By Sheila Pursglove
Misrepresentation, unsuitability, unauthorized trading, excessive trading (“churning”), and failure to supervise — are 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.
“Skadden’s New York office has some of the world’s most brilliant and hardworking lawyers and allows Associates to work on some of the world’s biggest cases and deals,” he says. “After spending four years there, I grew to appreciate the firm’s insistence that everything that we did would always be of the highest quality. Clients knew that if they had a big problem, they could call us and we would work all night to protect them.”
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.
“When he went to jail for his fraud, many people who lost money to him started suing everyone who had any involvement with Madoff. Much of the ongoing Madoff litigation revolves around who knew what and when and whether they should have figured out that the former chairman of the National Association of Securities Dealers — which later became NASDAQ — was running history’s biggest financial fraud.”
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.
“Many of the mortgage-backed securities cases revolve around underwriting standards. When local banks make loans to homebuyers, they then sell most loans to investment banks. The investment banks then ‘securitize’ the loans and sell rights to the payment streams from borrowers repaying their loans,” Edwards explains. “When the payment streams ran lower than anticipated, people asked questions about the local banks’ underwriting standards and whether the investment banks knew what the local banks were doing.”
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.
“Although the client had two prior orders of removal from different Immigration Court judges, after years of work we were able to convince the Immigration Court to reopen and vacate those orders and grant her asylum,” he says. “The case was incredibly difficult but we ended up winning it because we kept working. We knew that our client might be killed if returned to her home country and we were determined to prevent that.”
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.”
For more information on the new Investor Advocacy Clinic, visit http://law.msu.edu/clinics/investor/.