Max Schatzow, Esq., on behalf of Stark & Stark’s Investment Management & Securities Practice Group, submitted a comment letter to the U.S. Securities & Exchange Commission (“SEC”) in response to the SEC’s proposed interpretation of the standard of conduct under the Investment Advisers Act of 1940.

While Stark & Stark largely agreed with the SEC’s proposed interpretation of the standard of conduct, it took issue with its characterization of the duty of care owed by investment advisers. As a general matter, investment advisers owe their clients both a duty of care and a duty of loyalty. Stark & Stark generally agreed with the SEC’s framework surrounding the duty of loyalty. However, the SEC’s proposed interpretation of the duty of care would require “the duty to act and to provide advice that is in the best interest of the client.”

This overly restrictive interpretation would complicate nearly a century of settled jurisprudence, which instead historically required an investment adviser to collect relevant information and investigate what action is appropriate under the circumstances. The SEC’s proposed interpretation could limit an investment adviser’s ability to disclose away conflicts of interest relating to its advice. With this interpretation, this may suggest that an investment adviser focused exclusively on asset management may have to become a financial planner. The shift in the standard would require extensive new guidance from the SEC in determining which activities fall under each of the duty of care and loyalty. Instead, Stark & Stark believes that the duty to provide advice in the best interest of the client should continue to be viewed under the duty of loyalty.

The SEC’s interpretation also suggests that advice about whether to rollover a retirement account that results in the investment adviser managing that account should be viewed under the duty of care. This appears to require an investment adviser to only recommend a rollover when they can substantiate it with data that the recommendation is in the client’s best interest as opposed to disclosing away the potential conflict of interest. This interpretation seems to track the intent of the recently rescinded Department of Labor’s Fiduciary Rule.

Furthermore, Stark & Stark commented on the SEC’s proposals regarding investment adviser representative licensing, the delivery of account statements and potential financial requirements.

You can click here to download a PDF of the full letter to the SEC, or you can view the document below.

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In the last few days, hundreds of bankruptcy complaints against trade creditors were filed by bankrupt Chapter 11 debtor VRG Liquidating, LLC (formerly EMS) (docket 16-10971). The crux of the complaints that many businesses will be shortly served concern “preferences,” requesting the return of money received from bankrupt debtors 90 days prior to the bankruptcy filing of April 18, 2016 for goods or services sold. However, before you go writing a check to return hard earned money, you should know that you may have defenses that can be asserted.

What is Preference?

A preference is a payment received from a debtor, made within 90 days of the bankruptcy filing. Bankruptcy Code section 547(b) allows a bankruptcy trustee or debtor-in-possession (here, VRG) to avoid these payments, if the transfers were to or for the benefit of a creditor on account of an antecedent debt, while the debtor was insolvent. When Congress enacted the Bankruptcy Code, the policy behind preferences was to level the playing field for all creditors by not allowing a creditor to receive more than it would have within the debtor’s bankruptcy case.

Continue Reading EMS Bankruptcy Preference Complaints: Trade Creditors Protect Yourselves

During a divorce, many topics are covered in the Marital Settlement Agreement, and many more when the divorcing couple have children together. This can include child support as well as future college contributions. Depending on the agreement, the divorcing parties may specifically determine the percentages that each will pay for college costs, or will—if the child or children are young—defer setting any percentages until the child is in their senior year of high school. Within these agreements, there is often language that stipulates the children are required to apply for any available financial aid, grants and/or loans. However, does this mean children must be forced to take out loans for an obligation that is intended to part of their parents’ obligation?

A recent New Jersey Appellate Division opinion tackled this complicated question in the matter of M.F.W. v. G.O. In the case, the parties divorced in 2003 when their daughter was 5 years old, and their settlement included an agreement to pay for college and included language requiring that the daughter “…shall apply for all loans, grants, aid and scholarships available to her, the proceeds of which shall be first applied to college costs.”

Continue Reading Can College Loans Be Required In a Marital Settlement Agreement?

Within the last week, two (2) retailers filed for Chapter 11 bankruptcy protection, Heritage Home Group LLC and Real Mex Restaurants. Heritage originally emerged after a 2013 bankruptcy of the Thomasville, Broyhill, and Lane furniture brands, and Rex Mex operates Chevys Fresh Mex, El Torito, and other full-service restaurant brands. Both filed in the United States Bankruptcy Court District of Delaware, cases 18-11736 and 18-11795 respectively.

Additionally, Reuters and CNBC are reporting that Mattress Firm Inc., the largest U.S. mattress retailer, is also contemplating Chapter 11 filing.

Continue Reading More Retail Chapter 11 Filings – Thomasville & Chevys Stakeholders File for Bankruptcy; Mattress Firm Appears to be Next

The average consumer has probably heard of terms like “trademark” and “copyright” before, but what falls under trademark?  Do colors or color schemes fall under the category of a trademark?  The answer may surprise you.

Trademarks and service marks are “any word, name, symbol, or device, or of any combination thereof” that identify and distinguish a mark owner’s goods or services from those manufactured or sold by others.  They act as source indicators of the goods or services provided by the mark owner.  See 15 U.S.C. § 1127.  Dilution occurs when an infringer uses a mark similar to that of a famous trademark, thereby lessening or reducing a consumer’s ability to differentiate between the goods and services of each.

Continue Reading Trademark Registration of Colors—Only Once in a Blue Moon

In this blog we will explore the basic concept as to when a lower tier contractor can sue an upper tier contractor. The generally well accepted principal of law is that a contractor can only sue a party with whom it has a direct contractual relationship. In other words, unless there is a signed contract between two contractors, an upper tier contractor and a lower tier contractor, the lower tier contractor would not have the right to file suit against the upper tier contractor. Likewise, an upper tier contractor would not have a right to bring a lawsuit against a lower tier contractor with whom it does not have a direct contractual relationship with. In the context of a typical construction project, this rule of law has many different considerations, as discussed below.

Continue Reading Right of Sub-Contractor to Sue Upper Tier Contractor

Although some contractors may be unaware, the process for filing a residential construction lien is markedly different than the process to file a construction lien with regard to a commercial property. As to a commercial property, the requirements are relatively simple. First, there must be a written contract to provide materials and services. Next, the services must have been provided pursuant to the contract. Further, there must be non-payment for the materials or services by the owner of the commercial property. Finally, the lien claim must be filed within 90 days of the last time that materials or services were provided. Most contractors wrongfully assume that this same process applies to residential construction projects.

Continue Reading Errors Made in Filing Residential Construction Liens

A federal court in California agreed to remove the two songwriters of the Disney animated film Frozen from a copyright infringement lawsuit, for now. The lawsuit claims that the hit song “Let It Go” was copied from a Chilean song called “Volar,” and that the two songs are so strikingly similar that Disney could not claim its song was independently created.

The plaintiff, Jamie Ciero, originally filed the lawsuit in November 2017 wherein he alleged that the songwriters, Bobby Lopez and Kristen Anderson-Lopez, copied “quantitatively and qualitatively distinct, important, and recognizable portions of his song.” This included note combinations, hooks, and melodies that are, according to Ciero, almost identical to those in his song.

Continue Reading <i>Frozen</i> Songwriters Removed from Copyright Infringement Lawsuit

Yesterday, the United States Supreme Court issued its opinion in South Dakota v. Wayfair, Inc., ruling that states can require retailers to collect sales taxes on their online transactions regardless of whether the retailer has a physical presence in that state. The Court’s ruling overturns decades-old precedent that has allowed internet retailers to be largely exempt from the collection of out-of-state sales taxes.

As a result of the ruling, physical presence is no longer a prerequisite for states to require retailers to collect sales taxes. A retailer may now be required to collect out-of-state sales taxes based solely on the amount of its economic activity within a particular state. Although the Court’s ruling addressed the enforceability of the South Dakota law, it did not expressly address the enforceability of any other state’s sales tax legislation. However, a number of states have already enacted laws or regulations similar to that of South Dakota and it is expected that all other states that administer sales tax will follow suit. Whether Congress will intervene to establish uniform national sales tax requirements remains to be seen.

If you are transacting business online, we recommend that you consult your tax adviser to discuss your sales tax collection obligations in light of the Court’s decision.

In this blog we will explore the scope of permissible back charges that an upper tier contractor can levy against a lower tier contractor pursuant to a subcontract. The basic tenement of contract law is that the non-breaching party is entitled to be put into the position as if the contract had been properly performed by all parties. In other words, the damages are limited to what the parties would have received had the contract been fully and properly performed.

Continue Reading Scope of Permissible Backcharges on a Construction Contract