Financial Advisor (November 5, 2020) - David P. Meyer, the new president of the national trade group of lawyers who represent investors in fraud cases, is already advancing an ambitious agenda of pro-investor lobbying against what he says is a dangerous initiative at the Securities and Exchange Commission and calling for needed BrokerCheck improvements at the Financial Industry Regulatory Authority.
Meyer, who was elected to lead the Public Investors Advocate Bar Association (PIABA) on October 22, has recovered more than $350 million for investors in the past two decades as a founding managing principal of Meyer Wilson, a national law firm he founded in 1999. He also knows his way around Washington, D.C., and has already met with D.C. regulators at the SEC and Finra as president-elect of the association.
“After 20 years of working with PIABA, 10 of it on their board, I just felt it was time to step up and lead,” Meyer said.
One of the veteran plaintiff attorney’s top priorities is opposing the SEC’s new proposal to allow unregistered “finders” to solicit broker-dealer and advisor clients for private placements.
“The SEC wants to let these unregistered finders contact investors on behalf of private placement issuers, meet with them face-to-face and earn commissions, without having to register as broker-dealers. So there is no record-keeping, no inspections or exams, no compliance,” Meyer told Financial Advisor. “I thought I was reading a Saturday Night Live script.”
While finders will only be allowed to contact accredited investors with at least $1 million in investable assets, Meyer and other critics argue that this would still allow the finders to target many unsophisticated investors who have automatically accumulated assets in their qualified retirement plans and 401(k)s over the decades, people who have little experience in investment research or decision-making.
“These aren’t sophisticated investors. I know because I represented many of them and obtained settlements after they were defrauded by the recent Woodbridge Ponzi scheme,” Meyer said. Now he is urging these clients to write comment letters telling the SEC about their losses at the hands of unregistered finders. The comment period on the proposed exemptive order closes next week.
The Woodbridge scheme was masterminded by Robert Shapiro, who was sentenced to 25 years in prison last October, and the SEC itself has charged numerous Woodbridge directors and brokers with defrauding more than 8,500 unsophisticated investors out of $1.2 billion—$400 million of it sold by unregistered brokers.
“Ask any state regulator and they’ll tell you the biggest problem they have is with unregistered agents. It’s shocking the SEC now wants to green-light the activity they routinely have to sue to stop,” Meyer said.
He may find allies in SEC commissioners Allison Herren Lee and Caroline Crenshaw, who voted against the proposal. Crenshaw called it “a radical departure from established registration requirements. … I cannot support deliberately expanding markets that even our expert staff cannot accurately assess or analyze.” She added that, in “an area of the securities markets that is already prone to fraud, the proposed approach would eliminate important investor protections the established broker-dealer framework provides.”
SEC Chairman Jay Clayton prevailed, however, saying the proposal would help small businesses grow and thrive, “particularly when they are located in places that lack established, robust capital-raising networks.”
Private equity firms held roughly $3.9 trillion in assets as of 2019, up 12.2% from 2018, according to the SEC. While wealthy investors sometimes seek out private equity funds to earn returns that beat public markets, private equity can be expensive and opaque and is generally far less regulated, critics say.
Meyer said he will be surprised if broker-dealers support the proposal, “which came out of left field, since they’ll be on the hook if there is fraud when their reps connect with one of these finders.” The exemptive order requires finders to connect with a broker or rep to make actual sales.
As the PIABA’s new president, Meyer also plans to push Finra to include firm-wide broker-dealer enforcement statistics on BrokerCheck, the online data bank that investors can use to check out the background of some 6,000 brokers and hybrid advisors before hiring one.
“Right now, investors can only look at data at the broker level, not the firm level,” Meyer said. “I want investors to be able to access a firm’s records so they can see a firm’s culture and enforcement cases. Does a firm or its brokers have 10 complaints, enforcements or enforcement or arbitration cases? The more information an investor has, the better they’ll be able to evaluate and make decisions about who to entrust with their life savings.
“This is a new initiative that I’m taking the lead on,” he added. “I plan to talk to Finra and other advocacy groups. This won’t take years of study and investigation. Finra already has access to this information. Why not make it available to investors?”