By Sheila Pursglove
Misrepresentation, unsuitability, unauthorized trading, excessive trading ("churning"), and failure to supervise--all issues that make investors nervous in these days of a rollercoaster Dow, vanishing pension funds, Ponzi schemes, and other financial shenanigans. For people without training in the area, financial disputes can be complicated and difficult to understand.
Ultra-wealthy investors can always afford to hire an attorney or find someone to take a big case on a contingency fee. But "little guys" aren't usually so lucky.
MSU College of Law may be able to help--with the launch this fall of the Investor Advocacy Clinic, spearheaded by professor Ben Edwards and made possible by a grant from the FINRA Investor Education Foundation.
"We're hoping to provide public education about informed investing and help smaller investors who can't otherwise find an attorney," Edwards explains. "We may be able to help some individual investors recover losses."
Investors cannot sue their broker or financial advisor simply because they lost money.
"Many times, investors lose money when the market goes down or because the risks their broker warned them about occur," Edwards notes.
But sometimes investors lose money because someone convinced them to take more risk than they wanted. This can happen if an adviser misrepresents the risks associated with a particular investment to collect a commission. In these cases, the clinic may be able to help.
"Most people are surprised to discover that they can sometimes bring a claim against a stockbroker or financial adviser after suffering investment losses," Edwards says. "Whether the investor has a claim will depend on the circumstances and the complicated law that applies."
Edwards and his law students will focus on helping ordinary, individual investors that have lost money because of a financial professional's bad advice or other misconduct.
"When individual investors go up against stockbrokers and investment advisers, they will usually find financial professionals are represented by some of the best lawyers in town," he says. "With the Investor Advocacy Clinic, we may be able to help even the playing field to some degree and provide individual investors with legal counsel. We're hoping that attorneys that have clients with a problem in this area will send clients our way for claims that are too small for them to handle."
The clinic will launch with an initial group of seven students who will learn about investigating new cases, preparing cases for arbitration and negotiating with opposing counsel; they also will make community presentations about informed investing, and give talks to community groups about investing basics.
Edwards brings plenty of financial expertise to his new role - having earned his chops in the rough-and-tumble world of New York City finance as an Associate with Skadden, Arps, Slate, Meagher & Flom LLP.
Practicing in the firm's securities litigation group and litigating cases arising out of the Bernard L. Madoff scandal - the largest Ponzi scheme of all time - Edwards' work included actions in federal trial and appellate courts in New York and state court actions in New York, California, Delaware, Massachusetts, Florida, Colorado, New Mexico, and Washington State.
"Depending on how you count their losses, investors in the Madoff Ponzi scheme lost between 16 and 50 billion dollars by the time his fraud came to light," he says. "Madoff defrauded thousands of different people out of millions and billions of dollars.
Edwards also served on a team representing financial institutions in matters related to mortgage-backed securities and securities class and derivative actions. In one case, he helped defend an investment bank against claims by Fannie Mae and Freddie Mac for losses on mortgage-backed securities.
Unrelated to the financial crisis, he helped defend a bank syndicate against Securities Act claims arising out of an initial public offering--a typical case under Section 11 of the Securities Act, he says. When stock first goes on the market, the company files a registration statement with the Securities and Exchange Commission that makes disclosures about the company.
"This document should contain all material information about the company so investors can make an informed decision about whether to buy the stock," he says. "If there are things in the registration statement that are not true or if the registration statement is materially incomplete, investors can sue the banks that underwrote the sale and the company that issued the stock for their losses. I worked to defend a group of banks against claims that they should pay investors money because of purported misstatements and omissions in a company's offering documents."
Edwards also spent some time investigating insider trading. When a stock goes up, people can often look at news reports about the company and figure out why investors were buying the stock. But sometimes, the company will strike a deal behind closed doors and the stock will start going up before the deal has been publicly announced, he says.
In addition to the securities work, Edwards had the opportunity to get into court doing civil rights work on a pro bono basis, for people who really needed the help or where he could make an impact for many people at once.
"In one case we successfully challenged a judicial practice of requiring medical documentation from transgender persons seeking to change their names. No one else needed a doctor's note to change his or her name," he says. "The case let us fix something that was clearly unfair."
In 2012, along with other lawyers from Skadden, Edwards received Sanctuary for Families' Pro Bono Excellence Award for work done in an asylum case.
The son of a South Carolina attorney, Edwards earned his undergraduate degree in philosophy at the University of South Carolina before earning his law degree at Columbia University. He left Skadden to join MSU Law in 2012 as a Teaching Fellow with the Immigration Law Clinic.
"The clinic allowed me to spend more time doing work to help people while equipping students with the information and skills to make a difference at the same time," he says. "In the clinical setting, I enjoy working with students when they care about the client and take ownership of their cases because the work we're doing matters to someone and may make a tremendous difference in his or her life."
Published: Mon, Jul 1, 2013