Page 8 - White-Collar Crime

S8 | MONDAY, FEBRUARY 8, 2016 | WHITE-COLLAR CRIME
| NYLJ.COM

Analyzing the Impact

Of SEC’s Proposed

Uniform Fiduciary Standard

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BY MARANDA E. FRITZ etary products.3 But in criminal actions, there advisers owe a iduciary duty to their clients. to those who provide certain investment
AND BRIAN D. WALLER
may also be a profound impact on the analysis Securities broker-dealers, on the other hand, advice in relation to ERISA assets as well as
of fraud claims against securities brokers. do not have such a duty and are only required 401(k)s and IRAs. Many in the industry again
During a series of recent public address- Presently, in New York and numerous other to make “suitable” recommendations to their decried the proposal, arguing, among other

es, U.S. Securities and Exchange Com- jurisdictions, absent special circumstances, a clients, meaning the investments have to it things, that the SEC has greater expertise in
mission Chair Mary Jo White conirmed broker is generally not considered a iduciary the customer’s needs and tolerance for risk. the area and that the DOL should allow the
that the SEC is hard at work fashioning new of a customer unless the broker exercises In the wake of the inancial crisis, there were SEC to take the lead.5 A determined Secretary
regulations to establish a “uniform iduciary discretion over the customer’s account. That calls for the imposition of a iduciary duty on of Labor, Thomas Perez, has made clear that
standard” for all securities brokers.1 This SEC absence of a iduciary relationship, in turn, all brokers in their dealings with customers, the DOL will not delay its action, however,
action comes in the wake of the Department limits the extent to which a broker’s alleged no matter how arm’s length the transaction and it is now anticipated that it will issue a
of Labor’s ongoing rulemaking process to “omissions” can form the basis for a securities or how sophisticated the customer. In §913 rule during the irst half of this year and press
broaden its own deinition of those who are fraud prosecution. As discussed below, if the of the Dodd-Frank Wall Street Reform and for compliance within eight months after the
considered iduciaries in relation to ERISA DOL and/or the SEC decide to classify brokers Consumer Protection Act (Pub. L. 111-203), rule’s publication.
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plans and IRA assets.2 There have been reams as “iduciaries,” prosecutors and regulators Congress gave the SEC exclusive authority The Critical Issue of a Duty to Disclose
written in the industry regarding the beneits will likely seek to rely on that designation to to study the effectiveness of regulations gov- in Securities Fraud Prosecutions.
and costs of this looming shift to a uniform argue that any allegedly “material omission” erning registered investment advisers and While the starting point of most securi-
iduciary standard for brokers and advisers, constitutes a regulatory and even criminal broker-dealers and promulgate a uniform ties fraud prosecutions is an alleged material
primarily focused on the burdens of compli- offense, subject to all of the severe accom- iduciary duty rule that would harmonize misrepresentation, New York state and federal
ance, the impact on investors, and the sweep- panying penalties. Since the scope of alleg- the differing standards currently in place.4 prosecutions often include alleged misrepre-
ing changes that may be triggered in terms of edly material omissions is limited only by a Although the SEC has contemplated doing sentations in the form of “omissions.” It is,
compensation structures and sale of propri-
prosecutor’s inventiveness, and the willing- so for years, increased attention to the issue after all, a far more pliable approach. The

ness of a disgruntled customer to conirm may prompt it to adopt a uniform rule in the traditional allegation of a misrepresentation
the importance of the supposed omission, coming months.
requires a prosecutor to prove that a particu-
MARANDA E. FRITZ and BRIAN D. WALLER are mem- the consequences—intended or not—are well The DOL irst proposed such a rule in 2010, lar statement was actually made, that it was
bers of the white-collar crime practice group at worth considering.
but later withdrew it in the face of strong not mere “puffery” or opinion, and that it was
Thompson Hine. Associate ELI B. RICHLIN assisted The Proposed Fiduciary Rules.
opposition. It returned to the issue in 2015, false or “misleading.” An omission allegation,
in the preparation of this article.
Under current SEC regulations, investment
proposing a revised rule that would apply
on the other hand, enables a prosecutor to