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In a previous post, we began to address some general ways in which a financial advisor can overcharge investment clients. But it's worth a bit more focus on one specific type of investment: margin accounts. Some advisors contractually steer customers into margin accounts as the default investment. But margin accounts are inherently riskier investments, and investors with these accounts are more vulnerable to being overcharged by their advisors. The Basics of Margin Accounts As the Securities and Exchange Commission (SEC) explains, in a margin account, clients pay part of the price for stock while a broker loans you the rest of the money to purchase securities. If the stock goes up, then clients can make a large return, but if the stock drops, they can lose a larger percentage of their investment than if they'd paid cash—even losing their entire investment. On top of that loss, they have to pay the relevant fees and the interest on the margin loan—even though the clients have lost all of the money the advisor has loaned them.In a previous post, we began to address some general ways in which a financial advisor can overcharge investment clients. But it’s worth a bit more focus on one specific type of investment: margin accounts. Some advisors contractually steer customers into margin accounts as the default investment. But margin accounts are inherently riskier investments, and investors with these accounts are more vulnerable to being overcharged by their advisors. Continue reading

As volatile as the market is these days, clients still should not lose sight of the value of their investment advisor. And understanding their value proposition goes beyond if an advisor gives them sound financial recommendations. It also means that advisors should be charging clients fair rates for their services.  Unfortunately, for too many advisors, that just isn't the case. They may overcharge clients through fee manipulation, lack of disclosure or excessive trading. So let's discuss some red flags that may indicate if your firm is overcharging clients.  Overcharging Or Undisclosed Fees  In a "Risk Alert" published by the Securities and Exchange Commission (SEC), the SEC warned that some advisers were overbilling fees. Some did so included switching the metrics for valuing the assets in a client's account to a different method than was in the client's advisory agreement. For example, under the agreement, the advisor should charge based on a client's average daily balance, but, instead, they charge fees based on the market value of the assets at the end of the billing cycle.As volatile as the market is these days, clients still should not lose sight of the value of their investment advisor. And understanding their value proposition goes beyond if an advisor gives them sound financial recommendations. It also means that advisors should be charging clients fair rates for their services. Continue reading

Compared to the decades of experience investors have with the S&P and NASDAQ, everyone's a comparative rookie when it comes to cryptocurrency. And crypto's appeal often comes from the idea that crypto exists outside of traditional banking. However, overlooked in that idea is the reality that—not unlike traditional banking and other investment platforms—many crypto services charge users expensive fees for these crypto transactions. And these fees can get very steep, very quickly.  All that's true, assuming that those platforms and third-party vendors are properly disclosing and administering those fees.  But that's not always the case: In 2020, Robinhood paid $65 million in fines to settle claims that it failed to disclose commission fees and failed to get the best possible terms for when executing customers' orders.  Elements that can influence crypto fees, markups or commissions.Compared to the decades of experience investors have with the S&P and NASDAQ, everyone’s a comparative rookie when it comes to cryptocurrency. And crypto’s appeal often comes from the idea that crypto exists outside of traditional banking. However, overlooked in that idea is the reality that—not unlike traditional banking and other investment platforms—many cryptocurrency services charge users expensive fees for these crypto transactions. And these fees can get very steep, very quickly. Continue reading

In January of this year, the Securities and Exchange Commission (SEC) published a "Risk Alert" warning potential investors about four areas of concern—ways in which investment advisers are defrauding their clients. Let's briefly discuss each of these in turn, to see what concerning practices you should be on the lookout for.  Hedge Fund Failure to Act Consistently with Disclosures  The SEC is finding that some advisors are failing to take actions consistent with the material disclosures they have made to clients or investors, such as:  disclosing one investment strategy but then using another; failing to follow the required practices in limited partnership agreements (e.g., fail to identify conflicts of interest); or charging them a fee based on the original cost basis of an investment when they've sold, written off, or otherwise disposed of a portion of that investment.In January of this year, the Securities and Exchange Commission (SEC) published a “Risk Alert” warning potential investors about four areas of concern—ways in which investment advisers are defrauding their clients. Let’s briefly discuss each of these in turn, to see what concerning practices you should be on the lookout for. Continue reading

In the past few years, industry-watchers have seen a rise in lawsuits filed against pension funds: Clients have been suing pension fund providers for charging excessive fees—even higher fees than they charge other clients for similar investment products—and other wrongdoing. And now, following a unanimous decision issued by the Supreme Court in January 2022, even more clients may begin bringing lawsuits against providers—since the Court's ruling clarifies pension fund providers' duties to their customers holding that pension funds owe significant responsibilities to its investors.  Hughes v. Northwestern University  In Hughes v. Northwestern University, the plaintiffs alleged that defendant Northwestern failed to meet the fiduciary duties required under the Employee Retirement Income Security Act of 1974 (ERISA) because it offered excessively expensive investment options and charged extreme recordkeeping fees. The Court of Appeals had held that, because the clients could ultimately pick a plan from a range of plans offered, Northwestern had fulfilled its responsibilities to them.  However, the Supreme Court disagreed. Instead, the Court held that Northwestern's fiduciary duties required that it regularly analyze the value of the plans it offered. If the provider found plans that were less beneficial to their clients, the answer was not just to include more plans, but also to stop offering the less valuable plans. Accordingly, the fact that customers could exercise judgment in their plan selection did not alleviate Northwestern of its responsibility to make its own judgment calls.In the past few years, industry-watchers have seen a rise in lawsuits filed against pension funds: Clients have been suing pension fund providers for charging excessive fees—even higher fees than they charge other clients for similar investment products—and other wrongdoing. And now, following a unanimous decision issued by the Supreme Court in January 2022, even more clients may begin bringing lawsuits against providers—since the Court’s ruling clarifies pension fund providers’ duties to their customers holding that pension funds owe significant responsibilities to its investors. Continue reading

Before sitting down for her now-famous 60 Minutes interview, former Facebook employee Frances Haugen had filed eight complaints with the Securities and Exchange Commission (SEC). In these, she alleged that Facebook was misleading investors in how the company doesn’t act against hate crime, how it facilitates the spread of disinformation, how it harms young girls’ psychological wellbeing, and much more. Within days of Haugen’s interview, Haugen was testifying on Capitol Hill, members of Congress began debating new legislation to regulate Facebook, and Facebook stock prices dropped 15% from the previous month.  It’s hard to imagine that any whistleblower who isn’t thinking about Facebook and Haugen, particularly if the allegations would have a large impact on the company or the industry. But there are more practical considerations, in addition to headlines, that could impact a whistleblowing case. Let’s consider a few of these. The larger the case, the longer it will probably take Haugen isn’t the first to have made complaints about Facebook’s conduct. What made the difference, from the public reaction to the SEC’s investigation, was the sheer volume of material that she had accumulated. The larger the case, the more facts there will be to gather, so it will probably take longer to investigate and litigate. That’s true from your perspective: You may want to take more time to gather evidence before bringing in the information to the SEC. And a bigger case means you will have a longer wait before the case is resolved and you see an award.Before sitting down for her now-famous 60 Minutes interview, former Facebook employee Frances Haugen had filed eight complaints with the Securities and Exchange Commission (SEC). In these, she alleged that Facebook was misleading investors in how the company doesn’t act against hate crime, how it facilitates the spread of disinformation, how it harms young girls’ psychological wellbeing, and much more. Continue reading

Of those who provide tips to the Securities and Exchange Commission (SEC) whistleblowing program, an estimated 20% are anonymous when they submit their information. And the SEC is required to keep whistleblowers’ information confidential. But what if you submitted the information anonymously, and your identity became known?  The main thing to be aware of is that you’re protected from employer retaliation relating to your whistleblowing. The SEC acts strongly against employer retaliation—and it includes a broad range of bad acts to constitute retaliation. If retaliation does occur, you can sue for double-back pay and damages, and that money would be in addition to any award you receive for reporting the violation. And perhaps ironically, a retaliation claim is easier to prove if your identity is known. If you’ve technically remained anonymous, any employer can simply assert then it would be impossible for the firm to have retaliated against you for an act they didn’t know you had done.Of those who provide tips to the Securities and Exchange Commission (SEC) whistleblowing program, an estimated 20% are anonymous when they submit their information. And the SEC is required to keep whistleblowers’ information confidential. But what if you submitted the information anonymously, and your identity became known? Continue reading

Perhaps one of the most difficult parts of becoming a whistleblower is feeling alone when you go against your company. But what if you and another colleague both decide to go to the Securities and Exchange Commission (SEC) and become joint whistleblowers? How does that change the equation?  You and a colleague can become joint whistleblowers, and you can both receive an award. (For instance, in April 2021, the SEC announced that joint whistleblowers would share a $50 million award.)  To become joint whistleblowers, you must submit the tip together, and then you’ll later need to file a joint Form WB-APP to claim an award. It can also be helpful if you share the same legal counsel to ensure you’re submitting the same information.Perhaps one of the most difficult parts of becoming a whistleblower is feeling alone when you go against your company. But what if you and another colleague both decide to go to the Securities and Exchange Commission (SEC) and become joint whistleblowers? How does that change the equation?

You and a colleague can become joint whistleblowers, and you can both receive an award. (For instance, in April 2021, the SEC announced that joint whistleblowers would share a $50 million award.) Continue reading

One question many whistleblowers worry about: What if their whistleblowing uncovers their own participation in the wrongdoing? And if it does so, how might that impact their liability and eligibility for an award?    Some culpability is not an automatic bar from a securities whistleblower award.  The Securities and Exchange Commission (SEC) understands that some whistleblowers may have participated in the wrongdoing at issue. That may be why they know about it in the first place.One question many whistleblowers worry about: What if their whistleblowing uncovers their own participation in the wrongdoing? And if it does so, how might that impact their liability and eligibility for an award?

Some culpability is not an automatic bar from a securities whistleblower award. Continue reading

If you are considering filing a whistleblowing report with the United States Securities and Exchange Commission (SEC), you might wonder if the SEC program covers violations that take place abroad. The short answer is: Probably, but it depends.  As a starting point, it’s worth noting that there is no requirement for whistleblowers to be US residents or citizens. On the contrary, since the beginning of the SEC’s program, eligible whistleblowers from 130 countries—including the United Kingdom, Canada, China, Australia, and India—have come forward with tips for the SEC to review.  When it comes to what (and where) the SEC can investigate, Dodd-Frank Act gives the SEC authority over extraterritorial malfeasance under one of the following two conditions:  1)  when the relevant securities transaction occurs outside of the US, the conduct within the US “constitutes significant steps in furtherance of the [securities] violation,” or  2) when the conduct outside of the US still “has a foreseeable substantial effect” within the US.If you are considering filing a whistleblowing report with the United States Securities and Exchange Commission (SEC), you might wonder if the SEC program covers violations that take place abroad. The short answer is: Probably, but it depends.

As a starting point, it’s worth noting that there is no requirement for whistleblowers to be US residents or citizens. On the contrary, since the beginning of the SEC’s program, eligible whistleblowers from 130 countriesincluding the United Kingdom, Canada, China, Australia, and India—have come forward with tips for the SEC to review. Continue reading

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