Congress Votes in the Middle of the Night to Give Big Banks Immunity from Lawsuits

The Senate voted 51-50 on Tuesday, October 24 to repeal a rule put in place by the Consumer Financial Protection Bureau (CFPB) that banned mandatory arbitration clauses in certain financial contracts.

All 48 Democrats, along with Republicans Lindsey Graham and John Kennedy, voted against the resolution. Vice President Mike Pence cast the tie-breaking vote late Tuesday night, allowing big banks to enjoy absolute immunity from customer lawsuits of any kind. This is a huge win for Wall Street lobbyists. There is now no incentive to prevent abuses such as the Equifax data scandal or Wells Fargo's opening up millions of fraudulent accounts without customers' permission.

In order to overturn this rule released in July of this year, Senate Republicans used the Congressional Review Act, a seldom-used legislative process that allows lawmakers to overturn recently finalized rules with a simple majority vote, rather than the typical 60 votes.

"Tonight's vote is a giant setback for every consumer in this country," Richard Cordray, the head of the Consumer Financial Protection Bureau said in a statement. "Wall Street won and ordinary people lost. Companies like Wells Fargo and Equifax remain free to break the law without fear of legal blowback from their customers."

The House of Representatives already voted to overturn this rule back in July, so now it will make its way to the president’s desk for his signature.

"This bill is a giant wet kiss to Wall Street," said Senator Elizabeth Warren on the Senate floor Tuesday night as she defended maintaining the rule. "Bank lobbyists are crawling all over this place, begging Congress to vote and make it easier for them to cheat consumers."

Not only does this vote remove this consumer protection, it prevents the CFPB from introducing a “substantially similar” rule in the future without congressional action.

“If there's no forced arbitration clause in your contract, you have a choice. You can go to court or if your bank offers it you can pursue arbitration... Chances are pretty good that if the bank charged you an unauthorized $30 fee that there are other customers in the same boat and that means if you want you can join a class action lawsuit against the bank for free," said Warren. "A class action gives you a chance to get some money back."

Our securities fraud and class action attorneys at Meyer Wilson have dedicated their careers to protecting people targeted by fraudsters and taken advantage of by banks, financial advisers and brokerage firms. As bills that affect consumers are introduced and signed into law, we work hard to create new plans of action that will continue to help our clients secure the maximum recovery possible, and this new repeal won’t change our commitment to that. If you were the victim of a scam or fraudulent scheme by a broker for financial institution, call us at one of our office locations today or send us your information to request a free case evaluation.

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Proposed Law Could Mean Greater Recovery for Ponzi Scheme Victims

Introduced in the past week in both the U.S. House and Senate is proposed legislation that could help victims of Ponzi scheme investment fraud to recover more of their cash losses.

Titled the "Restoring Main Street Investor Protection and Confidence Act (H.R. 3482)," it seeks to amend the Security Investor Protection Act of 1970. Among other things, it would require the Security Investor Protection Corp. (SIPC) brokerage insurance fund to use actual account statements from failed brokerage firms when calculating investment fraud victims' claims. It would also close a current loophole limiting the definition of what kind of "customer" can seek fraud restitution from the fund, which is subsidized from assessments on the financial industry.

Currently, the SIPC does not provide a blanket insurance protection for investors' loss of cash and securities at failed brokerage firms like FDIC protection for bank losses. It can advance only up to $500,000 to customers of failed firms, with claims for higher-valued assets funneled through a firm liquidation in court and administered by an appointed trustee.

Victims whose brokerage firm account statements indicate greater than $500,000-threshold losses must wait for SEC, SIPC and trustee approval before collecting any additional lost funds. In some cases where victims of Ponzi schemes recover additional money, trustees file "clawback" lawsuits against them, arguing that false profits from the schemes inflated their recovery and should be repaid to the fund.

The proposed legislation would require the SIPC to calculate losses based on investors' account statements and would prevent trustees from filing clawback suits against victims, opening up avenues for increased fraud recovery.

U.S. Sen. Charles Schumer (D-N.Y.) and Sen. David Vitter (R-La.) introduced the senate bill to benefit victims of one of the largest frauds in the Northeast in recent history—the Albany, N.Y. McGinn, Smith & Co. case—and victims of Louisiana's Stanford Financial Group fraudulent certificates of deposit case, both of which were prosecuted by law enforcement as Ponzi-like schemes and resulted in criminal convictions for the wrongdoers. It's likely that victims of Bernie Madoff's Ponzi scheme would also seek additional recovery if the legislation is passed.

Attorney Warns of Crowdfunding Fraud From Online Boiler Rooms

Crowdfunding May Lead to Online “Boiler Rooms,” Warns Investment Fraud Attorney

There’s been a lot of noise in the news lately about “crowdfunding,” a financing practice that enables startups to use small amounts of capital from a large number of individuals to finance a new venture. Legislators legalized crowdfunding as part of the 2012 Jumpstart our Business Startups (JOBS) Act. Prior to the Act’s passage, only the entrepreneur him-or-herself and individual investors with net worths of at least $1 million (excluding their homes) could invest in non-public startups. The JOBS Act changed that.

Starting sometime this year, new companies will be able to raise start-up capital online, through social networks like FaceBook and Twitter, and to obtain small investments from just about anybody – regardless of the investor’s net worth or familiarity with investment strategies.

Crowdfunding advocates hope it will boost small business growth at a time when the national economy is still recovering. Critics (myself included) warn that allowing private startups to solicit investments from everyday people will only add to the ever-growing problem of investment fraud. This is especially true when the practice could potentially allow anyone with a website – con artists and fraudsters included – to solicit investments online.

“It is basically going to be the wild, wild west, and we’re just going to be flooded with investment pitches on social media and websites,” I recently told the Springfield News-Sun. “I really think we are looking at the 21st Century boiler rooms, where dodgy deals are peddled in social media to unsophisticated investors.”

Heath Abshure, NASAA President and Arkansas Securities Commissioner, agrees. “Investors soon can expect to be inundated with crowdfunding pitches, legitimate or otherwise,” he said last year.

As of Nov. 2012, there already were nearly 8,800 Internet domain names that mentioned “crowdfunding,” and the practice isn’t even officially allowed yet. The SEC still needs to draft regulations to govern the practice, which likely won’t be accomplished until April. Until then, industry regulators are relying on crowdfunding websites to register with FINRA and to provide details about themselves to the regulator voluntarily.

While this may be a good first step, it doesn’t really offer much in the way of investor protection. No matter how many reputable crowdfunding websites sign up with FINRA, there are still going to be a number of con artists out there who will use a slick website and heavy online marketing presence to take advantage of the everyday investors who may not be able to tell a legitimate start-up opportunity from a fraudulent set-up. And, as many past investment schemes have taught us, registration with a regulator doesn’t mean there’s no potential for fraud or misconduct. For now at least, investors will have to be extra vigilant about watching for red flags if they want to protect themselves from fraud.

About our law firm:

Meyer Wilson represents individuals across the country who have been harmed by investment fraud. All of our cases are handled on a contingency fee basis and we never request a retainer of any kind. Contact us for more information or complete the online form on the top of this page and we will respond promptly.

"Billionaire Boys Club" Member Arrested for MI Ponzi Scheme After Fleeing to Italy

John Bravata, the chairman of BBC Equities, LLC, was arrested in New York City on May 5th as he exited a plane returning from Italy. Bravata now faces criminal charges for a Michigan investment scam in which he allegedly took $50 million from 440 different investors. Previously, only one civil claim had been filed.

Bravata, whose company has been called the "Billionaire Boys Club" by authorities, has now been charged with wire fraud. Although the criminal complaint does not specifically mention the civil complaint's Ponzi scheme, he is accused of misleading investors regarding how their money would be invested, the returns expected, and how secure their money actually was. He is also accused of lying about how much money he would personally make in the deal.

In the previous civil complaint, the SEC said Bravata used investors' money for cars, boats, cosmetic surgery, and his luxury home. He is also said to have used money from new investors to pay off prior investors. The criminal complaint alleges he used less than half of the $50 million to actually invest.

Prosecutors alleged that Bravata fled to Italy to avoid charges, and that he had been in Italy for a while. Prosecutors want Bravata to be detained in NYC as a flight risk. His assets have been frozen and he is under a restraining order.

The investment fraud lawyers with David P. Meyer & Associates represent investors nationwide in stockbroker mediation, arbitration, and litigation claims.

Want Great Returns? Win a Seat in Congress.

According to an academic study published this year, stocks held by members of the U.S. House out-earn the market by an average 6 percent annually. That's either really lucky or really unfair.

In a recent Huffington Post article, Dan Froomkin speculates that the above-average returns that members of the U.S. Congress see from their stock holdings may be the result of biased voting and trading on non-public information.

And, it's not just the House. The researchers involved in this year's study conducted one five years ago that analyzed the stock returns for members of the U.S. Senate. According to that study, stocks held by U.S. Senators outperform even those held by U.S. Reps - an average of 10 percent per year over the market.

Yet, despite the indications that these abnormally positive returns may be obtained unfairly, neither federal law nor Congress' codes of conduct restrict the financial actions of senators or representatives.

"House rules don't require them to divest themselves of common stocks when they assume office, don't prevent them from trading freely while in office - and don't require them to recuse themselves from votes that could affect their own interests," writes Froomkin. (For more, read the entire articlehere.)

H.R. 1148 (the Stop Trading on Congressional Knowledge Act) was recently re-introduced by Rep. Timothy Walz (D-MN) and several Democratic co-sponsors. Unsurprisingly, no actions have been taken on the bill since March 29, when it was referred to the House Ethics committee.

Also not surprising - 100 percent of the users on OpenCongress.org support the passage of the bill.

Congress Works to Prevent Elder Financial Fraud

Last year, a survey released by the Investor Protection Trust indicated that at least 20 percent of Americans over the age of 65 had been the victim of financial abuse and/or financial fraud. In an effort to address the problem, new bills aimed at protecting senior citizens from investment fraud have been making the rounds in both the House and the Senate.

The Preventing Affinity Scams for Seniors Act of 2011 (HR 370), proposed by Rep. Joe Baca (D-Calif.), was referred to the Subcommittee on Financial Institutions and Consumer Credit last month. Also in March, Sen. Herb Kohl (D-Wis.) introduced two senior protection bills in the Senate ("ELDER FINANCIAL FRAUD: Protecting seniors from scammers," InvestmentNews, April 6, 2011). Both Senate bills have been referred to the Committee on the Judiciary.

HR 370 specifically targets affinity fraud, a leading type of elder financial fraud: "Millions of elderly are scammed each year, losing at least $2,600,000,000 a year to thieves, many of whom are in their own families (conservative estimate given of the schemes left unreported)." The bill would "require financial institutions to offer services to protect seniors from affinity scams [and] to report suspected affinity scams."

S 462, one of the bills introduced by Sen. Kohl, would strengthen law enforcement efforts and the prosecution of crimes against seniors ("Mickey Rooney: I was financially abused," InvestmentNews, March 2, 2011). It would also establish an Office of Elder Justice at the Department of Justice. The other Senate bill, S 464, would establish a grant program to fund training and service programs designed to prevent and/or end abuse in later life.

Is Your Adviser a "Registered Investment Adviser" or a "Broker-Dealer"? (The Answer Matters)

In January, the SEC submitted a recommendation to Congress to adopt a "universal fiduciary duty" that would include any financial professional that provides personalized investment advice to retail customers. (For more info, click here.) This month, the U.S. Department of Labor held hearings to debate a proposal that would expand the "fiduciary" duty of the Employee Retirement Income Security Act (ERISA) of 1974 to include "anyone who renders advice to a retirement plan or participant for a fee or who provides advice or recommendations on the management of securities." This expanded duty could, under the Department's proposal, also be applied to Individual Retirement Accounts. (Click here, for more information.) While individual investors and the majority of Americans may not know it, both the SEC's recommendation and the Department of Labor's proposal have been extremely controversial with numerous industry professionals weighing in on either side. The heated debate centers on the fact that under current law there is a big difference between a "registered investment adviser" (a professional who must act as a "fiduciary") and a "broker-dealer" (a professional who, under many circumstances, can get away with a much less stringent standard). Until the debates are resolved and a final decision made, it is important that investors understand the crucial difference. "Are you a registered investment adviser?" should be the first question you ask anyone who wants to give you advice on your portfolio or retirement account. A registered investment adviser is legally required to act as your "fiduciary," which means that any advice or recommendation that he or she gives you must be in your best interests. In contrast, under current regulations, a broker-dealer only has to recommend a "suitable" product. As reported in "When Your Adviser Can't Be Trusted" (Wall Street Journal, March 12, 2011), this means that a broker-dealer can still comply with regulations if he or she recommends the "least suitable of suitable investments," which many will do if it means a higher commission for them. If this seems like a rather arbitrary distinction to you, you're not alone. Many investors either don't know the difference between registered investment advisers and broker-dealers or don't understand the difference. That is the main reason the SEC and various regulatory bodies are pushing for the expanded definitions. For now, you can protect yourself by knowing where your financial professional's interests lie.

SEC Makes Recommendations on How to Improve Advisor Oversight

A stronger, better regulatory system for financial advisors was one of the items for improvement listed in the 2010 Dodd-Frank financial reform law. The law instructed the SEC to study the situation and to provide Congress with recommendations for improvement. As reported in a Jan. 23InvestmentNews article, the SEC delivered the requested report late last Wednesday (“SEC offers 3 options for RIA oversight”).

According to the article, the SEC offered three options for improved regulations:

#1. Congress could authorize the SEC to impose fees on advisors that would be used to fund the SEC’s examination and enforcement efforts. The new law requires the SEC to begin monitoring advisers to hedge funds and private-equity funds - a task that the SEC cannot do effectively with its current resources. The Commission says an increase in fees could help fill the funding holes.

#2. Congress could allow the SEC to designate one or more of the self-regulatory organizations to oversee advisors. The SEC study makes it clear that a lack of funding is a serious threat to the SEC’s ability to effectively examine all investment advisors. If Congress prefers not to authorize the imposition of fees on advisors, the establishment of a separate agency to take on the responsibility of conducting the examinations may be a good option.

#3. Congress could grant FINRA the power to expand its oversight to include registered investment advisors of dually registered firms (those who have both advisors and broker-dealers). While this option is rife with controversy, it also has many vocal supporters.

None of the recommendations is without its industry critics, and debate over which course of action is the best will likely continue for some time.