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Who is watching the financial advisory industry?

The fiduciary debate is dominating the political agenda in the financial advisory world, but it isn’t the only unsettled business in the industry. An equally important issue is making sure that fiduciary investment advisors—who are required to always act in the best interests of their clients—are actually doing that. More on CNBC here.

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Supreme Court’s Denial of Cert Preserves Safe Harbor for Madoff Victims

Yesterday, the Supreme Court denied two petitions for certiorari filed by Irving H. Picard—the Trustee for the estate of Bernard L. Madoff Investment Securities (“Madoff Securities”)—and the Securities Investor Protection Corporation (“SIPC”). Specifically, the Trustee and SIPC sought review of the Second Circuit’s holding that Bankruptcy Code Section 546(e) bars the Trustee’s attempts to recover innocent investor withdrawals from Madoff Securities made more than two years before Madoff Securities’ liquidation. Picard, Irving H. v. Ida Fishman Revocable, et al. (14-1129); Securities Investor Prot. Corp. v. Ida Fishman Revocable, et al. (14-1128). The Trustee has stated that the application of Section 546(e) will prevent him from recovering more than $4 billion from innocent customers of Madoff (i.e., investors with no knowledge of Madoff’s fraudulent scheme). More on JDSupra Business Advisor here.

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High court blocks Madoff case claw-back bid

The court-appointed trustee pursuing Ponzi scheme mastermind Bernard Madoff’s assets won’t be allowed to claw back money from hundreds of former customers who profited from the infamous scam. Ruling without comment, the U.S. Supreme Court Monday left intact a lower court decision that blocked trustee Irving Picard from seeking the funds on behalf of the thousands of other former Madoff customers who collectively lost as much as $20 billion in one of history’s largest frauds. Picard had hoped to recover an estimated $2 billion from so-called net winners, former Madoff customers who withdrew more than the principal they’d invested before the scam’s December 2008 collapse. More on USA Today here.

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Madoff Trustee’s High Court Rebuff May Cut Victim Recoveries

Bernard Madoff’s victims shouldn’t expect to recover all $17 billion they lost now that the U.S. Supreme Court has refused to hear a case involving money that went to some customers more than two years before his scam collapsed. Irving Picard, the trustee unwinding Madoff’s firm, was seeking to reverse a December decision by the Manhattan-based U.S. Court of Appeals that shut off some older recoveries. In a June 22 order, the justices declined to take the case. They gave no explanation. More on Bloomberg here.

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Democrats Are Fed Up with the SEC’s Weak Financial Crimefighting

The progressive movement has declared war on the Securities and Exchange Commission (SEC) and its chair, Mary Jo White. An uncoordinated yet scathing series of reports, letters and appeals have honed in on the New Deal-era regulatory body. And the fight is really about the agency’s long-term direction, as vacancies on the commission open up: Will it maintain the same industry-friendly posture of light-touch regulatory enforcement and ineffective rulemaking, or can a shift be made? Given the growing importance of the SEC, reformers are using whatever leverage they have to influence the outcome. You might believe Senator Elizabeth Warren’s 13-page letter to White, expressing personal disappointment with her tenure, kicked off this uproar. But separately, a growing discontent with the SEC has emerged within the financial reform community, and even within the agency itself. Former officials have called the SEC dysfunctional and even warned colleagues from joining up. More on The New Republic here.

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ALERT:

H.R. 1982 – Two New Co-Sponsor: Congressman Mario Diaz-Balart [R-FL25] and Congressman Jared Huffman [D-CA2] have signed on to cosponsor H.R. 1982 – Restoring Main Street Investor Protection and Confidence Act.

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UPDATE 2-SEC seeks public feedback to inform policy for exchange-traded products

U.S. securities regulators are asking the public to weigh in on how new and novel exchange-traded products should be listed, marketed and traded, as part of an effort to potentially write new rules for the sector. The Securities and Exchange Commission cited an ever-increasing number of requests by funds to launch new kinds of complex products and investment strategies. “Exchange-traded products have become an increasingly important investment vehicle to market participants ranging from individuals to large institutional investors,” said SEC Chair Mary Jo White in a statement. More on Reuters here.

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Finra Scrub of Broker Records Yields Frustration, Results

The effort by Wall Street’s self-regulator to check every registered broker’s public record for undisclosed tax liens and other hidden financial and legal matters has left some firms scrambling to verify missing information and update their records. And while the Financial Industry Regulatory Authority’s move to scrub the records of 638,019 registered brokers has resulted mainly in compliance headaches for many firms, the effort has yielded some tangible results as well. More in the Wall Street Journal here.

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Federal Judge Rules SEC In-House Judge’s Appointment ‘Likely Unconstitutional’

A federal judge ruled Monday that the Securities and Exchange Commission’s use of an in-house judge to preside over an insider-trading case was “likely unconstitutional,” a potential blow to the agency’s controversial use of its internal tribunal. The decision possibly creates a serious headache for the SEC, which is increasingly using its five administrative-law judges to hear its cases, rather than sending them to federal court, legal experts said. Although the ruling was preliminary, and won’t necessarily be duplicated in other federal courts, it could have ramifications for other SEC cases and potentially other federal agencies. More in The Wall Street Journal here.

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Judge Says Madoff Trustee Can Proceed With Clawback Lawsuits

A bankruptcy judge said the trustee recovering money for victims of Bernard Madoff’s Ponzi scheme can move forward with his bid to claw back hundreds of millions of dollars in so-called fictitious profits from Mr. Madoff’s customers. Judge Stuart M. Bernstein of the U.S. Bankruptcy Court in New York said trustee Irving Picard can proceed with 233 lawsuits against investors who benefited from Mr. Madoff’s Ponzi scheme. The hallmark of all Ponzi schemes is the use of ‘the investments of new and existing customers to fund withdrawals of principal and supposed profit made by other customers,’ and Madoff’s activities fit the definition,” Judge Bernstein wrote on Tuesday in a 72-page decision. More in the Wall Street Journal here.

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