Investment Terms and Concepts - Russell L. Forkey

FAQ – How Are Microcap Stocks Different From Other Stocks – South Florida Litigation and Arbitration Attorney

Russell L. Forkey — Thu, 23 Aug 2018 12:54:37 GMT

How Are Microcap Stocks Different From Other Stocks?

Lack of public information. Often, the biggest difference between a microcap stock and other stocks is the amount of reliable publicly-available information about the company. Most large public companies file reports with the SEC that any investor can get for free from the SEC’s website. Professional stock analysts regularly research and write about larger public companies, and it is easy to find their stock prices on the Internet or in newspapers and other publications. In contrast, the same information about microcap companies can be extremely difficult to find, making them more vulnerable to investment fraud schemes and making it less likely that quoted prices will be based on full and accurate information about the company.

No minimum listing standards. Companies that list their stocks on exchanges must meet minimum listing standards. For example, they must have minimum amounts of net assets and minimum numbers of shareholders. In contrast, companies quoted on the OTC Bulletin Board (OTCBB), OTC Link LLC (OTC Link) or Global OTC generally do not have to meet any minimum listing standards, but are typically subject to some initial and ongoing requirements. You can find the OTCBB’s eligibility requirements for stocks at http://www.finra.org/industry/faq-otcbb-frequently-asked-questions and you can find additional information about OTC Link and Global OTC at www.otcmarkets.com and www.globalotc.com , respectively.

Risk. While all investments involve risk, microcap stocks are among the most risky. Many microcap companies are new and have no proven track record. Some of these companies have no assets, operations, or revenues. Others have products and services that are still in development or have yet to be tested in the market. Another risk that pertains to microcap stocks involves the low volumes of trades, which may make it difficult for you to sell your shares when you want to do so. Because many microcap stocks trade in low volumes, any size trade can have a large percentage impact on the price of the stock. Microcap stocks may also be susceptible to fraud and manipulation.

Please be advised that the above information is being provided for educational purposes only. Thus, it is not designed to be complete in all material respects. If you have any questions relative to the contents of this post, you should consult a qualified professional.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

FAQ – Where Do Microcap Stocks Trade – South Florida State and Federal Court Litigation Attorney

Russell L. Forkey — Thu, 23 Aug 2018 12:44:27 GMT

FAQ – Where Do Microcap Stocks Trade?

Many microcap stocks trade in the “over-the-counter” (OTC) market. Quotes for microcap stocks may be available directly from a broker-dealer or on OTC systems such as the OTC Bulletin Board (OTCBB), OTC Link LLC (OTC Link), or Global OTC.

OTC Bulletin Board is an electronic inter-dealer quotation system that displays quotes, last-sale prices, and volume information for many OTC equity securities that are not listed on a national securities exchange. The OTCBB is operated by the Financial Industry Regulatory Authority, Inc. (FINRA). You can read more about the OTCBB marketplace at http://www.finra.org/industry/faq-otcbb-frequently-asked-questions .

OTC Link LLC is an electronic inter-dealer quotation system that displays quotes, last-sale prices, and volume information in exchange-listed securities, OTC equity securities, foreign equity securities and certain corporate debt securities. In addition to publishing quotes, OTC Link provides, among other things, broker-dealer subscribers the ability to send and receive trade messages, allowing them to negotiate trades. OTC Link is registered with the SEC as a broker-dealer and operates an Alternative Trading System pursuant to Regulation ATS, and is a member of FINRA. OTC Link organizes stocks into three marketplaces based, in part, on the amount and quality of available information about the particular stock. You can read more about the OTC Link marketplace at www.otcmarkets.com.

Global OTC is an electronic inter-dealer quotation system that displays quotes, last-sale prices, and volume information in OTC equity securities. Archipelago Trading Services, Inc., a broker-dealer registered with the SEC, operates Global OTC as an Alternative Trading System pursuant to Regulation ATS. For additional information about Global OTC please visit www.globalotc.com .

Please be advised that the above information is being provided for educational purposes only. Thus, it is not designed to be complete in all material respects. If you have any questions about this post, you should contact a qualified professional.

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FAQ – What is a Microcap Stock – South Florida Federal and State Court Litigation and Arbitration Attorney

Russell L. Forkey — Thu, 23 Aug 2018 12:31:46 GMT

What Is a Microcap Stock?

The term “microcap stock” (sometimes referred to as “penny stock”) applies to companies with low or micro market capitalizations. Companies with a market capitalization of less than $250 or $300 million are often called “microcap stocks” – although many have market capitalizations of far less than those amounts. The smallest public companies, with market capitalizations of less than $50 million, are sometimes referred to as “nanocap stocks.”

Please be advised that this information is being provided for educational purposes only. It is not designed to be complete in all material respects. If you have any questions about this post or have been adversely affected by investing in a microcap or nanocap stock, you should contact a qualified professional.

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FAQ Securities, Precious Metals and Commodities Boil Rooms – Boca Raton, Florida Litigation Attorney

Russell L. Forkey — Thu, 23 Aug 2018 12:13:49 GMT

What is a Boiler Room Scheme?

Boiler room schemes are large-scale operations designed to lure in as many investors to an investment scam as possible, often using high-pressure sales tactics. Boiler room scheme operators may cold call investors or solicit investors through emails, text messages, social media, and other means. Beware of boiler room scheme tactics, including:

Aggressive Sales Tactics or Threats. Fraudsters may use aggressive sales tactics or even threats (for example, threatening to file a lien against your property) to swindle you.

Pressure to Buy Quickly. No reputable investment professional should push you to make an immediate decision about an investment.

Unsolicited Offers. Be wary of any investment offer you didn’t ask for, especially if you don’t know the sender.

Promises of High Returns with Little or No Risk. Every investment carries some degree of risk, and the potential for greater returns usually comes with greater risk. If it sounds too good to be true, it is.

Boiler room scheme tactics may be used to perpetrate microcap fraud, binary options fraud, advance fee fraud, precious metals fraud, commodities fraud and other investment scams. Resist the pressure to invest quickly and take the time you need to investigate thoroughly before sending money or signing any agreements.

Please be advised that this information is being provided for educational purposes only. It is not designed to be complete in all material respects. If you have any questions about this post or you believe that you have been swindled by boiler room activity, you should contact a qualified professional.

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Frequently Asked Questions About Exempt Securities Offerings

Russell L. Forkey — Sat, 11 Aug 2018 14:44:09 GMT

Do anti-fraud provisions apply?

All securities transactions, even exempt transactions, are subject to the antifraud provisions of the federal securities laws. This means that you and your company will be responsible for false or misleading statements that you or others on your behalf make regarding your company, the securities offered, or the offering. You and your company are responsible for any such statements, whether made by your company or on behalf of the company, and regardless of whether they are made orally or in writing.

The government enforces the federal securities laws through criminal, civil and administrative proceedings. Private parties also can bring actions under certain securities laws. Also, if all conditions of the exemptions are not met, purchasers may be able to return their securities and obtain a refund of their purchase price.

What is an accredited investor?

Certain securities offerings that are exempt from registration may only be offered to, or purchased by, persons who are “accredited investors.” An “accredited investor” is currently considered:

a bank, insurance company, registered investment company, business development company, or small business investment company
an employee benefit plan (within the meaning of the Employee Retirement Income Security Act) if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million
a tax exempt charitable organization, corporation or partnership with assets in excess of $5 million
a director, executive officer, or general partner of the company selling the securities
an enterprise in which all the equity owners are accredited investors
an individual with a net worth of at least $1 million, not including the value of his or her primary residence
an individual with income exceeding $200,000 in each of the two most recent calendar years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year or
a trust with assets of at least $5 million, not formed only to acquire the securities offered, and whose purchases are directed by a person who meets the legal standard of having sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment

Do state law requirements apply?

While the SEC regulates and enforces the federal securities laws, each state has its own securities regulator who enforces what are known as “blue sky” laws. If a company is selling securities, it must comply with both federal regulations and state securities laws and regulations in the states where securities are offered and sold (typically, the states where offerees and investors are based).

Under the Securities Act, if a company’s offering qualifies for certain exemptions from registration, that offering is not required to be registered or qualified by state securities regulators. Even if the offering is made under one of those exemptions, the states still have authority to investigate and bring enforcement actions for fraud, impose state notice filing requirements, and collect state fees. The failure to file, or pay filing fees regarding, any such materials may cause state securities regulators to suspend the offer or sale of securities within their jurisdiction. Companies should contact state securities regulators in the states in which they intend to offer or sell securities for further guidance on compliance with state law requirements. The following table illustrates which offerings are potentially subject to state registration or qualification under the Securities Act.

Securities Act Exemption

Under the Securities Act, is the offering potentially subject to state registration or qualification?

Section 4(a)(2) – Yes
Rule 506(b) – No
Rule 506(c) – No
Rule 504 – Yes
Regulation Crowdfunding – No
Regulation A – Tier 1 – Yes
Regulation A – Tier 2 – No
Rules 147 and 147A – Yes
Rule 701 – Yes

For the offerings that are potentially subject to state registration or qualification, each state’s securities laws have their own separate registration requirements and exemptions to registration requirements. Even if the offering is not subject to state registration or qualification, there may still be state notice filing requirements and fees.

The above information is being provided for education purposes only. It is not designed to be complete in all material respects. If you have any questions concerning the subject matter of this post, you should contact a qualified professional.

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Exchange Traded Notes (ETNs) – Boca Raton, Florida FINRA Arbitration and Federal and State Court Litigation Attorney

Russell L. Forkey — Mon, 14 Dec 2015 02:44:15 GMT

Exchange Traded Notes (ETNs) Frequent Asked Questions – Boca Raton, Florida FINRA Arbitration and State and Federal Court Litigation Attorney:

Frequently asked questions about Exchange Traded Notes (ETNs). ETNs are unsecured debt obligations of financial institutions that trade on a securities exchange. ETN payment terms are linked to the performance of a reference index or benchmark, representing the ETN’s investment objective. You should understand that ETNs are complex and involve many risks for interested investors, and can result in the loss of your entire investment.

What is an ETN?

ETNs are unsecured debt obligations of financial institutions. They are very different from traditional corporate bonds because, unlike traditional corporate bonds – which pay a stated rate of interest – the return on an ETN is based on the performance of a reference index or benchmark (minus any investor fees you may pay). ETNs generally do not pay interest to their holders. Payments on ETNs may be linked to well-known broad based securities indexes or based on indexes tied to emerging markets, commodities, volatility, a specific industry sector (e.g. oil and gas pipelines), foreign currencies, or other assets. ETNs that offer leveraged exposure pay a multiple of the performance of the reference index or benchmark. Other ETNs (called inverse ETNs) are calculated based on the opposite of the performance of the reference index or benchmark. Many ETNs are issued with maturities of 20 or 30 years, and are not intended to be held to maturity. Accordingly, returns to an investor generally arise from trading the ETN rather than from holding the ETN to maturity.

What is the Difference Between an ETN and an ETF?

ETNs are often confused with exchange-traded funds (ETFs). ETNs and ETFs are both traded on a securities exchange and can be bought and sold throughout the day, but there are important differences. ETFs are registered investment companies. An investor in an ETF owns shares of a fund, which represents an ownership interest in an underlying portfolio of assets. An ETF discloses to investors the value of its portfolio of assets by publishing an end-of-day net asset value and by disseminating an estimate of its value generally every 15 seconds during the trading day, which is sometimes called an intraday indicative value. An ETF issues and redeems its shares in creation units, at their net asset value.

ETNs share some characteristics with ETFs. For example, ETNs also issue and redeem notes in creation unit sizes (generally, 25,000 to 50,000 notes); like with ETFs, the creation and redemption process affects the number of notes trading at any point in time. For both ETNs and ETFs, the purchasers of the creation units split them up to sell the individual notes or shares, as applicable, to investors in transactions on an exchange. But there is a fundamental difference between ETFs and ETNs. Unlike ETFs, ETNs do not own an underlying portfolio of assets and this makes holders of ETNs subject to the creditworthiness of the issuer. As ETNs do not own assets, when issuing new ETNs, ETN issuers calculate the value of the ETN using a described formula, rather than using net asset value.

Market Trading and Valuing ETNs

ETNs are listed on an exchange and may be bought and sold at market prices. An ETN’s prospectus will describe both how the value of the note is determined on any particular trading day, as well as how the value of the reference index or benchmark is calculated. Issuers publish a value at the conclusion of each trading day representing the amount an issuer would be obligated to pay the investor. Market prices may vary from these published values.

Potential Risks to Consider Before Investing in ETNs

Potential risks of investing in ETNs include the following:

Complexity – You and your broker should take time to understand the manner in which the reference index or benchmark is calculated, including the fees that are included in either the reference index or the calculation of the value of the ETN. Compare and contrast the ETN to other investment products offering a similar investment strategy.

Credit Risk (Issuer Default) – You should be aware that when you purchase an ETN you are subject to the creditworthiness of the issuing financial institution and would be a creditor if the issuer defaults on payments due.

Market Risk – In addition to the credit risk of the issuer, ETNs also expose investors to the performance risk of the reference index or benchmark.

Leverage – Leveraged, inverse, or inverse-leveraged ETNs reset on a daily basis their exposure to the leveraged, inverse, or inverse-leveraged exposure stated in the prospectus, meaning that all investors receive an equal amount of leveraged, inverse, or inverse-leveraged exposure. As a result, investors holding such ETNs for more than one day should not expect to receive returns proportional to the exposure stated in the prospectus. The difference can be significant. Consequently, leveraged, inverse, or inverse-leveraged ETNs are not typically used as buy-and-hold instruments.

Price Volatility (Market Price versus Indicative Value) – ETNs can trade at premiums or discounts to their indicative value, especially in instances in which the issuer has suspended further note issuances. If you are considering purchasing ETNs, you should compare market prices against indicative values.

Liquidity Risk – There is a risk that if you need to cash out your investment, you may not be able to sell the ETN immediately and at a price that you would consider reasonable (for example, you may have to sell the ETN at a lower price than if you were able to wait to liquidate your investment). This is the case for most illiquid securities and the liquidity of ETNs varies significantly. For example, some ETNs have daily volume in excess of a million notes, while others may have little trading activity over several days. You should consider your overall timeframe for the investment, including how quickly you may need to sell the ETN.

Additional Considerations:

Do not invest in something that you do not understand. Before purchasing an ETN, you should consider:

Whether ETNs are a suitable investment for you. You should review your investment objectives and tolerance for risk with your broker or financial adviser before you consider investing in an ETN. They can help you determine whether or not the risks associated with a particular ETN are within your tolerance for risk, or whether your investment needs are better served by investing in another product. Your broker should only recommend transactions and investment strategies that are suitable for you based on your investment profile.
What fees are associated with an ETN, such as fees included in the reference index or benchmark, daily investor fees that reduce the closing indicative value of the ETN, and the amount of brokerage commissions you may pay when buying and selling an ETN.
Whether you understand how the reference index or benchmark is calculated.
Whether you understand how the indicative values and redemption values are calculated and what they measure.
Whether you understand the tax implications, if any, because the tax treatment can vary depending upon the nature of the ETN. It may be appropriate to consult a tax professional.

Finally, you may wish to consider seeking the advice of an investment professional. If you do, be sure to work with someone who understands your investment objectives and tolerance for risk. Your investment professional should understand complex products, such as ETNs, and be able to explain to your satisfaction whether or how they fit with your objectives.

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Bank Claims – Breach of Fiduciary Duty and Breach of Contract Commercial Litigation Attorney

Russell L. Forkey — Sun, 29 Nov 2015 14:23:45 GMT

Bank Claims – Breach of Fiduciary Duty and Breach of Contract Federal and State South Florida Commercial Litigation Attorney

Bank Claims – Breach of Fiduciary Duty:

Does a bank owe you a duty of care, which would support a claim for negligence?

“To maintain an action for negligence, a plaintiff must establish that the defendant owed a duty, that the defendant breached that duty, and that this breach caused the plaintiff damages.” Fla. Dep’t of Corrs. v. Abril, 969 So.2d 201, 204 (Fla.2007). See Harbor Court, LLC v. Colonial Bancgroup, Inc., No. 08-80824-CIV, 2009 WL 455434, at *2 (S.D.Fla. Feb.23, 2009). The first step in a negligence analysis is to identify the standard of care with regard to a duty and then determine to whom that duty is owed. Therefore, if it is found that the bank did not owe the plaintiff a duty of care, a negligence claim cannot be maintained.

The general rule is that a bank has a duty to use ordinary care, presumptively in all its dealings. In re Meridian Asset Mgmt., Inc., 296 B.R. 243, 259 (Bankr.N.D.Fla.2003); See Fla. Stat. § 674.10. Banks owe a duty to customers. Wiand v. Wells Fargo Bank, N.A., 8:12-CV-00557-T-27, 2013 WL 1401414 (M.D.Fla. Apr.5, 2013). However, as a matter of law, a bank does not owe a duty to non-customers regarding the opening and maintenance of its accounts. Sroka v. Bank, 2006-CA-001117, 2006 WL 2535656 (Fla.Cir.Ct. Aug.31, 2006).

In this fact pattern, the bank asserts that it did not owe the plaintiff a duty because the plaintiffs were a “third party non-customer.” Therefore, the basis of banks argument relies on the plaintiffs being a non-customer. The plaintiffs argue that the bank owed it a duty of reasonable care to not allow an unauthorized third person to open a bank account in their name.

Florida law defines “customer” as “a person having an account with a bank or for whom a bank has agreed to collect items.” Fla. Stat. § 674.104(e). The complaint, in this fact pattern, alleges that the bank permitted a third party to open a “sham plaintiffs’ account” without authorization or approval. “That allegation, standing alone, demonstrates that plaintiffs were a customer of bank.” Harbor Court, LLC v. Colonial Bancgroup, Inc., No. 08-80824-CIV, 2009 WL 455434, at *2 (S.D.Fla. Feb.23, 2009). Even though the individual opening the account did not have authority to do so, the account that was opened was in plaintiffs name. Thus, the plaintiffs were the account holders and accordingly, the customer of bank. The complaint also alleges that the bank breached its duty by allowing the third party to open the account without proper authority. Plaintiffs further claim that as a result of bank’s breach of duty, the third party was able to misappropriate funds from the plaintiffs. Therefore, because the complaint alleges facts sufficient to support a claim for negligence, the bank’s motion to dismiss must fail.

Under this factual pattern, the court found that because the plaintiffs were customers, the bank owed them a duty of care and therefore, plaintiffs’ negligence claim survived.

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FAQs Margin – Boca Raton, Florida Margin Abuse and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Fri, 27 Nov 2015 17:01:37 GMT

FAQs Margin – Boca Raton, Florida Margin Abuse and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney

Margin:

Borrowing Money To Pay for Stocks:

“Margin” is borrowing money from your broker to buy a stock and using your investment as collateral. Investors generally use margin to increase their purchasing power so that they can own more stock without fully paying for it. But margin exposes investors to the potential for higher losses. Here’s what you need to know about margin.

Understand How Margin Works:

Let’s say you buy a stock for $50 and the price of the stock rises to $75. If you bought the stock in a cash account and paid for it in full, you’ll earn a 50 percent return on your investment. But if you bought the stock on margin – paying $25 in cash and borrowing $25 from your broker – you’ll earn a 100 percent return on the money you invested. Of course, you’ll still owe your firm $25 plus interest.

The downside to using margin is that if the stock price decreases, substantial losses can mount quickly. For example, let’s say the stock you bought for $50 falls to $25. If you fully paid for the stock, you’ll lose 50 percent of your money. But if you bought on margin, you’ll lose 100 percent, and you still must come up with the interest you owe on the loan.

In volatile markets, investors who put up an initial margin payment for a stock may, from time to time, be required to provide additional cash if the price of the stock falls. Some investors have been shocked to find out that the brokerage firm has the right to sell their securities that were bought on margin – without any notification and potentially at a substantial loss to the investor. If your broker sells your stock after the price has plummeted, then you’ve lost out on the chance to recoup your losses if the market bounces back.

Recognize the Risks:

Margin accounts can be very risky and they are not suitable for everyone. Before opening a margin account, you should fully understand that:

You can lose more money than you have invested;
You may have to deposit additional cash or securities in your account on short notice to cover market losses;
You may be forced to sell some or all of your securities when falling stock prices reduce the value of your securities; and
Your brokerage firm may sell some or all of your securities without consulting you to pay off the loan it made to you.

You can protect yourself by knowing how a margin account works and what happens if the price of the stock purchased on margin declines. Know that your firm charges you interest for borrowing money and how that will affect the total return on your investments. Be sure to ask your broker whether it makes sense for you to trade on margin in light of your financial resources, investment objectives, and tolerance for risk.

Read Your Margin Agreement:

To open a margin account, your broker is required to obtain your signature. The agreement may be part of your account opening agreement or may be a separate agreement. The margin agreement states that you must abide by the rules of the Federal Reserve Board, the New York Stock Exchange, the National Association of Securities Dealers, Inc. n/k/a The Financial Regulatory Authoriy, and the firm where you have set up your margin account. Be sure to carefully review the agreement before you sign it.

As with most loans, the margin agreement explains the terms and conditions of the margin account. The agreement describes how the interest on the loan is calculated, how you are responsible for repaying the loan, and how the securities you purchase serve as collateral for the loan. Carefully review the agreement to determine what notice, if any, your firm must give you before selling your securities to collect the money you have borrowed.

Know the Margin Rules:

The Federal Reserve Board and many self-regulatory organizations (SROs), such as the NYSE and FINRA, have rules that govern margin trading. Brokerage firms can establish their own requirements as long as they are at least as restrictive as the Federal Reserve Board and SRO rules. Here are some of the key rules you should know:

Before You Trade – Minimum Margin:

Before trading on margin, FINRA, for example, requires you to deposit with your brokerage firm a minimum of $2,000 or 100 percent of the purchase price, whichever is less. This is known as the “minimum margin.” Some firms may require you to deposit more than $2,000.

Amount You Can Borrow – Initial Margin:

According to Regulation T of the Federal Reserve Board, you may borrow up to 50 percent of the purchase price of securities that can be purchased on margin. This is known as the “initial margin.” Some firms require you to deposit more than 50 percent of the purchase price. Also be aware that not all securities can be purchased on margin.

Amount You Need After You Trade – Maintenance Margin:

After you buy stock on margin, FINRA requires you to keep a minimum amount of equity in your margin account. The equity in your account is the value of your securities less how much you owe to your brokerage firm. The rules require you to have at least 25 percent of the total market value of the securities in your margin account at all times. The 25 percent is called the “maintenance requirement.” In fact, many brokerage firms have higher maintenance requirements, typically between 30 to 40 percent, and sometimes higher depending on the type of stock purchased.

Here’s an example of how maintenance requirements work. Let’s say you purchase $16,000 worth of securities by borrowing $8,000 from your firm and paying $8,000 in cash or securities. If the market value of the securities drops to $12,000, the equity in your account will fall to $4,000 ($12,000 – $8,000 = $4,000). If your firm has a 25 percent maintenance requirement, you must have $3,000 in equity in your account (25 percent of $12,000 = $3,000). In this case, you do have enough equity because the $4,000 in equity in your account is greater than the $3,000 maintenance requirement.

But if your firm has a maintenance requirement of 40 percent, you would not have enough equity. The firm would require you to have $4,800 in equity (40 percent of $12,000 = $4,800). Your $4,000 in equity is less than the firm’s $4,800 maintenance requirement. As a result, the firm may issue you a “margin call,” since the equity in your account has fallen $800 below the firm’s maintenance requirement.

Understand Margin Calls – You Can Lose Your Money Fast and With No Notice:

If your account falls below the firm’s maintenance requirement, your firm generally will make a margin call to ask you to deposit more cash or securities into your account. If you are unable to meet the margin call, your firm will sell your securities to increase the equity in your account up to or above the firm’s maintenance requirement.

Always remember that your broker may not be required to make a margin call or otherwise tell you that your account has fallen below the firm’s maintenance requirement. Your broker may be able to sell your securities at any time without consulting you first. Under most margin agreements, even if your firm offers to give you time to increase the equity in your account, it can sell your securities without waiting for you to meet the margin call.

Ask Yourself These Key Questions:

Do you know that margin accounts involve a great deal more risk than cash accounts where you fully pay for the securities you purchase? Are you aware you may lose more than the amount of money you initially invested when buying on margin? Can you afford to lose more money than the amount you have invested?
Did you take the time to read the margin agreement? Did you ask your broker questions about how a margin account works and whether it’s appropriate for you to trade on margin? Did your broker explain the terms and conditions of the margin agreement?
Are you aware of the costs you will be charged on money you borrow from your firm and how these costs affect your overall return?
Are you aware that your brokerage firm can sell your securities without notice to you when you don’t have sufficient equity in your margin account?

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T + 3 – Settlement of Security Transactions – Boca Raton, Florida Securities Litigation and Arbitration Attorney

Russell L. Forkey — Fri, 27 Nov 2015 16:52:44 GMT

T + 3 – Settlement of Security Transactions – Boca Raton, Lake Worth and North Palm Beach, Florida Securities Litigation and Arbitration Attorney

What is meant by T+3?

Generally, investors must complete or settle their security transactions within three business days. This settlement cycle is known as “T+3,” shorthand for “trade date plus three days.”

T+3 means that when you buy a security, your payment must be received by your brokerage firm no later than three business days after the trade is executed. When you sell a security, you must deliver your securities, in certificated or electronic form, to your brokerage firm no later than three business days after the sale.

The three-day settlement date applies to most security transactions, including stocks, bonds, municipal securities, mutual funds traded through a brokerage firm, and limited partnerships that trade on an exchange. Government securities and stock options settle on the next business day following the trade.

Delivery on sales should be made by the settlement date. Under Rule 204, firms that clear and settle trades must deliver securities to a registered clearing agency for clearance and settlement on a long or short sale in any equity security by the settlement date or must take immediate action to close out failures to deliver by no later than the beginning of regular trading hours on T+4 (for short sales) or T+6 (for long sales and fails attributable to bona fide market making).

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FAQs Regulation SHO – Boca Raton, Florida Securities Litigation and Arbitration Attorney

Russell L. Forkey — Thu, 26 Nov 2015 18:06:37 GMT

FAQs Regulation SHO – Boca Raton and Delray Beach, Florida Securities Litigation and Arbitration Attorney

Regulation SHO

Compliance with Regulation SHO began on January 3, 2005. Regulation SHO was adopted to update short sale regulation in light of numerous market developments since short sale regulation was first adopted in 1938 and to address concerns regarding persistent failures to deliver and potentially abusive “naked” short selling.

Due to continued concerns about failures to deliver, and to promote market stability and preserve investor confidence, the Securities and Exchange Commission (“Commission”) has amended Regulation SHO several times since 2005 to eliminate certain exceptions, strengthen certain requirements and reintroduce the price test restriction.

As initially adopted, Regulation SHO included two major exceptions to the close-out requirement: the “grandfather” provision and the “options market maker” exception. Due to continued concerns about failures to deliver, and the fact that the Commission continued to observe certain securities with failure to deliver positions that were not being closed out under then existing requirements, in 2007 the Commission eliminated the “grandfather” provision and in 2008 the Commission eliminated the “options market maker” exception.

In addition, the Commission adopted temporary Rule 204T in 2008 and final Rule 204 in 2009, which strengthened further the close-out requirements of Regulation SHO by applying close-out requirements to failures to deliver resulting from sales of all equity securities and reducing the time-frame within which failures to deliver must be closed out.

In 2010, the Commission adopted Rule 201 of Regulation SHO. Rule 201 restricts the price at which short sales may be effected when a stock has experienced significant downward price pressure. Rule 201 is designed to prevent short selling, including potentially manipulative or abusive short selling, from driving down further the price of a security that has already experienced a significant intra-day price decline, and to facilitate the ability of long sellers to sell first upon such a decline.

Regulation SHO’s four general requirements are summarized below:

Rule 200 – Marking Requirements. Rule 200 requires that orders you place with your broker-dealer must be marked “long,” “short,” or “short exempt.”

Rule 201 – Short Sale Price Test Circuit Breaker. Rule 201 generally requires trading centers to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent the execution or display of a short sale at an impermissible price when a stock has triggered a circuit breaker by experiencing a price decline of at least 10 percent in one day. Once the circuit breaker in Rule 201 has been triggered, the price test restriction will apply to short sale orders in that security for the remainder of the day and the following day, unless an exception applies.

Rule 203(b)(1) and (2) – Locate Requirement. Regulation SHO requires a broker-dealer to have reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due before effecting a short sale order in any equity security. This “locate” must be made and documented prior to effecting the short sale.

Rule 204 – Close-out Requirement. Rule 204 requires brokers and dealers that are participants of a registered clearing agency to take action to close out failure to deliver positions. Closing out requires the broker or dealer to purchase or borrow securities of like kind and quantity. The participant must close out a failure to deliver for a short sale transaction by no later than the beginning of regular trading hours on the settlement day following the settlement date, referred to as T+4. If a participant has a failure to deliver that the participant can demonstrate on its books and records resulted from a long sale, or that is attributable to bona fide market making activities, the participant must close out the failure to deliver by no later than the beginning of regular trading hours on the third consecutive settlement day following the settlement date, referred to as T+6. If the position is not closed out, the broker or dealer and any broker or dealer for which it clears transactions (for example, an introducing broker) may not effect further short sales in that security without borrowing or entering into a bona fide agreement to borrow the security (known as the “pre-borrowing” requirement) until the broker or dealer purchases shares to close out the position and the purchase clears and settles. In addition, Rule 203(b)(3) of Regulation SHO requires that participants of a registered clearing agency must immediately purchase shares to close out failures to deliver in securities with large and persistent failures to deliver, referred to as “threshold securities,” if the failures to deliver persist for 13 consecutive settlement days. Threshold securities are equity securities that have an aggregate fail to deliver position for five consecutive settlement days at a registered clearing agency (e.g., National Securities Clearing Corporation (NSCC)); totaling 10,000 shares or more; and equal to at least 0.5% of the issuer’s total shares outstanding. As provided in Rule 203 of Regulation SHO, threshold securities are included on a list disseminated by a self-regulatory organization (“SRO”). Although as a result of compliance with Rule 204, generally a participant’s fail to deliver positions will not remain for 13 consecutive settlement days, if, for whatever reason, a participant of a registered clearing agency has a fail to deliver position at a registered clearing agency in a threshold security for 13 consecutive settlement days, the requirement to close-out such position under Rule 203(b)(3) remains in effect.

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FAQs Short Selling – South Florida Securities Litigation and Arbitration Attorney

Russell L. Forkey — Thu, 26 Nov 2015 16:23:37 GMT

FAQs Short Selling – South Florida, including Boca Raton, Fort Lauderdale and West Palm Beach Securities Litigation and Arbitration Attorney

I. Short Sales

A. What is a short sale?

A short sale is generally the sale of a stock you do not own (or that you will borrow for delivery). Short sellers believe the price of the stock will fall, or are seeking to hedge against potential price volatility in securities that they own.

If the price of the stock drops, short sellers buy the stock at the lower price and make a profit. If the price of the stock rises, short sellers will incur a loss. Short selling is used for many purposes, including to profit from an expected downward price movement, to provide liquidity in response to unanticipated buyer demand, or to hedge the risk of a long position in the same security or a related security.

B. Example of a short sale.

For example, an investor believes that there will be a decline in the stock price of Company A. Company A is trading at $60 a share, so the investor borrows shares of Company A stock at $60 a share and immediately sells them in a short sale. Later, Company A’s stock price declines to $40 a share, and the investor buys shares back on the open market to replace the borrowed shares. Since the price is lower, the investor profits on the difference — in this case $20 a share (minus transaction costs such as commissions and fees). However, if the price goes up from the original price, the investor loses money. Unlike a traditional long position – when risk is limited to the amount invested – shorting a stock leaves an investor open to the possibility of unlimited losses, since a stock can theoretically keep rising indefinitely.

C. How does short selling work?

Typically, when you sell short, your brokerage firm loans you the stock. The stock you borrow comes from either the firm’s own inventory, the margin account of other brokerage firm clients, or another lender. As with buying stock on margin, your brokerage firm will charge you interest on the loan, and you are subject to the margin rules. If the stock you borrow pays a dividend, you must pay the dividend to the person or firm making the loan.

D. Are short sales legal?

Although the vast majority of short sales are legal, abusive short sale practices are illegal. For example, it is prohibited for any person to engage in a series of transactions in order to create actual or apparent active trading in a security or to depress the price of a security for the purpose of inducing the purchase or sale of the security by others. Thus, short sales effected to manipulate the price of a stock are prohibited.

II. “Naked” Short Sales

In a “naked” short sale, the seller does not borrow or arrange to borrow the securities in time to make delivery to the buyer within the standard three-day settlement period. As a result, the seller fails to deliver securities to the buyer when delivery is due (known as a “failure to deliver” or “fail”).

Failures to deliver may result from either a short or a long sale. There may be legitimate reasons for a failure to deliver. For example, human or mechanical errors or processing delays can result from transferring securities in physical certificate rather than book-entry form, thus causing a failure to deliver on a long sale within the normal three-day settlement period. A fail may also result from “naked” short selling. For example, market makers who sell short thinly traded, illiquid stock in response to customer demand may encounter difficulty in obtaining securities when the time for delivery arrives.

“Naked” short selling is not necessarily a violation of the federal securities laws or the Commission’s rules. Indeed, in certain circumstances, “naked” short selling contributes to market liquidity. For example, broker-dealers that make a market in a security generally stand ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even when there are no other buyers or sellers. Thus, market makers must sell a security to a buyer even when there are temporary shortages of that security available in the market. This may occur, for example, if there is a sudden surge in buying interest in that security, or if few investors are selling the security at that time. Because it may take a market maker considerable time to purchase or arrange to borrow the security, a market maker engaged in bona fide market making, particularly in a fast-moving market, may need to sell the security short without having arranged to borrow shares. This is especially true for market makers in thinly traded, illiquid stocks as there may be few shares available to purchase or borrow at a given time.

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Public Company Going Private – South Florida Securities and Investment Attorney

Russell L. Forkey — Sat, 02 May 2015 16:00:51 GMT

Public Company Going Private – South Florida Securities and Investment Attorney

Public Company Going Private:

A publicly held company generally means a company that has a class of securities that is registered with the Securities and Exchange Commission because those securities are widely held or traded on a national securities exchange. When a public company is eligible to deregister a class of its equity securities, either because those securities are no longer widely held or because they are delisted from an exchange, this is known as “going private.”

A publicly held company may deregister its equity securities when they are held by less than 300 shareholders of record or less than 500 shareholders of record, where the company does not have significant assets. Depending on the facts and circumstances, the company may no longer be required to file periodic reports with the SEC once the number of shareholders of record drops below the above thresholds.

A number of kinds of transactions can result in a company going private, including:
Another company or individual makes a tender offer to buy all or most of the company’s publicly held shares;
The company merges with or sells all or substantially all of the company’s assets to another company; or
The company declares a reverse stock split that reduces the number of shareholders of record. In a reverse stock split, the company typically gives shareholders a single new share in exchange for a block-10, 100, or even 1,000 shares-of the old shares. If a shareholder does not have a sufficient number of old shares to exchange for new shares, the company will usually pay the shareholder cash instead of issuing a new share, thus eliminating some smaller shareholders of record and reducing the total number of shareholders.

If an affiliate of the company or the company itself is engaged in one of these kinds of transactions or series of transactions that will cause a class of equity securities to become eligible for deregistration or delisting, Rule 13e-3 of the Securities Exchange Act of 1934 and Schedule 13E-3 may apply. When Rule 13e-3 applies, the company is said to be “going private” under SEC rules. While SEC rules don’t prevent companies from going private, they do require companies to provide specific information to shareholders about the transaction that caused the company to go private. In addition to a Schedule 13E-3, the company and/or the affiliates engaged in the transaction also may have to file a proxy or a tender offer statement with the SEC.

When one of the kinds of transactions listed above involving a company or its affiliates results in a company’s publicly held securities becoming delisted from a national securities exchange or an inter-dealer quotation system of any national securities association, Rule 13e-3 and Schedule 13E-3 may also apply.

Schedule 13E-3 requires a discussion of the purposes of the transaction, any alternatives that the company considered, and whether the transaction is fair to unaffiliated shareholders. The Schedule also must disclose whether and why any of its directors disagreed with the transaction or abstained from voting on the transaction and whether a majority of directors who are not company employees approved the transaction.

Going private transactions require shareholders to make difficult decisions. To protect shareholders, some states have adopted corporate takeover statutes that provide shareholders with dissenter’s rights. These statutes provide shareholders the opportunity to sell their shares on the terms offered, to challenge the transaction in court, or to hold on to the shares. Once the transaction is concluded, remaining shareholders may find it very difficult to sell their retained shares because of a limited trading market.

Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If you have any questions concerning the contents of this post, please consult a qualified expert.

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Defunct Companies (“Microcap”) – Pump and Dump Scheme – Florida Securities Investment Fraud Attorney

Russell L. Forkey — Sat, 02 May 2015 15:30:24 GMT

Defunct Companies (“Microcap“) – Pump and Dump Scheme – Florida Securities Investment Fraud Attorney

Defunct Companies: Can the Stock Continue to Trade?

Even when a company is no longer in business, there may still be active trading in its stock. This is because companies that are no longer operating may still have outstanding registered stock, which can be traded until the company has the shares deregistered or the stock’s registration is revoked. The SEC does not have a rule that prohibits the trading of stock once a company becomes defunct because it does not want to forbid transactions between willing buyers and sellers, including those holding shares in defunct companies.

Including bankruptcy, other issues that might arise with defunct companies include the following:

Trading stocks vs. publishing quotations in stocks. Rule 15c2-11 of the Securities Exchange Act of 1934 prohibits broker-dealers from publishing a quotation for a security (an offer to buy or sell) unless they have reviewed certain information about the company. The rule regulates when broker-dealers may publish a quotation in, the Over-the-Counter Bulletin Board, the Pink Sheets or other quotation mediums, but does not, address when a stock can be traded between two broker-dealers. As a result, there may be trading in a stock even though the company is no longer in business and quotations in the stock are not actively published.

An exception to the rule permits a broker-dealer to publish quotations for a stock without reviewing information about the company if there are regular and continuous quotations published for a specified period of time by broker-dealers that did have the appropriate information. Although a company has become defunct, its stock may still be quoted under this “piggy-back” exception. In addition, if a company becomes defunct after quotations in the stock are published for the specified time period, the broker-dealer is not obligated to acquire current information on the company.

The SEC may invoke a trading suspension. In some cases, the SEC or an exchange may halt trading in the stock of a defunct company if the stock price appears to be manipulated or if it believes that public information about the issuer is false or misleading. When the trading suspension ends, a broker-dealer wishing to publish quotations must comply with Rule 15c2-11, which may be impossible to do in the case of a defunct company.

The SEC may revoke the registration of stocks. In some circumstances, the SEC may revoke the registration of a defunct company’s stock. Section 12(j) of the Exchange Act authorizes the SEC to revoke the registration of a security if the issuer fails to comply with the federal securities laws. Broker-dealers may not execute any trades in stocks whose registration has been revoked pursuant to Section 12(j).

A defunct company may not have a transfer agent. In some situations, the defunct company does not have a transfer agent. Although the federal securities laws do not require a company to have a transfer agent, if a company does not have a transfer agent, investors are unable to receive or transfer their stock certificates. Sometimes the SEC has considered a company’s lack of a transfer agent as a factor in determining whether to revoke the registration of stock pursuant to Section 12(j) for the protection of investors.

Many times defunct microcap stocks are used by in pump and dump schemes. please follow the following link to read in conjunction with this post.

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Security and Investment Analyst – South Florida Security and Investment Fraud and Mismanagement Litigation Attorney

Russell L. Forkey — Fri, 03 Apr 2015 01:42:38 GMT

Security and Investment Analyst – South Florida Security and Investment Fraud, Breach of Fiduciary Duty and Mismanagement Litigation Attorney:

Factors to Consider in Analyzing Analyst Security and Investment Recommendations:

Research analysts study publicly traded companies and make recommendations on the securities of those companies. Most specialize in a particular industry or sector of the economy. They exert considerable influence in today’s marketplace. Analysts’ recommendations or reports can influence the price of a company’s stock-especially when the recommendations are widely disseminated through television appearances or through other electronic and print media. The mere mention of a company by a popular analyst can temporarily cause its stock to rise or fall-even when nothing about the company’s prospects or fundamentals has recently changed.

Analysts often use a variety of terms-buy, strong buy, near-term or long-term accumulate, near-term or long-term over-perform or under-perform, neutral, hold-to describe their recommendations. But the meanings of these terms can differ from firm to firm. Rather than make assumptions, investors should carefully read the definitions of all ratings used in each research report. They should also consider the firm’s disclosures regarding what percentage of all ratings fall into either “buy,” “hold/neutral,” and “sell” categories.

While analysts provide an important source of information in today’s markets, investors should understand the potential conflicts of interest analysts might face. For example, some analysts work for firms that underwrite or own the securities of the companies the analysts cover. Analysts themselves sometimes own stocks in the companies they cover-either directly or indirectly, such as through employee stock-purchase pools in which they and their colleagues participate.

As a general matter, investors should not rely solely on an analyst’s recommendation when deciding whether to buy, hold, or sell a stock. Instead, they should also do their own research-such as reading the prospectus for new companies or for public companies, the quarterly and annual reports filed with the SEC-to confirm whether a particular investment is appropriate for them in light of their individual financial circumstances.

Who Analysts Are and Who They Work For

Analysts historically have served an important role, promoting the efficiency of the markets by ferreting out facts and offering valuable insights on companies and industry trends. Analysts generally fall into one of three categories:

Sell-side analysts typically work for full-service broker-dealers and make recommendations on the securities they cover. Many of the more popular sell-side analysts work for prominent brokerage firms that also provide investment banking services for corporate clients-including companies whose securities the analysts cover.

Buy-side analysts typically work for institutional money managers-such as mutual funds, hedge funds, or investment advisers-that purchase securities for their own accounts. They counsel their employers on which securities to buy, hold, or sell and stand to make money when they make good calls.

Independent analysts typically aren’t associated with firms that underwrite the securities they cover. They often sell their research reports on a subscription or other basis. Some firms that have discontinued their investment banking operations now market themselves as more independent than multi-service firms, emphasizing their lack of conflicts of interest.

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Risks Associated With Option Trading – Boca Raton, Florida Investment Abuse FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Wed, 25 Mar 2015 02:41:28 GMT

Risks Associated With Option Trading – Boca Raton, Florida Investment Abuse FINRA Arbitration and Litigation Attorney

What are some of the risks associated with trading options?

Options like other securities carry no guarantees, and investors should be aware that it is possible to lose all of your initial investment, and sometimes more. For example:

Option holders risk the entire amount of the premium paid to purchase the option. If a holder’s option expires “out-of-the-money” the entire premium will be lost.

Option writers may carry an even higher level of risk since certain types of options contracts can expose writers to unlimited potential losses.

Other risks associated with trading options include:

Market Risk – Extreme market volatility near an expiration date could cause price changes that result in the option expiring worthless.

Underlying Asset Risk – Since options derive their value from an underlying asset, which may be a stock or securities index, any risk factors that impact the price of the underlying asset will also indirectly impact the price and value of the option.

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Boca Raton and West Palm Beach, Florida Option Trading Abuse FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Wed, 25 Mar 2015 02:30:25 GMT

Boca Raton and West Palm Beach, Florida Option Trading Abuse FINRA Arbitration and Litigation Attorney:

Options Trading:

Market Participants – There are generally four types of market participants in options trading: (1) buyer of calls; (2) sellers of calls; (3) buyers of puts; and (4) sellers of puts.

Opening a Position – When you buy or write a new options contract, you are establishing an open position. That means that you have established one side of an options contract and will be matched with a buyer or seller on the other side of the contract.

Closing a Position – If you already hold an options contract or have written one, but want to get out of the contract, you can close your position, which means either selling the same option you bought (if you are a holder), or buying the same option contract you sold (if you are a writer).

The following are examples of basic call and put option transactions:

Call Option: On December 1, 2014, ABC Stock is trading at $68 per share. You believe the price of ABC stock will rise soon and decide to purchase an ABC December 70 Call. The premium is $2.20 for the ABC December 70 Call. The expiration date of the option is the third Friday of December and the strike price is $70. The total price of the contract is $2.20 x 100 = $220 (plus commissions which we will not account for in this example).

Since the strike price of the call option is $70, the stock must rise above $70 before the call option is “in-the-money.” Additionally, since the contract premium is $2.20 per share, the price of ABC would need to rise to $72.20 in order for you to break even on the transaction.

Two weeks later the stock price has risen to $80. As the value of the underlying stock has increased, the premium on the ABC December 70 Call has also increased to $10.20, making the option contract now worth $10.20 x 100 = $1020. If you sell the option now (closing your position) you would collect the difference between the premium you paid and the current premium $1020-$220 = $800 (minus any commission costs). Alternatively, you could exercise the option and buy the underlying shares from the writer of the call for $70 (the strike price); the writer is obligated to sell the buyer those shares at $70 even though their market value is $80.

Now, suppose you believe the price of the stock will continue rising until the expiration date and you decide to wait to sell or exercise the option. Unfortunately, the stock price drops to $65 on the expiration date. Since this is less than the $70 strike price, the option is out-of-the-money and expires worthless. This means you will have lost the initial $220 premium you paid for the options contract.

Put Option: On December 1, 2014, ABC Stock is trading at $72 per share. You believe the price of ABC stock will fall soon and decide to purchase an ABC December 70 Put. The premium is $2.20 for the ABC December 70 Put. The expiration date of the option is the third Friday of December and the strike price is $70. The total price of the contract is $2.20 x 100 = $220 (plus commissions which we will not account for in this example).

Since the strike price of the put option is $70, the stock must drop below $70 before the put option is “in-the-money.” Additionally, since the contract premium is $2.20 per share, the price of ABC would need to drop to $67.80 in order for you to break even on the transaction.

Two weeks later the stock price has dropped to $60. As the value of the underlying stock has decreased, the premium on the ABC December 70 Put has increased to $10.20, making the option contract now worth $10.20 x 100 = $1020. If you sell the option now (closing your position) you would collect the difference between the premium you paid and the current premium $1020-$220 = $800 (minus any commission costs). Alternatively, you could exercise the option and sell the underlying shares to the writer of the put for $70 (the strike price); the writer is obligated to buy those shares at $70 even though their market value is $60.

Now, suppose you believe the price of the stock will continue dropping up until the expiration date and you decide to wait to sell or exercise the option. Unfortunately, the stock price rises to $75 on the expiration date. Since this is more than the $70 strike price, the option is out-of-the-money and expires worthless. This means you will have lost the initial $220 premium you paid for the options contract.

These two examples provide you with a basic idea of how options transactions may operate. Investors should note that these examples are some of the most basic forms of options. Many options contracts and the trading strategies that utilize them are much more complex. Consequently, option trading may not be suitable for a risk adverse investor.

Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon a legal or investment advise. If you have any questions concerning the above, you should contact a qualified professional.

Retirement Plan Fiduciary Issues for Employers – Fort Lauderdale, Boca Raton, and West Palm Beach, Florida Breach of Fiduciary Duty Litigation Attorney

Russell L. Forkey — Wed, 18 Mar 2015 02:28:46 GMT

Retirement Plan Fiduciary Issues for Employers – Fort Lauderdale, Boca Raton, and West Palm Beach, Florida Breach of Fiduciary Duty Litigation Attorney:

Retirement Plan Fiduciary Issues For Employers:

Even if employers hire third-party service providers or use internal administrative committees to manage the plan, there are still certain functions that can make an employer a fiduciary.

Employee Contributions:

If a plan provides for salary reductions from employees’ paychecks for contribution to the plan (such as in a 401(k) plan), then the employer must deposit the contributions in a timely manner. The law requires that participant contributions be deposited in the plan as soon as it is reasonably possible to segregate them from the company’s assets, but no later than the 15th business day of the month following the payday. If employers can reasonably make the deposits sooner, they need to do so.

For plans with fewer than 100 participants, salary reduction contributions deposited with the plan no later than the 7th business day following withholding by the employer will be considered contributed in compliance with the law.

For all contributions, employee and employer (if any), the plan must designate a fiduciary, typically the trustee, to make sure that contributions due to the plan are collected. If the plan and other documents are silent or ambiguous, the trustee generally has this responsibility.

Hiring A Service Provider:

Hiring a service provider in and of itself is a fiduciary function. When considering prospective service providers, provide each of them with complete and identical information about the plan and what services you are looking for so that you can make a meaningful comparison.

For a service contract or arrangement to be reasonable, service providers must provide certain information to you about the services they will provide to your plan and all of the compensation they will receive. This information will assist you in understanding the services, assessing the reasonableness of the compensation (direct and indirect), and determining any conflicts of interest that may impact the service provider’s performance.

Some additional items a fiduciary needs to consider when selecting a service provider include:

Information about the firm itself: financial condition and experience with retirement plans of similar size and complexity;
Information about the quality of the firm’s services: the identity, experience, and qualifications of professionals who will be handling the plan’s account; any recent litigation or enforcement action that has been taken against the firm; and the firm’s experience or performance record;
A description of business practices: how plan assets will be invested if the firm will manage plan investments or how participant investment directions will be handled; and whether the firm has fiduciary liability insurance.

An employer should document its selection (and monitoring) process, and, when using an internal administrative committee, should educate committee members on their roles and responsibilities.

Fees:

Fees are just one of several factors fiduciaries need to consider in deciding on service providers and plan investments. When the fees for services are paid out of plan assets, fiduciaries will want to understand the fees and expenses charged and the services provided. While the law does not specify a permissible level of fees, it does require that fees charged to a plan be “reasonable.” After careful evaluation during the initial selection, the plan’s fees and expenses should be monitored to determine whether they continue to be reasonable.

In comparing estimates from prospective service providers, ask which services are covered for the estimated fees and which are not. Some providers offer a number of services for one fee, sometimes referred to as a “bundled” services arrangement. Others charge separately for individual services. Compare all services to be provided with the total cost for each provider. Consider whether the estimate includes services you did not specify or want. Remember, all services have costs.

Some service providers may receive additional fees from investment vehicles, such as mutual funds, that may be offered under an employer’s plan. For example, mutual funds often charge fees to pay brokers and other salespersons for promoting the fund and providing other services. There also may be sales and other related charges for investments offered by a service provider. The information provided by service providers noted above should include a description of all compensation related to the services to be provided that the service providers expect to receive directly from the plan as well as the compensation they expect to receive from other sources.

Who pays the fees? Plan expenses may be paid by the employer, the plan, or both. In addition, for expenses paid by the plan, they may be allocated to participants’ accounts in a variety of ways. In any case, the plan document should specify how fees are paid.

Monitoring A Service Provider:

An employer should establish and follow a formal review process at reasonable intervals to decide if it wants to continue using the current service providers or look for replacements. When monitoring service providers, actions to ensure they are performing the agreed-upon services include:

Evaluating any notices received from the service provider about possible changes to their compensation and the other information they provided when hired (or when the contract or arrangement was renewed);
Reviewing the service providers’ performance;
Reading any reports they provide;
Checking actual fees charged;
Asking about policies and practices (such as trading, investment turnover, and proxy voting); and
Following up on participant complaints.

Providing Information in Participant-Directed Plans:

When plans allow participants to direct their investments, fiduciaries need to take steps to regularly make participants aware of their rights and responsibilities under the plan related to directing their investments. This includes providing plan and investment-related information, including information about fees and expenses, that participants need to make informed decisions about the management of their individual accounts. Participants must receive the information before they can first direct their investment in the plan and annually thereafter. The investment-related information needs to be presented in a format, such as a chart, that allows for a comparison among the plan’s investment options. A model chart is available on this website. If you use information provided by a service provider that you rely on reasonably and in good faith, you will be protected from liability for the completeness and accuracy of the information.

Investment Advice And Education

More and more employers are offering participants help so they can make informed investment decisions. Employers may decide to hire an investment adviser offering specific investment advice to participants. These advisers are fiduciaries and have a responsibility to the plan participants. On the other hand, an employer may hire a service provider to provide general financial and investment education, interactive investment materials, and information based on asset allocation models. As long as the material is general in nature, providers of investment education are not fiduciaries. However, the decision to select an investment adviser or a provider offering investment education is a fiduciary action and must be carried out in the same manner as hiring any plan service provider.

Please keep in mind that the above information is being provided for educational purposes only. Thus, it is not designed to be complete in all material respects. If after reading this article you have any questions, please contact a qualified professional.

Advertising Unregistered Securities Offerings – Boca Raton, Florida Fraud and Misrepresentation in the Advertising of Unregistered Securities Offerings

Russell L. Forkey — Tue, 17 Mar 2015 12:25:44 GMT

Advertising Unregistered Securities Offerings – Boca Raton and West Palm Beach, Florida Fraud and Misrepresentation in the Advertising of Unregistered Securities Offerings Attorney:

Newly announced rules regarding advertising of unregistered securities offerings.

General advertising is permitted in certain offerings as a result of rules adopted by the SEC as required by the Jumpstart Our Business Startups (JOBS) Act. You may begin to see advertising and announcements for opportunities to invest in certain securities offerings, sometimes called private placements. These offerings may be for shares in a company or interests in a private fund, such as a hedge fund or venture capital fund. The advertising may be through a number of different means, including the Internet, social media, seminars, print, or radio or television broadcast. The rules permitting this general advertising took effect on September 23, 2013.

What is a private placement? A securities offering exempt from registration with the SEC is sometimes referred to as a private placement. Under the federal securities laws, a company or private fund may not offer or sell securities unless the offering has been registered with the SEC or an exemption, from registration, is available. Private and public companies engage in private placements to raise funds from investors. Private funds, such as hedge funds, also raise investment capital through private placements. Private placements are not subject to some of the laws and regulations that are designed to protect investors, such as disclosure requirements that apply to registered offerings. As noted above, the SEC recently adopted rules to permit general solicitation or advertising for certain securities offerings that are exempt from registration. As described below, these offerings, referred to here as Rule 506(c) offerings, must comply with a number of requirements.

Am I qualified to invest in a Rule 506(c) offering? Only accredited investors may invest in a Rule 506(c) offering. This limitation exists because these offerings do not have the same investor protections as, and have unique risks when compared to, offerings that are registered with the SEC. An accredited investor, in the context of an individual investor, is a person who: had income in excess of $200,000 (or $300,000 with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR has a net worth over $1 million, either alone or with a spouse (excluding the value of the person’s primary residence or any loans secured by the residence up to the value of the residence). How will the company or private fund know whether you are an accredited investor? In a rule 506(c) offering, the company or private fund is required to take reasonable steps to verify your accredited investor status, which could include reviewing documentation, such as W-2s, tax returns, bank and brokerage statements, credit reports and the like. Depending on the circumstances, the company or private fund may rely on a written confirmation from a third party to verify your accredited investor status. The SEC does not require any specific verification method or process for companies or private funds for these offerings.

Types of third-party verification. If the company or private fund accepts a written confirmation from a third party to verify whether you are an accredited investor, the third party may be a registered broker/dealer, SEC registered investment adviser, licensed attorney or certified public accountant. The third party could be engaged by the company or private fund, or could be retained by you (e.g., your personal broker-dealer, investment adviser, attorney or certified public accountant). You can obtain information about a registered broker by visiting FINRA’s BrokerCheck website. You can obtain information about an investment adviser by visiting the SEC’s Investment adviser Public Disclosure (IAPD) website. You can obtain information about a licensed attorney or certified public accountant by contacting the appropriate state bar or board of accountancy.

You do not have to provide any information if you do not feel comfortable doing so. If you do not provide all of the requested information, you should not be able to invest in the particular offering if the company or private fund is unable to verify that you are an accredited investor. If the company or private fund offering the securities does not take steps to verify your accredited investor status or allows you to participate in the offering even though you do not meet the income or net worth criteria discussed above, this may be a warning sign that the company or private fund is not complying with the federal securities laws and is something to consider before investing in the offering. Investor Assistance (800) 732-0330 www.investor.gov

What should I consider when investing in private placements?

Investing in securities, including through private placements, involves risk. You can lose your entire investment.

You will not be able to sell the securities you invest in as easily as you would a publicly traded stock. You may have to hold your investment indefinitely.

You will likely be provided with less information about your investment than would be required to be disclosed to you if the securities were sold to you in an offering registered with the SEC. Companies and private funds engaging in private placements have more discretion in what information to disclose to you.

If the company or private fund does not regularly file reports with the SEC, there will likely be less information available about your investment on an ongoing basis. You should read and understand all the information that is provided to you regarding the investment, including any offering memorandum or private placement memorandum that describes the investment. Pay particular attention to any risk factors that are described to you. In addition, you should carefully consider the terms of any subscription agreement or other agreements you have to enter into for the investment. Companies and private funds engaging in a private placement generally must file a notice of sales with the SEC for each new offering by making a notice filing on what is called a Form D. These filings are required no later than 15 calendar days after the first sale of securities in the offering and contain some basic information about the company or private fund and the securities offering. Forms D are publicly available through the SEC’s Edgar website.

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Liability of Retirement Plan Fiduciaries – South Florida Retirement Plan Attorney

Russell L. Forkey — Sun, 15 Mar 2015 02:06:24 GMT

South Florida Retirement Plan Attorney – Liability of Retirement Plan Fiduciaries:

Limiting Liability of Retirement Plan Fiduciaries:

As a retirement plan fiduciary, there is potential liability arising from your duties and responsibilities. Fiduciaries who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of the plan’s assets resulting from their actions.

However, fiduciaries can limit their liability in certain situations. One way fiduciaries can demonstrate that they have carried out their responsibilities properly is by documenting the processes used to carry out their fiduciary responsibilities.

There are other ways to reduce possible liability. Some plans, such as most 401(k) and profit sharing plans, can be set up to give participants control over the investments in their accounts and limit a fiduciary’s liability for the investment decisions made by the participants. For participants to have control, they must be given the opportunity to choose from a broad range of investment alternatives. Under Labor Department regulations, there must be at least three different investment options so that employees can diversify investments within an investment category, such as through a mutual fund, and diversify among the investment alternatives offered. In addition, participants must be given sufficient information to make informed decisions about the options offered under the plan. Participants also must be allowed to give investment instructions at least once a quarter, and perhaps more often if the investment option is volatile.

Plans that automatically enroll employees can be set up to limit a fiduciary’s liability for any plan losses that are a result of automatically investing participant contributions in certain default investments. There are four types of investment alternatives for default investments as described in Labor Department regulations and an initial notice and annual notice must be provided to participants. Also, participants must have the opportunity to direct their investments to a broad range of other options, and be provided materials on these options to help them do so.

However, while a fiduciary may have relief from liability for the specific investment allocations made by participants or automatic investments, the fiduciary retains the responsibility for selecting and monitoring the investment alternatives that are made available under the plan.

A fiduciary can also hire a service provider or providers to handle fiduciary functions, setting up the agreement so that the person or entity then assumes liability for those functions selected. If an employer appoints an investment manager that is a bank, insurance company, or registered investment adviser, the employer is responsible for the selection of the manager, but is not liable for the individual investment decisions of that manager. However, an employer is required to monitor the manager periodically to assure that it is handling the plan’s investments prudently and in accordance with the appointment.

Other Plan Fiduciaries:

A fiduciary should be aware of others who serve as fiduciaries to the same plan, because all fiduciaries have potential liability for the actions of their co-fiduciaries. For example, if a fiduciary knowingly participates in another fiduciary’s breach of responsibility, conceals the breach, or does not act to correct it, that fiduciary is liable as well.

Bonding:

As an additional protection for plans, those who handle plan funds or other plan property generally must be covered by a fidelity bond. A fidelity bond is a type of insurance that protects the plan against loss resulting from fraudulent or dishonest acts of those covered by the bond.

Significance of Being a Retirement Plan Fiduciary – South Florida Retirement Plan Attorney

Russell L. Forkey — Sun, 15 Mar 2015 01:58:10 GMT

What Is The Significance Of Being A Retirement Plan Fiduciary?

Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. These responsibilities include:

Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
Carrying out their duties prudently;
Following the plan documents (unless inconsistent with ERISA);
Diversifying plan investments; and
Paying only reasonable plan expenses.

The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment and other functions. Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions. For instance, in hiring any plan service provider, a fiduciary may want to survey a number of potential providers, asking for the same information and providing the same requirements. By doing so, a fiduciary can document the process and make a meaningful comparison and selection.

Following the terms of the plan document is also an important responsibility. The document serves as the foundation for plan operations. Employers will want to be familiar with their plan document, especially when it is drawn up by a third-party service provider, and periodically review the document to make sure it remains current. For example, if a plan official named in the document changes, the plan document must be updated to reflect that change.

Diversification – another key fiduciary duty – helps to minimize the risk of large investment losses to the plan. Fiduciaries should consider each plan investment as part of the plan’s entire portfolio. Once again, fiduciaries will want to document their evaluation and investment decisions.