Author: Sandra Grannum

Sandra Dawn Grannum concentrates her practice on securities, broker/dealer arbitration, litigation, mediation and regulatory defense. She is co-chair of the Commercial Litigation Team.

Sandy has tried complex multimillion-dollar arbitrations before FINRA, AAA and JAMS across the country. She has represented brokerage firms, banks, clearing firms, and associated persons in over 60 arbitrations before the NASD and FINRA which have been tried through award. In addition, she has successfully pursued cases in state and federal courts and in adversarial proceedings before bankruptcy courts.

View the full bio for Sandra Grannum at the Drinker Biddle website.

Posts by Sandra Grannum:


Alert: FINRA’s 529 Plan Share Class Initiative to Self-Report

On January 28, 2019, FINRA released its Regulatory Notice 19-04 announcing its 529 plan self-reporting initiative. This initiative is part of FINRA efforts to have broker-dealers promptly remedy potential supervisory and suitability violations related to recommendations of share classes for 529 plans. Continue reading “Alert: FINRA’s 529 Plan Share Class Initiative to Self-Report”

A Summary of FINRA’s 2018 Report on Examination Findings

Last week, FINRA issued its 2018 “Report on FINRA Examination Findings.”  This report tracks FINRA’s 2018 Priorities letter, which this blog has previously covered.  Putting its member firms on notice, FINRA advised that it issued the report as another resource for firms to “strengthen their compliance programs and supervisory controls.”  Not surprisingly, the first highlighted observation is “Suitability for Retail Customers.” Specifically, FINRA reported that:

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Third Circuit Affirms Right to FINRA Arbitration, Widens Circuit Split

The U.S. Court of Appeals for the Third Circuit recently ruled that a broker cannot avoid FINRA arbitration with a customer through contractual forum selection clause that fails to specifically mention arbitration (Reading Health v. JP Morgan, No. 16-4234 (3d Cir. Aug. 7, 2018)). The court’s opinion denying the company’s appeal widens an existing circuit split on the issue of contractual forum selection clauses superseding FINRA’s mandatory arbitration rules.

Under FINRA Rules 12200 and 13200, disputes arising between a FINRA member and its associated persons or customers must be arbitrated through the FINRA arbitration process. In the Third Circuit case, the customer had filed a statement of claim with FINRA in relation to various auction rate securities (ARS) offerings the company had underwritten. The broker refused to arbitrate, and the customer filed in the Eastern District of Pennsylvania seeking to compel arbitration.  The customer won at the district court level, and the broker appealed based on a forum selection clause in its broker-dealer agreements that stated:
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Bye-Bye Bureaucracy, Hello Enforcement: FINRA Shakes Up the Structure of its Department of Enforcement

It was once said that “bureaucracy defends the status quo long past the time when the quo has lost its status.” FINRA, apparently a proponent of this idea, recently completed an overhaul of its Department of Enforcement’s structure in an attempt to create a “unified enforcement function.” Specifically, Susan Schroeder, FINRA’s head of enforcement, will head a single enforcement team charged with making decisions on investigations and penalties.

Prior to this consolidation, enforcement was split into two units. One was tasked with handling disciplinary matters concerning trading, and a second unit handled cases referred from FINRA’s other divisions, such as the Office of Fraud Detection.

The ultimate goal of this consolidation is “to facilitate more consistent decision-making and outcomes,” as well as “to better target developing issues that can harm investors and market integrity, and ensure a uniform approach to charging and sanctions.”  Additionally, independent commentators believe that FINRA’s new enforcement structure might make investigations shorter and increase transparency.

To savvy observers this consolidation will not come as a surprise. It is the result of FINRA 360, “FINRA’s ongoing comprehensive and improvement initiative” announced July 2017.  Consolidation of enforcement functions was listed, among others, as a way to make FINRA a “more effective, efficient regulator.”  Other FINRA 360 priorities include: Reporting on FINRA examination findings, reviewing engagement initiatives, and retrospective rule review.

It is unclear whether FINRA’s consolidation will achieve its goals. FINRA’s efforts, however, serve as a welcome sign to firms and commentators, as FINRA appears genuinely interested in improving its overall efficacy and efficiency.

Make Senior Investing Safe Again? President Trump Signs Into Law the Senior Safe Act in an Attempt to Curb Financial Abuse of Seniors

On May 24, 2018, President Trump signed into law the Senior Safe Act,  which is aimed at curbing elder financial abuse. The Senior Safe Act is the latest effort to protect senior investors, as both FINRA and the SEC included protecting senior investors among their 2018 priorities. This blog has previously covered, at length, the SEC and FINRA 2018 exam priorities. Elder protection was also one of the SEC’s 2017 priorities and has been a FINRA priority since 2016.

Continue reading “Make Senior Investing Safe Again? President Trump Signs Into Law the Senior Safe Act in an Attempt to Curb Financial Abuse of Seniors”

FINRA Moves to Amend the Suitability Standard in Lockstep with the SEC’s Efforts

There is a Chinese curse which says ‘May he live in interesting times.’ Like it or not, we live in interesting times.” (Robert F. Kennedy – June 6, 1966, Speech at University of Cape Town)

May 7, 2018, has come and gone and we have not yet seen a mandate from the Fifth Circuit Court of Appeals in the Chamber of Commerce of United States of Am. v. United States Dep’t of Labor, 885 F.3d 360 (5th Cir. 2018) litigation, which is the final step necessary to effectuate that court’s order vacating the DOL Fiduciary Duty Rule.  Presumably that mandate is imminent; however, we do not know for sure. We do know, however, that the DOL will not be filing a motion for rehearing to the Fifth Circuit on its decision, as that deadline has passed. We assume there will not be a DOL writ of certiorari to the United States Supreme Court seeking to challenge the Fifth Circuit Court’s opinion, but we do not actually know that either. Continue reading “FINRA Moves to Amend the Suitability Standard in Lockstep with the SEC’s Efforts”

SEC’s 2018 Exam Priorities – Worth the Wait

The SEC’s Office of Compliance Inspections and Examinations (OCIE) released its 2018 National Exam Program Examination Priorities on February 7, 2018 (“2018 Priorities Letter”). While issued later than in years past and almost a month to the day after the publication of the priorities letter from the Financial Industry Regulatory Authority (FINRA), OCIE deserves credit for the increased transparency and guidance provided in the 2018 Priorities Letter. By way of perspective, OCIE’s sixth publication of its examination priorities more than doubled the amount of information provided in last year’s edition. This improved transparency is consistent with the public statements of OCIE’s Director. Despite the greater detail, there appears to be one glaring omission: OCIE does not discuss how the anticipated rulemaking by the Commission regarding the development of a fiduciary standard may impact its priorities. However, upon further consideration and recalling that OCIE’s primary mission is to conduct examinations to assess compliance with the current securities laws, we realize it would have been premature for OCIE to discuss views on some yet-to-be formulated SEC fiduciary standard. That said, OCIE is clearly prioritizing the protection of retail investors even more than in years past, which is consistent with the SEC Chairman’s public statements about prioritizing the protection of “Main Street” investors. While the SEC Chairman has made these issues a “Main” priority, the SEC’s heightened focus regarding retail and retirement investors has been strengthening significantly since the Retirement-Targeted Industry Reviews and Examinations (ReTIRE) Initiative announced a few years ago and through the SEC’s announcement this past autumn of the Retail Strategy Task Force. Thus, OCIE leads into the 2018 Priorities Letter in the second and third sentences by opening with: “…we will continue to prioritize our commitment to protect retail investors, including seniors and those saving for retirement. We will especially be looking closely at products and services offered to retail investors, as well as the disclosures they receive about those investments.” This focus is similar to the focuses emphasized by FINRA in its recent priorities letter. Continue reading “SEC’s 2018 Exam Priorities – Worth the Wait”

FINRA 2018 Annual Regulatory and Examination Priorities Letter Makes No Mention of a Fiduciary Duty for Brokers

FINRA released its 2018 Annual Regulatory and Examination Priorities Letter (Priorities Letter) on January 8, 2018. While FINRA advises that it can change its priorities in response to circumstances, the purpose of the Priorities Letter is to permit broker-dealers to plan their compliance, supervisory and risk management programs and to prepare for FINRA examinations. Therefore, this Priorities Letter is significant both in what it says and in what it has chosen not to say including failing to discuss FINRA’s views regarding a “fiduciary standard.”
Continue reading “FINRA 2018 Annual Regulatory and Examination Priorities Letter Makes No Mention of a Fiduciary Duty for Brokers”

The U.S. Supreme Court Hears Argument on Whether State Courts Have Jurisdiction Over Large Securities Class Actions in Light of the Securities Litigation Uniform Standards Act of 1998

Generally when broker-dealers are subject to court jurisdiction, that jurisdiction, based either on diversity or subject matter, places the dispute in federal courts. However, that has not necessarily been the case in class actions. The issue of state versus federal court jurisdiction was argued before the U.S. Supreme Court on November 28, 2017. The Supreme Court heard oral arguments in Cyan, Inc. v. Beaver County Employees Retirement Fund regarding whether states had jurisdiction over “covered class actions” that allege violations of the Securities Act of 1933 (the “33 Act”). Specifically, the Court considered whether an amendment to the 33 Act—the Securities Litigation Uniform Standards Act of 1998 (SLUSA)—precluded states from hearing the vast majority of 33 Act claims. The Court tangled with both sides over Congress’ intent in passing SLUSA and the text of SLUSA, which Justice Alito referred to as “gibberish.”

Continue reading “The U.S. Supreme Court Hears Argument on Whether State Courts Have Jurisdiction Over Large Securities Class Actions in Light of the Securities Litigation Uniform Standards Act of 1998”