Securities Industry Commentator by Bill Singer Esq

Federal Court Denies Legend Securities President Bankruptcy Discharge of FINRA Customer Arbitration Award (BrokeAndBroker.com Blog)

SEC Charges Angel Oak Capital Advisors with Misleading Investors in $90 Million Fix-and-Flip Securitization (SEC Release)

SEC Brings Charges Over Unregistered Offerings of Conservation Easement Investments (SEC Release)

SEC Proposes to Enhance Private Fund Reporting

Statement on Proposed Amendments to Form PF by SEC Commissioner Caroline A. Crenshaw

Enhancing Private Fund Adviser Reporting Data (Statement by SEC Commissioner Jaime Lizárraga)

Statement on Proposed Amendments to Form PF to Amend Reporting Requirements for All Filers and Large Hedge Fund Advisers by SEC Commissioner Hester M. Peirce

What Happens When A Company Murders Another Company By Poisoning It's Board?

ZF Micro Solutions, Inc., Plaintiff/Appellant, v. TAT Capital Partners, Ltd, Defendant/Respondent (Opinion, Court of Appeal for the State of California)

Former Investment Adviser Sentenced to Five Years for Defrauding his Clients of More than $7 Million (DOJ Release)

SEC Awards About $13 million and $3.3 Million To Two Whistleblower Claimants

Order Determining Whistleblower Award Claims

FINRA Fines and Suspends Rep for PST

In the Matter of Manish Saini, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for Electronic Signatures

In the Matter of Daniel William Stoakes, Jr., Respondent (FINRA AWC)

Wells Fargo Clearing Services Hit with Over $731,000 Award in Customer Fraud Arbitration

In the Matter of the Arbitration Between Edward A. Pesicka and Wendy M. Pesicka, Each Individually and as Joint Account Holders, Claimants, v. Wells Fargo Clearing Services, LLC, Wells Fargo Advisors Financial Network, Gregory T. Pease, John P. Rauch, and Rauch Pease Wealth Management, Respondents (FINRA Arbitration Award 17-02578)

Parietti's Predicament And Prosecutors' Puzzling Principles (BrokeAndBroker.com Blog)

FINRA Small Firms Face Existential Crisis. VOTE Stephen Kohn for Small Firm Governor (BrokeAndBroker.com Blog)

[I]n March 2018, Angel Oak raised $90 million through a first-of-its-kind securitization of loans made to borrowers for the purpose of purchasing, renovating, and selling residential properties, also known as "fix-and-flip" loans, which were originated by an Angel Oak-affiliated entity. The deal included a provision that would accelerate Angel Oak's obligation to return funds to certain investors if delinquencies reached a pre-defined threshold. Shortly after the deal closed, loan delinquency rates increased unexpectedly.

Concerned about the reputational and financial harm its securitization business would suffer from an early repayment, Angel Oak and Negandhi artificially reduced delinquency rates by improperly diverting funds ostensibly held to reimburse borrowers for renovations made to the mortgaged properties, to instead pay down outstanding loan balances. Because Angel Oak and Negandhi did not disclose these actions, the performance data regularly disseminated to investors provided an inaccurate view of the actual delinquency rates on the mortgages in the securitization pool as well as the securitization's compliance with the early repayment trigger.

[G]reneCo, LLC and its owners, Gene D. Larson and Gregory K. Womack, raised approximately $23 million from more than 250 investors in 2017 and 2018 through four unregistered securities offerings involving conservation easements. The offerings provided investors with multiple investment options, including an election to take charitable tax deductions if the real estate acquired with their investment funds was donated to a land trust for purposes of a conservation easement. Under the Internal Revenue Code, conservation easements allow real property to be donated to qualified organizations, which may generate federal and state tax deductions for the investor.

The SEC's complaint further alleges that Womack and his investment adviser, Womack Investment Advisers, Inc. (WIA), failed to disclose compensation received from WIA clients who invested in GreneCo's offerings. According to the SEC, Womack received approximately $6 million in management fees from the GreneCo offerings, a fact not disclosed to the eight WIA clients who invested in the offerings. The complaint also alleges that WIA's annual disclosures falsely stated that it did not receive any compensation from GreneCo when, in fact, it had received $160,000 in such compensation, partly attributable to investments by WIA clients. As alleged, these fees and compensation created conflicts of interest that Womack and WIA, as fiduciaries, were required to disclose to their clients.

Today's Form PF proposal would provide the SEC, CFTC, and Financial Stability Oversight Council ("FSOC") with important information to keep apace with the myriad changes in the private funds space.

Our mandate in this area is clear. In enacting Dodd-Frank, Congress authorized the Commission to require advisers to private funds to file reports regarding those funds "as necessary and appropriate in the public interest and for the protection of investors, or for the assessment of systemic risk by the Financial Stability Oversight Council."[1] In so passing, Congress clearly and pointedly recognized the need for data on the parts of both FSOC, to assess and protect against risks to the stability of our financial systems, and the SEC to protect investors. It did not relegate or subjugate the SEC's mission of protecting investors.[2]

And today's proposed rule serves those purposes. If adopted, it would improve the quality and consistency of data collected from private fund advisers. And, in doing so, it would improve FSOC's ability to gauge systemic risk in the financial industry, and the SEC's ability to appropriately plan and resource our regulatory examination and investigative programs, and overall to better protect investors. As noted in connection with the Form PF amendments earlier this year, the private fund industry has changed dramatically in the decade since Form PF was first proposed. Since the SEC began analyzing Form PF data, the value of net assets reported has more than doubled.[3] And private fund advisers are concentrating in different spaces than they did a decade ago - such as digital assets, litigation finance, and credit, among others. In other words, more investor funds are flowing into these new or emerging spaces where our observability is significantly more limited than in the public markets. Making sure that we collect the right data to assess risk and protect our financial markets and investors is therefore paramount.[4]

The proposal sharpens our pencils. It reflects nearly a decade of learning from the data collected - to see what information has been helpful, what questions have led to inconsistent reporting, and what gaps continue to exist. It focuses on improving the quality of the data that we are collecting, which will hopefully lead to better analysis and preparedness on both a macro-scale as well as at firm-specific levels.

For example, the proposal would require all private fund advisers to provide information for each reporting fund on withdrawal and redemption rights, which would provide the Commissions and FSOC more information on funds' susceptibility to stress through redemptions. The proposal would also update the reporting of gross and net asset values, fund performance, as well as reporting on specific information relating to fund inflows and withdrawals, redemptions and distributions. These data must be accurate to assess industry trends, identify areas of market stress or fragility, compare volatility across different fund types and sectors, and verify information provided in investor disclosures. The proposal also would revise how advisers report assets and liabilities using the fair value hierarchy established under U.S. GAAP, which is a key indicator of liquidity and the complexity of a fund's portfolio. It would require the reporting of more comprehensive and comparable information on borrowings and creditors, counterparty exposure, exposure to certain classes of assets, and counterparty credit risk, which would strengthen the ability to identify areas of programmatic weakness. And, it would require further standardization of basic identifying information through Legal Entity Identifiers, or LEIs.[5] These are among other important areas where we are proposing to hone our data.

At the same time, the proposal recognizes that some information collected on Form PF has not been helpful to the Commissions or FSOC and, based on that assessment, proposes to stop requiring such information from advisers.[6]

Data collection and analysis may not be flashy, but it is foundational. I think we can all agree that, where we collect these data, it should the right data; this is the cause that we serve here today. Our effective use of data help us manage risk, preserve the integrity of the markets, and ultimately, protect investors and their lifetime savings. There is no substitute for preparedness in these areas. So, I am happy to support this proposed rule.

As always, I want to extend my gratitude to our talented staff in the Division of Investment Management, DERA and the general counsel's office. This proposal is technical and precisely drafted, and it reflects craftsmanship and expertise. Thank you for your dedication and your hard work on this. I also want to thank the Chair and his staff for their guidance in this area. And I want to thank our partners at the CFTC and FSOC, as well as the Department of Treasury and the Federal Reserve Board for working with us on this proposal. Our government works best, and provides the most effective safeguards for investors, when sister agencies and departments work together, and this proposed rulemaking is yet another example of that effective collaboration.

[1] 15 U.S.C. 80b-4(b); see also 15 U.S.C. 80b-11(e).

[2] There have been suggestions that, for purposes of Form PF, the SEC's collection of data for its regulatory program is ancillary to the collection of data for FSOC. See, e.g., SEC Proposes Amendments to Form PF to Increase Oversight of Private Fund, The National Law Review, Vol. XII No. 40 at n.4 (Feb. 9, 2022). The congressional text, however, undermines this argument.

[3] Amendments to Form PF to Amend Reporting Requirements for All Filers and Large Hedge Fund Advisers ("Proposed Release") Rel. No. IA-6083 at 8, n.7 (comparing net assets reported from 2013 to Q3 2021).

[4] See Financial Stability Oversight Council Statement on Nonbank Financial Intermediation (February 4, 2022) ("The Hedge Fund Working Group also ascertained that gaps exist in the availability of data related to hedge funds, and Council member agencies are taking steps to address these gaps.").

[5] Proposed Release at 22-24; see also FSOC 2021 Annual Report at 170-171 ("Broader adoption of the LEI by financial market participants continues to be a Council priority.").

[6] E.g., Proposed Release at 12 (removing certain requirements to report parallel managed accounts, which may reduce the quality of data while imposing additional burdens on advisers); id. at 74-77 (eliminating the requirement for large hedge fund advisers to report certain aggregated information about the hedge funds they manage under current Section 2a relating to hedge funds advised by large private fund advisers).

Today, the Commission is proposing amendments that would improve our oversight and investor protection efforts over the $20 trillion private fund adviser industry. These amendments will also help better assess trends and enhance a key resource for identifying financial stability risks.

Prior to enactment of the landmark Dodd-Frank Act, empirical regulatory data on hedge funds and private funds was not systematically collected. The Act filled that glaring gap by requiring the collection of private fund data that financial regulators now use to identify trends and potential risks to our financial markets. Congress recognized the value of this data for anticipating and addressing future crises.

The Commission created Form PF to serve as the primary reporting source of this data. The data, in turn, assists the Financial Stability Oversight Council ("FSOC") in meeting its Congressional mandate of identifying risks and responding to emerging threats to U.S. financial stability, and in promoting market discipline that eliminates any expectations of taxpayer bailouts. Today's proposal would improve the collection of that data and inform our and FSOC's understanding of potential systemic risks in the private fund industry.

Form PF has brought transparency to a previously opaque yet economically significant sector of our financial markets. Around the time of the Dodd-Frank Act's enactment, a common yet unreliable estimate of hedge fund assets under management prior to the 2008 financial crisis was in the neighborhood of $2 trillion. Two years after enactment, Form PF filers reported an approximate $8 trillion figure. And, by the fourth quarter of 2021, the gross asset figure reached $20 trillion - an astounding increase over the years.

The data also show a significant increase in the exposure to private funds by U.S. individuals, non-profits, and state and municipal government pension plans. For example, in the first quarter of 2013, beneficial ownership of all private funds by U.S. individuals was reported at $588 billion. By the fourth quarter of 2021, it was reported at nearly $1.4 trillion. This exposure has significant implications for the integrity of our financial markets, particularly for retail investors who invest for their retirement, home ownership, and their children's education. Which is why today's proposal to further refine Form PF data collection would be so essential for a more comprehensive evaluation of these implications.

There are two specific areas of the proposal where public feedback will be critical. First, the proposal would enhance data collection on private funds' use of trading vehicles - which can incur leverage - to provide greater clarity on the risks they present. Second, the proposal would require all private fund advisers - not just advisers to qualifying hedge funds - to report whether the funds provide investors with withdrawal or redemption rights, and if so, how often. This information would be critical to understanding private funds' susceptibility to stress during unforeseen or volatile market events.

These are two of several proposed changes to the form that are designed to better identify trends in the private fund industry and help the Commission better protect investors. Bearing in mind FSOC's congressional mandate of monitoring potential systemic risks and the Commission's mandate of overseeing private fund advisers, I also encourage public comment on all aspects of the proposal.

Lastly, I would like to emphasize the importance of cross-agency collaboration. Investor protection is most effective when there's clear, strong, and meaningful regulation. This proposal illustrates how two financial regulators that share the common responsibility of protecting investors are able to work together so that financial stability risks can be assessed and addressed effectively.

The proposed amendments to Form PF are thoughtfully tailored and informed by more than a decade of experience with the form. I am pleased to support today's proposal, and I'd like to thank the staff in the Division of Investment Management, the Division of Economic and Risk Analysis, and the Office of the General Counsel for their hard work and dedication to investor protection.

Thank you, Mr. Chair. Although I have called for changes to Form PF, neither the changes we are considering today, nor the ones we proposed on January 26th, are what I had in mind. Today's amendments-which the Commodity Futures Trading Commission ("CFTC") is joining us in proposing-would expand Form PF by adding questions of the nice to know, rather than need to know variety.[1] Why we need the new information and what we plan to do with it are questions left to the reader's imagination. Accordingly, I am unable to support the proposal.

Form PF's primary purpose is to serve the Financial Stability Oversight Council ("FSOC"), the systemic risk regulator created by Dodd-Frank. As I explained in January, when we were proposing the first round of changes, "the Commission's use of Form PF information in conducting its regulatory program is ancillary to the underlying purpose of facilitating FSOC's monitoring for systemic risk."[2]

Just as the January proposal did, today's proposal stretches a very limited data collection tool beyond its intended purpose. Many commenters on the January proposal noticed the shift in purpose.[3] As before, I find our stated reasons for today's overreach inadequate and unconvincing.

Regulatory bingo players should include "granular" on their bingo cards for this proposal. The release repeatedly reminds the reader that the SEC, the CFTC, and FSOC need more granularity to assess systemic risk and investor protection issues. For instance, the proposal would require advisers to disclose more granular strategy categories, more granular information about the value of long and short-positions, more granular information about beneficial owners, more granular insight into redemption rights,[4] more granular return information, and more granular data about inflows and outflows.

"Systemic risk" also ought to be on that bingo card. As an homage to Form PF's overriding purpose, the release frequently cites "systemic risk" to legitimize the proposed harvesting of data relating to individual fund characteristics or actions. The FSOC, however, does not need to have this kind of detailed knowledge of individual private funds' activities to fulfill its mandate to identify risks to financial stability, promote market discipline, and respond to emerging financial stability threats.

The release avoids grappling with the line between the risks an individual fund may pose to its own investors and systemic risk. As one example, the release asks for more granular information on listed equities. The release explains that "single equity positions may be more vulnerable to short squeezes."[5] True enough. The release further explains that "the level of granularity the proposal would obtain with respect to this information" would help identify "entities that may be affected during a short squeeze event."[6] While high profile short squeezes in recent years have affected certain hedge funds, nothing in the release suggests these short squeezes created systemic risk. Nor does the release explain what proactive measures we or FSOC intend to take should we have such data. Would regulators step in to prevent funds from taking short positions or to prevent other market participants from buying the securities these funds have sold short? Neither intervention would aid financial stability. In fact, they could do the opposite. Better data around aggregate short positions might be helpful, but we are working on other ways to get those data.[7]

The regulatory implications are equally troubling if the purpose of the more granular information is to protect investors. Private fund investors-typically, institutional investors, such as insurance companies, university endowments, pension funds, and high income and net worth individuals[8]-are capable of making their own risk assessments. The SEC should not step in to protect them when their investments do not work out as hoped. As one commenter on the January proposal observed:

[T]he Commission appears to conflate investment protection with mitigation of investment risk. For example, investment losses or losses resulting from market stresses are typical investment risks inherent in this - and indeed all - types of investments. We do not believe that the Commission's investor protection mission should extend to protecting investors from fully-disclosed investment risk.[9]

Acquiring every missing piece of data about private funds is not necessary for us to do our jobs. Mandating the provision of more detailed information, of course, would provide FSOC and the two Commissions with a more detailed picture of private funds. We do not need every detail. We should be asking consistently throughout the release whether the unreported pieces of data prevented FSOC from identifying systemic risks, and based on that experience, how these new filing requirements would materially enhance FSOC's oversight. More basic still: what specifically do we intend to do with the information we are so eager to have?

Also fundamental: Will we be able to protect the data we collect? One industry trade group, concerned about cybersecurity threats, urged the Commission in a 2018 letter to substitute the use of alphanumeric identifiers for names when populating Form PF.[10] Whether or not alphanumeric identifiers are the right way to do it, we need to protect the data we collect. The more information we demand and store, the more tempting a target it becomes and the greater the obligation we have to ensure that we are keeping it safe. Stolen data could become a systemic threat.

Perhaps the blossoming of Form PF into a tool to scrape detailed information about private funds is simply part of a larger effort to ramp up regulation of the private markets. That campaign is proceeding at a pretty good clip these days. As a result, however, costs for private fund advisers-and their investors-will increase and barriers to entry will grow higher, to the detriment of potential innovation, would-be new entrants, and investor returns. Retail investors may pay a different kind of price; if SEC staff are focused on watching the private markets, retail investors, who are generally excluded from private funds, will get less SEC time and attention.

Worse yet, by making Form PF more granular, the proposal contributes to a tired narrative, yet one that is popular among our FSOC colleagues: namely that a systemic risk shadow lurks behind every hedge fund activity. The Commission should reject this narrative not to protect its regulatory prerogatives, but because the narrative is false and because any new authority exercised at the behest of the FSOC would likely look a lot like bank regulation. Increasing bank-like regulation on private funds would impair their ability to serve the broader economy and eat away at one of their most important features-their ability to fail when the investment decisions they make do not pan out.

Form PF is more than ten years old, so revisiting it in light of intervening events and our experience with the data makes sense. In isolation and with proper justification, some of today's proposed amendments might be worthwhile. In fact, staff has recommended a number of changes to streamline and rationalize the form and reporting process, and eliminate redundancies. Although the comment period is regrettably short, I urge commenters to suggest other ways to right-size Form PF.

I offer my thanks to our sister agency, the CFTC, for collaborating with us on this project. Thank you also to the staff of the Divisions of Investment Management, Economic and Risk Analysis, and Examinations, the Office of the General Counsel, and other offices throughout the Commission. Although I am unable to support today's proposal, I appreciate all of the work and effort staff have expended. I am particularly grateful for the attempts you made to streamline Form PF in certain areas and for your discussions with me about the proposal and about your experiences with Form PF. As always, I look forward to hearing from commenters, whose insights about which data we should collect and how we can use it will inform my thinking on both this proposal and January's proposal.

[1] Former CFTC Commissioner Brian Quintenz's observations on the CFTC's Form CPO-PQR, which was modeled on Form PF, come to mind: "In my view, many of the questions on the existing form are more academic than pragmatic in nature - information that may be nice for the Commission to have, but data that is certainly not necessary for the Commission to effectively oversee commodity pools and the derivatives markets." Brian D. Quintenz, Former Commissioner, CFTC, Supporting Statement from Commissioner Brian D. Quintenz on Final Rule to Amend Compliance Requirements for Commodity Pool Operators on Form CPO-PQR (Oct. 6, 2020), https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement100620. .

[2] See Hester M. Peirce, Commissioner, SEC, Statement on Proposed Amendments to Form PF to Require Current Reporting and Amend Reporting Requirements for Large Private Equity Advisers and Large Liquidity Fund Advisers (Jan. 26, 2022), https://www.sec.gov/news/statement/peirce-form-pf-20220122#_ftnref1 (citing Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF, Advisers Act Release No. 3308 (Oct. 31, 2011), [76 FR 71128 (Nov. 16, 2011)], https://www.sec.gov/rules/final/2011/ia-3308.pdf., at p.17 ("Form PF is primarily intended to assist FSOC in its monitoring obligations under the Dodd-Frank Act, but the Commissions may use information collected on Form PF in their regulatory programs, including examinations, investigations and investor protection efforts relating to private fund advisers.")).

[3] See, e.g., Comment letter from TIAA, March 21, 2022 ("[w]e find the Commission's proposed requirements to be overbroad, lacking in specificity, and poorly designed to balance the costs of reporting with the potential benefits to investors, regulators, and the market as a whole"), https://www.sec.gov/comments/s7-01-22/s70122-20120745-272909.pdf; Comment letter from New York City Bar, March 21, 2022 ("It is not clear to the Committees, however, that this enhanced reporting requirement would enhance monitoring capabilities, yet the Proposal would seem to enhance the Commission's regulatory and enforcement function. The Committees question whether more data is in fact necessary. What will the FSOC or the Commission do with the extra information, as it is unclear how it would be used to help investors?"), https://www.sec.gov/comments/s7-01-22/s70122-20120727-272885.pdf; Comment letter from SIFMA, March 21, 2022 ("We do not believe the Commission has established sufficient regulatory need for the additional proposed reporting. Nor do we believe that the Commission has demonstrated that such reporting would provide the Commission or the [FSOC] with meaningful information for their monitoring of investor protection or systemic risk concerns."), https://www.sec.gov/comments/s7-01-22/s70122-20120725-272884.pdf; Comment letter from the Real Estate Board of New York, March 21, 2022 ("Unfortunately, the SEC has provided no adequate analysis demonstrating how the new information required by the proposal would benefit investors or reduce systemic risk."), https://www.sec.gov/comments/s7-01-22/s70122-20120678-272850.pdf; Comment letter from U.S. Chamber of Commerce, March 21, 2022, ("This expansion of Form PF is not consistent with the original motivation for developing Form PF under the Dodd-Frank Act. We are concerned that the scope of new reporting and requirement for one-business day reporting would enable the Commission to unnecessarily interfere with private fund management and make inappropriate or inaccurate inferences about isolated events affecting a private fund."), https://www.sec.gov/comments/s7-01-22/s70122-20120670-272845.pdf.

[4] Currently only large hedge fund advisers are required to report whether qualifying hedge funds provide investors with withdrawal or redemption rights. We are proposing to expand this reporting obligation to all funds, for the stated reason that it will "inform the Commissions and FSOC better of all reporting funds' susceptibility to stress through investor redemptions." Proposing Release at 32.

[5] Proposing Release at 94.

[6] Ibid.

[7] See Short Position and Short Activity Reporting by Institutional Investment Managers, Release No. 34-94313, (Feb. 25, 2022) https://www.sec.gov/rules/proposed/2022/34-94313.pdf and Hester M. Peirce Commissioner, SEC, Statement on Proposal to Require Short Position and Short Activity Reporting by Institutional Investment Managers (Feb. 25, 2022) https://www.sec.gov/news/statement/peirce-statement-proposal-require-short-position-022522.

[8] See, e.g., Private Equity Funds, SEC Investor Bulletin https://www.investor.gov/introductioninvesting/investing-basics/investment-products/private-investment-funds/private-equity (discussing who can invest in private funds).

[9] See IAA Comment letter, Comment letter from Investment Adviser Association, March 21, 2022, https://www.sec.gov/comments/s7-01-22/s70122-20120729-272886.pdf.

[10] See MFA Letter to Chairman Clayton, Sept. 17, 2018, https://www.managedfunds.org/wpcontent/uploads/2020/04/MFA.Form-PF-Recommendations.attachment.final_.9.17.18.pdf ("To enhance protections for registrant data, we think the Commission should require the use of alphanumeric identifiers within Form PF to obscure the identity of the registrant and its funds to anyone who gains access to the filings without authorization.").

We are called upon here to determine whether a suit for compensatory damages is an action at law or in equity. While this is usually a straightforward call, fiduciary roles and responsibilities complicate it here. ZF Micro Solutions, Inc., the successor of now deceased ZF Micro Devices, Inc., alleges TAT Capital Partners, Ltd., murdered its predecessor by inserting a board member who poisoned it. We hold that while examining the performance of a board member's fiduciary duties will be required, resolution of this claim does not implicate the powers of equity, and it should have been tried as a matter at law. 

The sole issue in this appeal by ZF Micro Solutions is whether its cross-complaint against respondent TAT should have been tried to a jury. ZF Micro Solutions alleged that TAT, through its representative on the board of directors of ZF Micro Devices, had destroyed ZF Micro Devices while attempting to take it over and oust its management. 

The trial court decided the claim for breach of TAT's fiduciary duty as a director was equitable rather than legal and, after a court trial, entered judgment for TAT. ZF Micro Solutions asserts this was error. 

We agree. The "gist" of ZF Micro Solutions' claim against TAT is a request for compensatory damages for destroying its predecessor corporation. There are no equities to weigh, and no other relief is requested. Under settled law concerning the nature of an equitable claim and the nature of a claim at law, this case exhibits all the characteristics of a claim at law. The judgment is therefore reversed.

Accordingly, when there is an adequate legal remedy, there is no need for equity to step in and therefore no call for equity jurisdiction. Put another way, if the legal remedy of compensatory damages is adequate to do complete justice between the parties, "a proper exercise of equitable jurisdiction will not give equitable relief[.]" (Morrison v. Land (1915) 169 Cal. 580, 586.) 

Although it is true that a court of equity can award monetary damages, it generally does so in the course of resolving a case with equitable aspects as well as legal. For example, a court of equity can issue an injunction against trespass (equitable) and award damages for past trespass (legal), in the interest of winding up a dispute in one action. As the court put it in Watson v. Sutro (1890) 86 Cal. 500, 529, "Why have two suits when one is sufficient?"

In this case, there is but one cause of action - for breach of fiduciary duty - and the remedy requested is exclusively monetary damages. ZF Micro Solutions requests nothing in the way of equitable relief. There is, for example, no request to "disgorge ill-gotten gains" (Nationwide, supra, 9 Cal.5th at p. 293), no request to enjoin or unwind. The court is not called upon to balance or weigh the equities. If ZF Micro Solutions proves that TAT's activities destroyed ZF Micro Devices, there are no competing equities on the other side to weigh. TAT does not contend that it was somehow entitled to destroy ZF Micro Devices or that it would have been fair to do so; it contends it was not responsible for the destruction. 

TAT's position as a director's principal has somewhat obscured the fundamental nature or "gist" of this case. This is not the typical breach of corporate fiduciary duty case, in which a director or directors have misappropriated corporate funds or have done something or have made the corporation do something to advantage themselves at the expense of some or all of the shareholders. (See, e.g., Remillard Brick Co. v. Remillard-Dandini Co. (1952) 109 Cal.App.2d 405, 419-421 and cases cited.) In such cases, a court may well have to weigh the fairness of the disputed transaction to each side or factor the business judgment rule into the analysis. But in this case, TAT, through its representative, allegedly destroyed the corporation by disparaging its management and working behind the scenes to undermine its efforts to obtain financing. Granted, its position on the board of directors gave it a special platform to accomplish this goal, and its desire to replace Feldman gave it a special motivation for its actions. But TAT would be liable to ZF Micro Devices for its destruction by these means even if it were not a board member. The cause of action would simply have had a different label - trade libel or interference with prospective economic advantage, for example. Both of those torts are unquestionably matters for decision by a jury. (See CACI No. 1731 [trade libel instruction under "defamation" category]; CACI No. 2202 [intentional interference with prospective economic advantage instruction].) We believe this action was, too. 

We conclude ZF Micro Solutions' claim against TAT was a legal one and therefore required a jury trial as a matter of law.

In March 2022, the defendant pleaded guilty to investment adviser fraud in connection with this scheme to defraud his clients. Weiss was the principal of Family Endowment Partners, LP, an investment adviser registered with the U.S. Securities and Exchange Commission, which had an office in West Chester, PA, before it was closed by order of the SEC. The defendant used his position to fleece his own clients of millions of dollars through purported investments in a now-defunct Florida tobacco company and a series of private securities offerings. Weiss told his clients that their money would be used for investment purposes when, in fact, he diverted it to make Ponzi payments and to fund his lifestyle, and further told his clients that they were making money when their funds had already been misappropriated. Weiss continued to lie to them about the value of their investments to prevent them from learning of his thefts and to convince them to continue paying him fees for "managing" their money.

[(1)] Claimant 1's tip was the initial source of the underlying investigation; (2) Claimant 1's tip exposed abuses in Redacted including at the Firm, that would have been difficult to detect without Claimant 1's information; (3) Claimant 1 provided Enforcement staff with extensive and ongoing assistance during the course of the investigation, including identifying witnesses, including Redaction and helping staff understand complex fact patterns and issues related to the matters under investigation; (4) the Commission used information Claimant 1 provided to devise an investigative plan and to craft its initial document requests from the Firm and Redacted (5) Claimant 1 made persistent efforts to remedy the issues, while suffering hardships; Redacted and (6) Claimant 1 was the main source of information for the investigation and an important source of information for the Covered Action. 

With regard to Claimant 2, we positively assessed the following factors: (1) Claimant 2 was a valuable first-hand witness who also provided helpful information relevant to the practices engaged in by the Firm, albeit several years after the Commission had received Claimant 1's information; (2) Claimant 2 provided information and documents, participated in staff interviews, and provided clear explanations to the staff regarding the issues that Claimant 2 brought to the staff's attention; (3) Claimant 2's information gave the staff a more complete picture of how events from an earlier period impacted the Firm's practices and put the Firm on notice that  Redacted which the staff was able to use in settlement discussions with the Firm's counsel. 

During August 2020, while associated with Morgan Stanley, Respondent requested the firm's approval to purchase preferred shares of a privately held marketing company for $500,000, pursuant to investment terms he had previously negotiated with the company. Later that same day, before receiving any approval from the firm and without informing the firm, Respondent signed a stock purchase agreement and other documents regarding the investment. The next day, the firm, which was not aware that Respondent had executed these documents, asked Respondent various questions about his request for approval, in an effort to determine whether to approve the transaction. In response, Respondent withdrew his request for approval from the firm's system and stated to the firm that he had not funded the investment. Nonetheless, two days later, without informing the firm or obtaining approval, Respondent wired the funds for his investment to the company. 

During October 2020, in connection with an investigation the firm commenced, Respondent claimed to the firm that he had not participated in the transaction, even though he had been a preferred shareholder in the company since August 2020. Approximately one week later, after the firm requested additional information from Respondent, Respondent admitted to the firm that he had participated in the transaction. 

Therefore, Respondent violated FINRA Rules 3280 and 2010.

In June 2020, Stoakes electronically signed the names of two customers, a husband and wife, on a new account application and account transfer form. He also electronically signed the wife's signature on a certification of trust form and a form to establish on-demand transfers to the customers' bank account. The customers did not authorize Stoakes to electronically sign their names and complained once they learned of the transfer, which was reversed. 

In addition, from January 2020 through June 2020, as part of transitioning other customers to LPL, Stoakes also electronically signed at least four customer names, with their permission, on at least 12 forms associated with accounts transferred to LPL. LPL's policies and procedures prohibited signing a customer's name or initials regardless of the customer's knowledge or consent. None of these other customers complained. 

By forging and/or falsifying customer signatures, Stoakes violated FINRA Rule 2010. 

In addition, by causing LPL to maintain inaccurate books and records, Stoakes violated FINRA Rules 4511 and 2010

[T]he causes of action relate to allegations that Pease, while serving as a discretionary account benefit investor, and while working for WFCC and WFA and partnered with Rauch, unilaterally altered risk profiles on Claimants' account application forms, routinely churned Claimants' investments through various investment vehicles, and placed Claimants in many investments and portfolios that exceeded Claimants' stated risk tolerance. Claimants allege that many of these investments were made with the sole purpose of generating additional commission or fees in Pease's favor.

• Securities Industry Commentator
• Bill Singer