- What is securities litigation?
- Regulatory Investigations and Litigation
- Unfair Competition, Trade Secrets, and Employee Raiding Litigation
01What is securities litigation?
An elderly couple loses their life savings in an investment recommended by their accountant, who pocketed a secret commission. A financial advisor is wrongfully accused of fraud for recommending a diversified portfolio of bonds that declined in the financial crisis. A successful executive prematurely exercises all of his company stock options, costing him millions in lost profits, on the misleading advice of an investment advisor only interested in earning fees.
A brokerage firm is accused of violating regulations even though there was no evidence its customers were harmed. These are a few examples of the securities litigation cases we investigate, litigate, and resolve through settlement, arbitration, or trial.
- Investor arbitrations and lawsuits filed against stockbrokers, registered investment advisors, and financial advisors;
- Enforcement investigations and lawsuits filed by the Securities and Exchange Commission, state regulator, or FINRA;
- Criminal prosecutions for insider trading;
- Shareholder class actions brought against public companies and investment funds for the alleged failure to disclose material information in mandatory SEC filings.
At Barr & Young, our securities litigation attorneys focus on the first two areas of securities litigation: investor arbitrations and lawsuits, and enforcement actions. Whether you’re an investor, registered investment advisor, licensed FINRA investment professional, or a broker-dealer, your litigation in the heavily regulated securities industry requires experience, careful planning, and dynamic trial skills. Private litigants, the Securities Exchange Commission, FINRA regulators, California’s Office of Business Oversight, and the Department of Insurance are foes we’ve battled before. Most cases resolve, but when they don’t, our lawyers are ready to vigorously represent you through trial or arbitration to protect your savings, retirement portfolio, license, or business.
Our opponents change from case to case, but the underlying legal claims do not. We litigate claims that involve:
- Breach of Fiduciary Duty
- Mismanagement of Mutual Funds
- Mismanagement of Managed Accounts
- Employee Promissory Notes and EFL Loans
- Raiding, Trade Secret, Unfair Competition Claims
In addition, our securities litigation lawyers have helped financial professionals expunge false and misleading marks from their publically available professional profiles. If you’re an investor who has been wronged, an investment professional being accused of wrongdoing, or a broker-dealer seeking to defend investor litigation, please contact us to find out how we can help.
02Regulatory Investigations and Litigation
Securities professionals work within a highly structured set of rules, regulations and laws. FINRA, the SEC, and state regulators all play a part in the licensing and oversight of the securities industry. These regulatory entities investigate and litigate against companies and licensed individuals they supervise. For example, FINRA Rule 8210 allows FINRA enforcement investigators and lawyers to gather documents, take testimony under oath, and request information from member firms and their employees. These requests often come with short deadlines for responses. It is crucial that the responses are truthful, because lying to regulators is a common basis for criminal prosecutions, as we’ve previously written. Regulatory investigations are often handled geographically, though there are exceptions. For example, we are located in Danville, California, near Walnut Creek, so most of the regulatory investigations in which we have represented clients have arisen from regulatory offices in San Francisco. We have also assisted with investigations emanating from New York and Los Angeles.
Regulatory investigations sometimes result in regulatory litigation. Before the litigation is filed, regulators often inquire whether there is an opportunity for settlement. If the case does not settle, the regulators typically send out a “Wells Notice,” which is often a letter, outlining the claim the regulators intend to bring against the advisor, broker-dealer, or affiliate. Even after the Wells Notice is sent, most cases settle before they go to trial before a FINRA tribunal or SEC Administrative Law Judge.
Regulatory Litigation differs from civil litigation because the regulatory enforcement lawyers have conducted their investigation, including gathering their testimony, before they file. This places a burden on the defendants to undertake their own investigation using discovery tools to attack the regulator’s evidence.
Our team has experience in regulatory investigations and litigation in the San Francisco Bay Area.
03Unfair Competition, Trade Secrets, and Employee Raiding Litigation
Employees generally owe their employers a duty of loyalty. The scope of that duty increases as the employee rises in the organization. Employees breach their duty of loyalty when a high ranking employee assists a competitor while remaining on the payroll of their current employer. Employees also have a responsibility to maintain the confidentiality of their employer’s trade secrets. California has adopted the Uniform Trade Secrets Act (UTSA), which provides specific remedies for employers who have had their trade secrets taken by former employees. Under some circumstances, an employer’s customer and client lists can constitute trade secrets. Key employee compensation packages can also constitute the confidential trade secrets of an employer. Congress recently passed the Defense of Trade Secrets Act which mirrors many of the provisions in the UTSA, and grants federal court jurisdiction over claims filed based on the DTSA.
California Business and Professions Code section 16600
California Business and Professions Code section 16600 voids any contract that prevents an employee from practicing their trade, business, or profession. There are a few exceptions, such as when a business owner sells their company, but generally B&P Code section 16600 precludes the enforcement of noncompetition provisions against California employees that might be enforceable in other states. Some courts have held that forcing California employees to sign non-competition agreements that violate section 16600 is an unfair business practice.
Employee raiding refers to efforts by one competitor to target individual or groups of employees who work for a specific competitor. Employee raiding can be considered an anticompetitive business practice because it is designed to injure a competing business by crippling its ability to compete in the market place. Often, raiding claims and claims of UTSA violations are filed at the same time.
We have experience litigating employee raiding, unfair competition, and trade secret cases in the securities, insurance, business valuation, banking, and consulting fields. Trade secret and employee raiding claims occur with some regularity in the securities industry because of the nature of client-advisor relationships and the mobility of brokers among firms. Raiding cases in the securities industry are often subject to the broker protocol, which is an agreement among various securities firms about the acceptable manner in which investment professionals can move between firms and notify their customers. Recently, some of the largest brokerage firms and founding signatories of the broker protocol have withdrawn their names, concluding that the protocol is not in their shareholders’ best interest.
The first stage in trade secret and raiding litigation is often a hearing on a Temporary Restraining Order (TRO) or Preliminary Injunction. These remedies are specifically authorized in UTSA claims. In the securities industry, once the injunction request has been ruled on by a court, the cases often proceed to arbitration before FINRA. For cases outside the securities industry, the cases usually continue in state or federal court.
We have more than two decades of experience litigating and advising employers and employees on both sides of these cases. We have counseled departing employees and their new employees about the best ways to mitigate litigation risks. We have also advised employers about the business considerations involved in this unique area of litigation.
Barr & Young represents clients throughout Northern California, including Danville, Walnut Creek, San Francisco, Pleasant Hill, Livermore, and Oakland.