one case, it has been alleged a brokerage firm was repeatedly not honest.

Wells Fargo is at the center of Environmental, Social, and Governance (“ESG”) related lawsuits deriving from allegedly conducting fake job interviews to diverse applicants, in efforts to comply with their “Diverse Slating Policy.” On their second attempt at suing Wells Fargo, shareholders commenced a lawsuit alleging that both Wells Fargo and members of their board misrepresented the firm’s DEI initiatives and deprived job opportunities from members of underrepresented groups, groups the initiatives were meant to help. As the “S” in “ESG” stands for “social,” the topic of DEI falls underneath that umbrella. Many companies that establish policies to “enhance” diversity in the workplace fail to implement and/or report such practices, resulting in substantial scrutiny from both investors and the SEC.

“Well-intentioned people created these initiatives, but when they hit the ground, the energy was devoted not to implementing them but finding a way to get around them,” according to Linda Friedman, a lawyer who settled a class-action suit on behalf of 320 black financial advisors for $36 million in 2017 after the advisors sued the company for allegedly positioning them to work in poor neighborhoods while seemingly affording white financial advisors to newer clients and better opportunities. Following this lawsuit, along with the overwhelming impact of George Floyd’s death in 2020, many companies, including Wells Fargo, issued a “diverse slate” policy, otherwise known as a diverse search requirement. Specifically, Wells Fargo’s policy allegedly asserted that at least 50% of the prospective job candidates who are interviewed must represent a disadvantaged group or some kind of diversity component (including race/ethnicity, gender, LGBTQ, veterans, and people with disabilities) for most posted positions in the U.S. with compensation greater than $100,000 per year. See Complaint filed 6/28/22. Although this may seem like a step in the right direction, it is quite the contrary because over the following years, it is alleged that the policy caused confusion throughout the firm and resulted in negatively impacting the people these initiatives were intended to help.

Theft in My Coinbase Account – What Can I Do Now?

November 13, 2023 | Jacqueline Candella

Malecki Law regularly receives calls from people distraught by having funds stolen from their cryptocurrency (“crypto”) accounts. Unfortunately, the scant regulation in the crypto space has yet to be fully tested. In fact, according to Reuters, “[the] illicit use of cryptocurrencies hit a record $20.1 billion last year…” However, if you lost money in your Coinbase account, you may have an avenue to recoup those funds. If funds were stolen from your crypto account, you need to contact a Crypto-Based Theft law firm in New York, like Malecki Law, to review your potential claim.

Interestingly, Coinbase markets itself as safe to customers by representing that it takes “extensive security measures” to ensure investors’ crypto investments are “safe.” Notwithstanding the supposed safety and security measures it has in place, Coinbase is reportedly prone to scams and hacks, which can result in theft from customers’ accounts. Crypto investors who have had funds stolen from their accounts often find themselves left with no way to get their funds returned to them, but there might be recourse. In January 2023, Coinbase settled with New York State’s Department of Financial Services (“DFS”) for $100 million due to cybersecurity, anti-money laundering (“AML”), and compliance-related issues. Specifically, Coinbase was ordered to pay $50 million in civil monetary penalties, and an additional $50 million “on further improvements and enhancements to its compliance program.” See In the Matter of Coinbase, Inc.

What is the relevant law providing for recourse? The Electronic Funds Transfer Act (“EFTA”) is a possible way to get your funds back.

Can My Broker or Investment Advisor Sell Me Cryptocurrency?

November 8, 2023 | Jacqueline Candella

Can my broker or investment advisor sell me cryptocurrency (“crypto”)? Is it an investment? The answer is not so simple; no, they cannot sell it directly, but they may try to sell it to you indirectly through a fund or private placement. Rest assured, it is still just as volatile and not appropriate for most investors. Malecki Law is looking into the sale of crypto-based products, as they have been on the rise. Although investors might be intrigued and ecstatic to get into the new shiny investment on the street, it is still a high-risk bet, no matter what your investment professional may say.

Investing in something new can be enticing, but it does not necessarily mean that it is in your best interest as an investor. If you were sold crypto-based products and sustained substantial losses, you need a Crypto-Based Investment law firm in New York, like Malecki Law, to review your potential claim.

What is crypto? Digital assets are the umbrella which crypto falls under. There is a wider range of assets that land under the digital assets umbrella, such as non-fungible tokens (“NFTs”). The common denominator of the variety of digital assets is that they tend to use blockchain technology. Crypto consists of a broad range of virtual currencies, such as Bitcoin (BTC) or Ethereum (ETH).

New York City Bar Association’s 20th Annual Small Law Firm Symposium

November 3, 2023 | Adam G. Schreck

On Thursday, November 9, 2023, New York City securities lawyer Jenice L. Malecki, Esq., will be part of a live panel at the 20^th Annual Small Law Firm Symposium organized by the New York City Bar Association. The program will feature panels discussing some of the most pressing topics affecting small law firms today, including how to grow your firm by acquisition, how to manage your firm with freelance lawyers, the evolving dialogue around diversity, equity, inclusion and belonging, cyber threats, Chat GPT and the use of artificial intelligence tools in practice, effective communications and positive outcomes, and how to create the legal practice and a life you love.

At the event, Ms. Malecki is scheduled to speak on 1:20 p.m. at the panel, titled “Looking Through the Lens of a Small Law Firm/Solo Practice: The Evolving Dialogue Around Diversity, Equity, Inclusion, and Belonging.” She will be speaking along with Gerard M. Anthony from Anthony Law Group PLLC, Nydia Shahjahan from Nydia Shahjahan Esq. P.C., and Stacey M. Cameron from S.M. Cameron Law and Mediation, PLLC. Ms. Malecki will draw on her experience as the founder of one of the few woman-led Manhattan-based securities law firms and her nearly thirty-five years of securities industry practice at a time when women are still struggling with pay discrepancies and disparities within the financial services industry. If you have suffered investment losses at the hands of your stockbroker or investment advisor, it could be beneficial to consult an experienced securities law attorney, like the ones at Malecki Law.

Ms. Malecki takes pride in sharing her experiences as the founder of a successful, boutique securities law firm and regularly presents as a panelist at major industry events across the country. In fact, in October 2023, Ms. Malecki had the opportunity to participate in panels related to discovery issues and ethics issues at the Public Investors Advocate Bar Association (PIABA) Annual Meeting in Colorado Springs, Colorado.

What Does a Defective Securities Product Look Like? Example: GWG Holdings L Bond

May 3, 2023 | Malecki Law Team

Today, very few products use asbestos, an abundant and inexpensively produced heat-resistant mineral once common in a wide array of construction materials, auto parts, and firefighter equipment, to name a few. Its use was rampant until studies revealed that asbestos causes various forms of cancer—clearly a defective product, use of asbestos is now scarce and regulated by the government.

Defective securities products are no different. Brokerage firms often develop complex securities products that promise to beat the market but instead result in catastrophic financial losses to investors. If this sounds familiar to you, you need to contact a New York Defective Securities Law Firm, like Malecki Law. Touted as the next big thing since sliced bread, some defective securities are so complex that even the brokers who sell them do not understand how the product works. Some other such products are easier to understand, but their viability is misrepresented, or their attendant risks are downplayed. The GWG Holdings L Bond is of the latter kind.

A few years ago, GWG Holdings Inc. created what they called the L bond, a speculative, unrated, high-risk, and high-yield investment instrument. GWG issued the bond to raise funds to purchase life insurance policies from insureds with the intention to collect the policies’ payouts upon their deaths. Each L Bond was priced at $1,000 principal with a minimum buy-in of 25 units ($25,000) and offered to investors with varying maturity terms and corresponding interest rate incomes. Given the investment’s high risk and price tag, the L Bond was deemed suitable only for wealthy investors. Nevertheless, brokers fraudulently sold it to the elderly, retirees, and other relatively inexperienced people with conservative to moderate risk tolerances and limited resources. If your broker sold you high-risk investments and failed to disclose or explain their inherent risks, you should have an experienced Defective Securities Lawyer in New York, like the lawyers at Malecki Law, review your portfolio. Based on the foregoing, it is clear this story does not have a happy ending; but before getting there, a word on the L Bond’s defective nature is apropos.

Surely My Financial Advisor Has an Insurance Policy to Protect Me When Things Go Wrong, Right? Not So Fast…

February 10, 2023 | Adam G. Schreck

Although a handful of states have requirements in place, surprisingly few Registered Investment Advisors (RIAs) across the country carry liability insurance to protect clients from their own wrongdoing leaving investors as the only party left to bear the brunt of losses when things go sideways.

The professional liability insurance industry for Registered Investment Advisors (RIAs) has been described by one in the industry as, “the Wild West.” There is immense uncertainty as to the number of independent RIAs who carry professional liability insurance as well as extreme variability within the specifics of the policies offered to RIAs. While there are some states that require RIAs to carry insurance, most states do not have mandates in place, and the federal government has yet to draft any laws on the matter.

At the forefront of requiring RIAs to maintain insurance coverage are Oregon and Oklahoma. In 2018, Oregon became the first state to pass legislation requiring RIAs registered with the state to carry professional liability insurance. The Oregon law requires RIAs to carry at least $1 million in coverage and to show proof of such coverage during the state’s licensing process. Similarly, in 2020, Oklahoma passed legislation requiring RIAs registered with the state to carry professional liability and cybersecurity insurance. Curiously, the Oklahoma law fails to indicate how much insurance coverage is required for RIAs. If you are an investor in Oregon, Oklahoma, or any other state, who believes you have lost money due to your RIA’s wrongdoing, you should consult with a Securities Law Firm like Malecki Law.

Know Your Custodian – Uniform Transfers and Gifts to Minors Acts

January 18, 2023 | Malecki Law Team

The Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) allow adults to give or transfer assets to minor beneficiaries. The slight difference between the accounts is that the UGMA is limited to financial assets while the UTMA includes any tangible or intangible assets. These accounts allow children to safely invest and build up capital legally before they become adults. There are also tax benefits to these accounts as contributions are made with after-tax dollars. If you believe your brokerage firm failed to supervise your trust account or the advisor managing your trust, you need to consult a New York Failure to Supervise Trusts Law Firm like Malecki Law.

Each of these accounts have a custodian who acts in the child’s interest as a fiduciary. This means that the investments made and the way the money in the accounts is managed must be for the child’s benefit. When the minor reaches the age of majority, the custodian no longer has authority to make decisions on behalf of the beneficiary and the beneficiary continues to monitor the account on their own. Additionally, once the money is transferred to the beneficiary, it is permanently their property.

FINRA Rule 2090, the “Know your Customer” rule, requires firms “verify the authority of any person purporting to act on behalf of the customer. So, brokerage firms and their members are supposed to know the essential details about who is acting on behalf of the customer (i.e. the custodian). Did your brokerage firm fail to “know” your custodian? Did you suffer losses because of this? You should reach out to a New York Failure to Supervise Trusts Lawyer like the lawyers at Malecki Law for a free consultation. The member must not only know the customer at the beginning of their relationship (account opening) but throughout the whole of the relationship. In line with this “Know your Customer” rule, firms are supposed to have a supervisory system for their members, which makes sure brokers are in compliance with procedures. The problem is that many firms do not have supervisory procedures in place for UT/UGMAs. In turn, the brokers do not know their customers, resulting in custodians not being monitored.

Should Sports Betting Fall Under Securities Regulatory Scrutiny?

January 10, 2023 | Malecki Law Team

Introduction

Sports betting is an activity that originated in ancient times. Back then, people wagered currency, food, or even livestock. Today, we usually wager cash or other securities. Federal government entities never regulated sports betting activities. Originally, there were no rules to govern the use of the funds that were generated from sports betting activities and, as a result, a lot of organized crime ensued. Over the last 40 years, the federal government attempted to regulate sports betting to curtail this increase in organized crime. If you think you have been subjected to securities fraud, you need a New York Securities Fraud Law Firm like Malecki Law to review your portfolio, at no cost.

These governmental attempts to regulate sports betting were often met with the question of whether these efforts overstepped the federal government’s constitutional authority. This question was constantly debated until 1992 when Congress passed the Professional and Amateur Sports Protection Act (PAPSA). This act prohibited the states from sponsoring, operating, advertising, or promoting sports betting schemes. This act also applied, not only to the state level, but to individuals as well. Although Congress put its “foot down” on the issue of regulating sports betting, many states believed that PAPSA was an unconstitutional overreach of Congress’ authority. From 1992-2018, states continued to sponsor initiatives to regulate sports betting within their own jurisdictions. New Jersey was one of the states that were on the front lines of this fight and eventually, won its battle with the federal government.

Reg D Fraud Lawyers Can Help Recover Trillions of Investor Losses

October 31, 2022 | Jenice L. Malecki, Esq.

The Securities and Exchange Commission governs private placements exemption from registration of securities on an exchange that are still sold to the investing public via Regulation D (Reg D). Reg D offerings are attempted by private companies or entrepreneurs because funding is faster at a lower cost than in a heavily reviewed and documented public offering. The problem many investors face are illiquidity, company failure and the end of promised distribution income.

Studies show that in the past 14 years, there have been $20 trillion in Reg D offerings, $7.7 trillion sold by brokers; $4.8 trillion of that has happened since 2016. Reg D Fraud Lawyers in New York at Malecki Law know the losses these investments can cause investors.

Studies estimate that close to 10% of Reg D offerings fail, meaning likely in excess of $5 trillion sold by brokers in the past 6 years may have failed. Approximately one-third of Reg D offerings reportedly fail within the first six years and approximately 25% are sold by high-risk brokerage firms.

The Impact of Cloud Computing on the Securities Industry

October 14, 2022 | Malecki Law Team

Cloud computing is the delivery of computing services (i.e., storage and network infrastructure and software-as-a-service (“SaaS”)) on the internet rather than your computer’s hard drive. Currently, cloud computing is considered a valuable asset to firms, industry wide. It is important to have Malecki Law’s FINRA Regulatory Lawyers in New York assist in ensuring your firm’s storage systems are sufficient. As a result, the Financial Industry Regulatory Authority’s (“FINRA”) Office of Financial Innovation (“OFI”) published a report addressing the results of a study regarding the state of cloud adoption within the securities industry. In drafting the report, FINRA obtained data from roughly 40 broker-dealer firms, cloud service providers, industry analysts, and technology consultants.

The report noted that cloud computing strengthens a brokerage firm’s ability to scale operations, generate business continuity solutions and quickly deploy products. Moreover, firms claimed that there are both benefits and challenges regarding agility, resiliency, costs, cybersecurity, staffing, and operations. Additionally, many firms claimed that migrating to the cloud may allow them to be more innovative and offer products at a faster speed. Firms also felt that cloud computing enables them to more efficiently scale computer usage to assist with the increase in IT resources.

As part of its recommendations, FINRA advised broker-firms that use third-party service providers that they have an ongoing responsibility to monitor and supervise the provider’s performance and create oversight procedures. FINRA also encourages companies and vendors to “re-evaluate their approach to security, including reviewing cloud misconfigurations and poor access controls; update data-related policies and procedures if a firm’s cloud adoption leads to changes in how it collects, stores, analyzes, and shares sensitive customer data; create, maintain, and annually review a written business continuity plan, in line with the FINRA Rule 4370 (Business Continuity Plans and Emergency Contact Information); consider the risk posed by cloud vendors and service providers; ensure that any data and information stored in the cloud is compliant with Exchange Act Rule 17a -4, and are preserved in a non-rewriteable and non-erasable format.”