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On March 7, 2016, Lax & Neville LLP, together with a number of other concerned law firms, submitted a letter to Financial Industry Regulatory Authority (“FINRA”) urging it to take action in light of Credit Suisse’s repeated violations.  In particular, the letter sought to address Credit Suisse’s current Employment Dispute Resolution Program (EDRP), which prevents employees from exercising their right to resolve disputes through FINRA arbitrations.  A second letter was sent to FINRA on July 19, 2016.

On July 22, 2016, FINRA released a Regulatory Notice addressing “Forum Selection Provisions Involving Customers, Associated Persons and Member Firms.”  Therein, FINRA stated that it “considers actions by member firms that require associated persons to waive their right under the Industry Code to arbitration of disputes at FINRA in a predispute agreement as a violation of FINRA Rule 13200 and as conduct inconsistent with just and equitable principles of trade and a violation of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade).”  FINRA further noted, “a member firm cannot use an existing non-compliant agreement as a basis to deny an associated person the right to FINRA arbitration as specified in FINRA rules, without violating FINRA rules.”   Accordingly, FINRA has determined that the EDRP, which Credit Suisse has insisted its employees follow, violates FINRA rules and cannot be relied upon in resolving disputes with Credit Suisse.

The Regulatory Notice further noted that FINRA has a statutory obligation to enforce compliance by member firms and warned that “[m]ember firms with provisions in predispute agreements that do not comply with FINRA rules may be subject to disciplinary action.” Specifically, “FINRA may sanction its members or associated persons for violating any of its rules by ‘expulsion, suspension, limitation of activities, functions, and operations, fine,  ensure, being suspended or barred from being associated with a member, or any other fitting sanction.’”  In light of this, FINRA recommends that member firms review their predispute agreements to ensure compliance.

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Lax & Neville LLP is investigating claims on behalf of investors regarding possible misconduct in connection with UBS Financial Services, Inc.’s (“UBS”) sale and marketing of the UBS Willow Fund LLC (“UBS Willow Fund”). UBS recommended the Willow Fund to its investors as a distressed debt fund. In actuality, contrary to the representations made by UBS, the Willow Fund deviated from that investment strategy, and instead invested in speculative sovereign debt credit default swaps (“CDS”). The Willow Fund’s investment in sovereign debt CDS was much riskier and speculative than the investment strategy that UBS disclosed to its customers. Therefore, UBS customers were never informed of the true nature of the Willow Fund’s investment strategy. Due to this undisclosed strategy, the Willow Fund’s value and worth drastically declined, causing investors to suffer significant losses, which could be as high as 70%.

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Lax & Neville LLP has been retained by several investors who lost money in the Aravali Fund claiming it was inappropriately sold by Deutsche Bank Securities and other brokerage firms in 2006 and 2007. The Aravali Fund was sold to investors who were seeking income and safety of principal as an alternative to a portfolio of municipal bonds. In reality, the Aravali Fund was a very risky interest rate arbitrage hedge fund, and not long after inception, the fund plummeted in excess of 90% in value and was liquidated. A large FINRA arbitration award was rendered against Deutsche Bank for sales practice abuses concerning the selling and marketing of the Aravali Fund. The FINRA arbitration panel found Deutsche Bank liable for the investor’s losses in the amount $803,850, which appears to represent about half of the client’s investment loss in the Aravali Fund. Lax & Neville has been successful in obtaining significant settlements for its clients who invested in the Aravali Fund. Investors only have (6) six years from when they purchased the Aravali Fund to file a claim. Once the (6) six years have elapsed, an investor’s claim is no longer eligible for submission to FINRA arbitration. If you have lost money investing in the Aravali Fund or have information about Deutsche Bank’s marketing of the Aravali Fund, please call Lax & Neville LLP, (212) 696-1999.

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