Tuesday, July 27, 2010

Recent Developments in Securities Law and Securities Arbitration

Two recent developments may affect securities transactions and securities arbitration taking place in South Carolina.

Dodd-Frank Amends Definition of "Accredited Investor"

S.C. Code of Regulations R. 13-205 exempts from the registration and filing requirements found in the South Carolina Uniform Securities Act those sales of securities to "accredited investors." R. 13-205 references the definition of "accredited investor" found in 17 C.F.R. 230.501(a) promulgated pursuant to the the Federal Securities Act of 1933. Until earlier this month, the definition of "accredited investor" in the C.F.R. included an investor with a net worth of at least $1 million, and contained no exclusion for the value of that investor's primary residence in calculating net worth.

As described in the Sheppard Mullin Corporate & Securities Law Blog, the recent Dodd-Frank Wall Street Reform and Consumer Protection Act, which became effective on July 21, 2010, amends the definition of "accredited investor" to exclude the value of an investor's primary residence from the $1 million net worth calculation.

FINRA Submits Revised Discovery Guide to SEC

On July 12, 2010, the Financial Industry Regulatory Authority (FINRA) (Formerly known as the NASD) filed a new Discovery Guide with the Securities and Exchange Commission (SEC) for approval. The existing Discovery Guide has been in place since 1999.

The Discovery Guide is used in FINRA arbitrations by and between customers (investors), member firms (e.g. a securities brokerage firm), and associated persons (e.g. a securities broker). The Discovery Guide directs parties to exchange certain documents, and provides FINRA arbitrators with guidance in resolving discovery disputes in arbitration. The proposed Discovery Guide will replace the version that has been in effect since 1999.

For an analysis of the proposed Discovery Guide, see this post on the Cosgrove Law Securities and Investment Blog.

A copy of the proposed Guide can be accessed here.