PLANADVISER - September/October 2019 - 10

Legislative and Judicial Actions
compliance news
Opponents Must Litigate
SEC 'Reg BI' in 2nd Circuit
The U.S. District Court for the
Southern District of New York
has dismissed a consolidated
lawsuit seeking to
derail implementation of
the U.S. Securities and
Exchange Commission
(SEC) Regulation Best
Interest (Reg BI) rulemaking
package.
The reason for the
dismissal, however,
was the
ruling
notes
court's selfdeclared
lack of subject
matter jurisdiction, and
the
that
motions have already been
filed by the parties in the
appropriate appellate court.
This means the 2nd U.S. Circuit
Court of Appeals will have to decide
whether to hear the case.
Claims in the consolidated lawsuit,
which includes as plaintiffs both
private fiduciary advisers as well as
a group of prominent state attorneys
general, suggest Reg BI fails to meet
the
clear
demands
established
Congress in the Dodd-Frank Act.
" One of the gaps that the Dodd-
Frank Act sought to close concerned
the standard of conduct applicable
when individuals receive recommendations
and advice on how to invest
their money in markets, " the plaintiffs
contend. " Investment advisers have
traditionally been subject to a fiduciary
standard, while brokers and dealers
have not. Over time, the line between
advisers and broker/dealers [B/Ds] has
blurred, with an increasing number of
broker/dealers performing many of the
same services as investment advisers,
without having to satisfy the same
regulatory requirements in doing so. "
According to the plaintiffs, at first,
the SEC heeded Congress' mandate. Its
staff studied the problem and prepared
a report recommending the adoption of
a universal standard of conduct, known
by
" ... broker/dealers
may maintain
harmful conflicts
of interests
while marketing
themselves as
trusted advisers ... "
as the " without regard to " standard.
" But last year, the SEC broke from
Dodd-Frank's requirements ... by
proposing a rule adopting neither a
universal standard nor a 'without
regard to' standard, " the plaintiffs
allege. " Under the SEC's so-called 'best
interest' rule ... a broker/dealer is
permitted to take into account its own
personal interests in providing recommendations
and advice to investors on
how to invest their life savings. This
new rule means that broker/dealers
may maintain harmful conflicts of
interests while marketing themselves
as trusted advisers acting
in their client's best interests. "
MIT ERISA Lawsuit
Parties Settle
The plaintiffs and defendants
in an excessive
fee
case
against
Massachusetts
Institute
of Technology
(MIT) have filed a joint
motion to stay all trial
dates, saying they have
reached an agreement in
principle to settle the case.
No settlement details were
announced. The motion says
the plaintiffs anticipate needing
45 days to file a motion for preliminary
approval of the settlement.
In mid-September, the plaintiffs
requested leave to file new evidence
of MIT President Rafael Reif's unique
knowledge related to the case.
Earlier in the month, U.S. District
Judge Nathaniel M. Gorton of the
U.S. District Court for the District of
Massachusetts moved forward most
claims in the Employee Retirement
Income Security Act (ERISA) lawsuit,
but granted summary judgment to
the defendants for a claim alleging a
prohibited transaction between MIT
and Fidelity Investments.
Is Arbitration Likelier for
ERISA Complaints?
The 9th U.S. Circuit Court of Appeals
issued, in August, an important ruling
in Dorman v. Charles Schwab Corp. In
sum, the Appellate Court decision
stated that Schwab could enforce its
retirement plan's arbitration clause
requiring participants
to
file
individual
claims and to waive class-action
claims. Legal experts say the case
raises questions that should give plan
advisers pause before they recommend
the
10 | planadviser.com September-October 2019
Art by Sam Green
http://www.planadviserdigital.com/planadviser/september_october_2019/TrackLink.action?pageName=10&exitLink=http%3A%2F%2Fplanadviser.com
PLANADVISER - September/October 2019

Table of Contents for the Digital Edition of PLANADVISER - September/October 2019
