Securities Industry Commentator by Bill Singer Esq

The Deceased Mother's IRA, Her Two Sons, Her Deceased Daughter, Her Son In Law, and A Messy Estate Dispute with T. Rowe Price (BrokeAndBroker.com Blog)

Global Operation Disrupts Business Email Compromise Schemes / FBI, International Partners Carried Out Operation Eagle Sweep to Combat Financially Devastating Crime (FBI Release)

Supreme Court Rejects "Look-Through" Approach in Confirming/Vacating Arbitration Awards
Denise A. Badgerow, Petitioner, v. Greg Walters, et al. (Opinion, United States Supreme Court)

Massachusetts Superior Court Denies Secretary of State Galvin's Motion Against Robinhood

Robinhood Financial, LLC. v. William F. Galvin, Secretary of the Commonwealth (Decision/Order)

SEC Obtains Final Judgment Against Hedge Fund Adviser Who Jury Found Liable for Securities Fraud (SEC Release)

SEC Obtains Final Judgment Against Massachusetts Investment Adviser for Persuading Retail Investors to Place Money Into an Overseas Scam (SEC Release)

SEC Obtains Final Judgment Against Defendants Charged with Fraud Involving Sham Bottling Company (SEC Release)

FINRA Fines and Suspends Rep for Pasting Customer Signatures on Forms

In the Matter of Matthew A. Trueg, Respondent (FINRA AWC)

FINRA Arbitrators Hit Commonwealth Financial with Compensatory and Punitive Damages in Defamation Case (BrokeAndBroker.com Blog)

FINRA Referral Letter Cited In Federal Insider Trading Appeal (BrokeAndBroker.com Blog)

FINRA Arbitration Claimant Asks Federal Court to Appoint Counsel (BrokeAndBroker.com Blog)

Arousing the Wrath of the Great and Powerful SEC and FINRA (BrokeAndBroker.com Blog)

[T]he U.S. Department of Justice and international law enforcement partners carried out Operation Eagle Sweep over a three-month period and arrested 65 suspects in the United States and overseas, including 12 in Nigeria, eight in South Africa, two in Canada, and one in Cambodia. In parallel with Operation Eagle Sweep, Australia, Japan, and Nigeria conducted local operations targeting BEC actors.

BEC is a sophisticated scam that often targets employees of businesses that make payments through wire transfers. These skilled scammers usually gain access to a company's email accounts or spoof their email addresses to send legitimate sounding and well-timed requests for wire transfers. The bank accounts provided for the transfers, however, are controlled by the criminals. The same criminal organizations that carry out BEC also exploit individuals, often real estate purchasers and the elderly.

NOTE: For prior history READ: "Federal Court Affirms Federal Jurisdiction In FINRA Arbitration Appeal" (BrokeAndBroker.com Blog/ September 17, 2020)

http://www.brokeandbroker.com/5437/badgerow-ameriprise-arbitration/

The Federal Arbitration Act authorizes a party to an arbitration agreement to petition a federal court for various forms of relief. But the Act's authorization of such petitions does not itself create the subject-matter jurisdiction necessary for a federal court to resolve them. Rather, the federal court must have an "independent jurisdictional basis" to do so. Hall Street Associates, L. L. C. v. Mattel, Inc., 552 U. S. 576, 582. In Vaden v. Discover Bank, 556 U. S. 49, this Court assessed whether there was a jurisdictional basis to decide an FAA Section 4 petition to compel arbitration by means of examining the parties' underlying dispute. The Court reasoned that specific language in Section 4 instructed a federal court to "look through" the petition to the "underlying substantive controversy." Id., at 62. If the dispute underlying a Section 4 petition falls within the court's jurisdiction-for example, by presenting a federal question-then the court may rule on the petition to compel arbitration.

In this case, the question presented is whether that same "look-through" approach to jurisdiction applies to applications to confirm or vacate arbitral awards under Sections 9 and 10 of the FAA. Petitioner Denise Badgerow initiated an arbitration proceeding against her employer's principals (collectively, Walters), alleging that she was unlawfully terminated. After arbitrators dismissed Badgerow's claims, she filed suit in Louisiana state court to vacate the arbitral award. Walters removed the case to Federal District Court and applied to confirm the award. Badgerow then moved to remand the case to state court, arguing that the federal court lacked jurisdiction to resolve the parties' requests-under Sections 10 and 9 of the FAA, respectively-to vacate or confirm the award. The District Court applied Vaden's look-through approach, finding jurisdiction in the federal-law claims contained in Badgerow's underlying employment action. The District Court acknowledged that Sections 9 and 10 of the FAA lack the distinctive text on which Vaden relied, but it applied the look-through approach anyway so that "consistent jurisdictional principles" would govern all kinds of FAA applications. The Fifth Circuit affirmed.

Held: Vaden's "look-through" approach to determining federal jurisdiction does not apply to requests to confirm or vacate arbitral awards under Sections 9 and 10 of the FAA. Pp. 4-16.

(a) Congress has granted federal district courts jurisdiction over two main kinds of cases: suits between citizens of different States as to any matter valued at more than $75,000 (diversity cases), 28 U. S. C. §1332(a), and suits "arising under" federal law (federal-question cases), §1331. Normally, a court has federal-question jurisdiction whenever federal law authorizes an action. But because this Court has held that the FAA's provisions do not themselves support federal jurisdiction, a federal court must find an independent basis for jurisdiction to resolve an arbitral dispute. In this case, neither application reveals a jurisdictional basis on its face. So to find an independent basis for jurisdiction, the District Court had to look through the Section 9 and 10 applications to the underlying substantive dispute, where a federal-law claim satisfying §1331 indeed exists. 

In Vaden, this Court approved the look-through approach for a Section 4 petition by relying on that section's express language. That language provides that a party to an arbitration agreement may petition for an order to compel arbitration in a "United States district court which, save for [the arbitration] agreement, would have jurisdiction" over "the controversy between the parties." "The phrase 'save for [the arbitration] agreement,' " the Court stated, "indicates that the district court should assume the absence of the arbitration agreement and determine whether [the court] 'would have jurisdiction . . .' without it" by looking through to the "underlying substantive controversy" between the parties. 556 U. S., at 62. 

Sections 9 and 10 of the FAA contain none of the statutory language on which Vaden relied. So under ordinary principles of statutory construction, the look-through method should not apply. "[W]hen Congress includes particular language in one section of a statute but omits it in another section of the same Act," this Court generally takes the choice to be deliberate. Collins v. Yellen, 594 U. S. ___, ___. That holds true for jurisdictional questions, as federal "district courts may not exercise jurisdiction absent a statutory basis." Exxon Mobil Corp. v. Allapattah Services, Inc., 545 U. S. 546, 552. Because a statutory basis for look-through jurisdiction is lacking in Sections 9 and 10, the Court cannot reach the same result here as in Vaden. Pp. 4-9.

(b) Walters presents a two-part argument to justify exercising jurisdiction here. Walters first claims that Section 4's language does not authorize look-through jurisdiction, but is only a capacious venue provision designed to give applicants a broad choice among federal courts possessing jurisdiction. Walters next construes Section 6-which requires any FAA application to "be made and heard in the manner provided by law for the making and hearing of motions"-to provide the basis for an FAA-wide look-through rule. 

Walters's reading of Section 4 does not comport with how Vaden understood Section 4 or with the actual text of that provision, which never mentions venue, and refers only to jurisdiction. And Walters's Section 6 argument fares no better. Courts do not possess jurisdiction to decide ordinary motions by virtue of the look-through method. So Congress would not have prescribed that method by telling courts, as Section 6 does, to treat FAA applications like motions. Pp. 9-12. 

(c) Walters also makes several policy arguments preaching the virtues of adopting look-through as a uniform jurisdictional rule. Walters claims that a uniform rule will promote "administrative simplicity"; that the look-through approach will be "easier to apply" than a test grounding jurisdiction on the face of the FAA application itself; and that the look-through rule will provide federal courts with more comprehensive control over the arbitration process. Brief for Respondents 27, 28. But "[e]ven the most formidable policy arguments cannot overcome a clear statutory directive." BP p.l.c. v. Mayor and City Council of Baltimore, 593 U. S. ___, ___. And anyway, Walters oversells the superiority of his proposal. First, uniformity in and of itself provides no real advantage here because courts can easily tell whether to apply look-through or the normal jurisdictional rules. Second, the use of those ordinary rules, in the context of arbitration applications, is hardly beyond judicial capacity. And third, there are good reasons why state, rather than federal, courts should handle applications like the ones in this case. Pp. 12-16. 

975 F. 3d 469, reversed and remanded. 

KAGAN, J., delivered the opinion of the Court, in which ROBERTS, C. J., and THOMAS, ALITO, SOTOMAYOR, GORSUCH, KAVANAUGH, and BARRETT, JJ., joined. BREYER, J., filed a dissenting opinion. 

On November 5, 2021, a jury found Lemelson and LCM liable for making three false and misleading statements about Ligand. The jury did not find the defendants liable on certain other charges and allegations. The false statements Lemelson and LCM were found liable for include assertions that Ligand's investor relations firm had agreed that Ligand's most profitable drug was "going away" and that Ligand had entered into a sham transaction with an unaudited shell company in order to pad its balance sheet. The evidence also showed that Lemelson had boasted about bringing down Ligand's stock price through his "multi-month battle" against the company.

The SEC's complaint, filed on August 12, 2019, alleged that Duncan breached his fiduciary duty as an investment adviser by ignoring, and failing to disclose, warnings from two banks that the Turkish investment opportunity was probably a scam. The complaint further alleged that Duncan made materially false and misleading statements to at least one client, promising as much as a 100% return on the Turkish investment.

On September 15, 2021, after a three-day trial conducted in March and April 2021, the court found that Duncan had violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 by, among other things, omitting and misrepresenting material facts to obtain his clients' investments, failing to disclose the conflict between his clients' interests and his personal interests, and failing to investigate the questionable Turkish investment. On March 30, 2022, the court entered a final judgment that permanently enjoins Duncan from violating the antifraud provisions of Sections 206(1) and 206(2) of the Advisers Act and orders Duncan to pay disgorgement of $104,080 plus prejudgment interest of $14,716, and a civil penalty of $414,366.

[S]ince approximately March 2016, Scarlett, through Chatfield, raised at least $3.2 million from investors in two securities offerings by GO ECO. The complaint alleges that Scarlett and Chatfield billed GO ECO as an environmentally-friendly drink bottling and manufacturing company, and told investors that: GO ECO made or bottled "the number one protein shot beverage in the world;" that investments in GO ECO would be used to expand the company's existing business; and that the investments were expected to generate annual returns of 20% to 25%. According to the complaint, however, GO ECO never operated in any way at all. Instead, the complaint alleges, Scarlett misappropriated hundreds of thousands of dollars of investor funds to buy, among other things, jewelry and precious metals, as well as to make various payments on his home. The complaint also alleges that the defendants made other false and misleading statements to GO ECO investors about GO ECO's business operations, management team, and relationship with its supposed key customer.

From March 9, 2021, through July 7, 2021, Trueg affixed the signatures of 13 customers on 14 firm documents. In each instance, Trueg copied the customer's signature from an older form the customer previously signed and pasted it onto a form that required an updated customer signature. Trueg then submitted the altered forms (money and account transfer authorizations, new account agreements and authorizations, a gift authorization, and retirement plan rollover summaries) to Edward Jones to complete transactions the customers requested. There is no indication that Trueg affixed the signatures to the account forms without his customers' consent. Each customer later re-signed the documents. By engaging in this conduct, Trueg violated FINRA Rule 2010. 

Three of the 14 account documents were new account agreements and authorizations, which were firm records pursuant to Section 17(a) of the Securities Exchange Act of 1934 and Exchange Act Rule 17a-3. By engaging in this conduct, Trueg caused the firm to maintain inaccurate books and records in violation of Exchange Act Rule 17a-3 and violated FINRA Rules 4511 and 2010. 

• Securities Industry Commentator
• Bill Singer