Oregon’s securities laws (often called “Blue Sky Laws”) are among the most investor-friendly in the country. Here is a breakdown of how ORS 59.115 works and why it might be your best path to financial recovery.

What is ORS 59.115?

At its core, ORS 59.115 is a statute that holds people accountable for selling securities through fraud, untruths, or even “technical” violations (like failing to register the investment with the state).

The most important thing for victims to know is that Oregon law doesn’t just go after the “con artist” at the center of the scheme—it casts a much wider net.

1. You Don’t Just Sue the Scammer

In many fraud cases, the person who actually stole the money is long gone or broke. Oregon law recognizes this. Under ORS 59.115(3), you can often hold “secondary” parties liable if they participated in or materially aided the sale. This can include professionals who participated in or provided material aid to the scheme, such as accountants, lawyers, and banks.

2. The Due Diligence Requirement

In a standard fraud case, you usually have to prove the person knew they were lying (this is called “scienter”). Under Oregon’s securities law, the burden is often flipped. Anyone who participated or materially aided the sale is “jointly and severally” liable for the full amount of the loss unless they can prove they did not know, and in the exercise of reasonable care could not have known, of the violation of the Oregon securities laws they participated in.

What Can You Actually Recover?

Oregon law aims to make the victim “whole” again. If you win a claim under ORS 59.115, the formula generally includes:

1. Your Full Principal: The total amount of money you invested.
2. Statutory Interest: Interest on your money (currently 9% per year under ORS 82.010) calculated from the day you made the investment.
3. Attorney Fees & Costs: This is the “hammer.” The court has the power to order the defendants to pay your legal bills, making it possible for attorneys to take these cases on a contingency basis.

The Clock is Ticking: Statutes of Limitations

You cannot wait forever to file a claim. In Oregon, the general rule for securities fraud is:

• 3 years from the date of the sale; OR
• 2 years from the date you discovered (or should have discovered) the fraud.

Whichever comes later—but there are ultimate “caps” on these timelines, so acting the moment you suspect foul play is critical.

Do You Have a Claim?

If you live in Oregon or invested in an Oregon-based company and believe you were misled, you shouldn’t have to navigate the recovery process alone. Please contact us.

Specifically, Madden and Grabow allegedly took more than $23 million from more than 200 investors.

Madden and Grabow allegedly told investors that Savitar was working with various partners on a large casino and resort project in Mexico that would generate high returns. But, in reality, Savitar lacked any legitimate business operations. Savitar simply diverted new investors’ money to pay back old investors and to enrich Madden and Grabow.

If you believe you were a victim of this Ponzi scheme, we encourage you to contact our office immediately.

The Commodity Futures Trading Commission announced a civil enforcement action alleging that SimTradePro Inc. defrauded more than 100 U.S. customers out of at least $2.3 million. SimTrade Pro Inc. allegedly acted as an unregistered commodity trading advisor.

SimTradePro allegedly operated from at least February 2018 to April 2019. It allegely charged introducing broker fees that were not disclosed to the investors.

If you invested in SimTradePro Inc., it may be in your interests to speak to Oregon securities attorneys, who may be able to help you recover part or all of your investment.

From at least November 2019 until the time the CFTC filed the lawsuit, TD and its principals — including Joseph Safranko (a.k.a. Ted Safrank) and David William Negus — operated the Ponzi scheme. It was a multi-layered scheme. They used other individuals and entities (sponsors), with each sponsor acting like a spoke extending from the TD hub.

The other defendants in the case include: Ares Global (a.k.a. “Trubluefx”), Algo Capital LLC, Algo FX Capital Advisor (a.k.a. “Quant5 Advisor LLC”), Robert Collazo Jr., Juan Jose Herman, Stephen Likos, Michael Shannon Sims, Holton Buggs Jr., Centurion Capital Group, Alejandro Santiestaban (a.k.a. Alex Santi), Gabriel Beltran, and Archie Rice.

The Court issued a statutory restraining order against the defendants, freezing their assets and giving the CFTC immediate access to their books and records.

If you purchased investments in Traders Domain or its affiliates, it may be in your interests to speak to an attorney about your options to recover some or all of your investment losses.

CBS News aired a 60-minutes segment titled “Litigation Funding: a multibillion-dollar industry for investments in lawsuits with little oversight.” As the segment explained, “litigation funding” is the practice of funding someone’s lawsuit in return for the right to collect a portion of the money that person recovers in the litigation.

The 60-minutes segment first features an individual, Craig Underwood, who was the victim of unfair litigation funding. Underwood is a jalapeno pepper farmer. He won a $23 million verdict in a case against his corporate customer. But the corporation appealed the verdict, and Underwood could not afford to hire an attorney for the appeal. So, he turned to Buford Capital—the world’s largest litigation funder—which gave him $4 million in litigation funding.

In the end, the appellate court sustained the $23 million verdict, and Buford received $8 million as its cut. So, Buford received a mighty 100 percent return on its initial $4 million funding.

Lesley Stahl, the host of the 60-minutes segment, noted that Buford “argues that the reason they demand so much [return on investment] is because of the big risks they take. But actually, they pick their cases very carefully.” The segment then cut to a clip in which Buford’s CEO says “[w]e’re right about 90 percent of the time,” implying that they only lose principal on their litigation-funding investments about ten percent of the time. Buford’s CEO also stated that the 100 percent return on investment is typical for its litigation funding.

Predatory Practices Are Not Unique To Litigation Funding

Let me be clear: like Stahl, I think it is grossly unfair for Buford to consistently take a 100 percent return on its investments in individuals’ lawsuits, particularly when Buford is only losing money on about 10 percent of these litigation-funding arrangements. But charging unfairly high rates to individuals for financing is not a problem unique to litigation funding. Unfairly high interest rates occur in auto loans, student loans, home mortgage loans, credit cards, and just about any other source of financing for individuals.

Stahl seems to argue that predatory litigation funding is more egregious than predatory financing from more traditional sources because litigation financing is less regulated. “If you take out – say, a car loan,” she says, “usury laws that prevent predatory lending cap the interest rate, in New York at 16%. But remember, [litigation financing agreements] aren’t loans per se.”

But Stahl is overstating the difference between regulations over litigation funding and regulations over other financing for individuals in two ways. First, and most importantly, she is exaggerating the extent to which traditional sources of financing are regulated. Her example of New York’s 16 percent interest cap only applies to non-licensed lenders. Anyone who obtains a license can charge higher rates. And New York’s law is not representative; other states make it even easier to circumvent their usury laws. In South Dakota and New Mexico, for example, you can escape the usury regulations simply by putting the lending agreement in writing. And in Mississippi and Georgia, the usury regulations do not apply to any loans over $2,000 and $3,000, respectively.

Second, contrary to what Stahl was implying, states do in fact regulate litigation funding, including by limiting the fees that funders can charge. I think the regulations are inadequate, but so are the regulations for other funding sources.

Lobbyists For Tortious Corporations Demonize Litigation Funding

To its credit, the 60-minutes segment makes the following point very well: “One entity that’s been very vocal [about litigation funding] is the U.S. Chamber of Commerce that represents big businesses because the sector that’s most concerned about this is big corporations. Now there’s money to sue them, and there’s money to preserve, and not to settle early at a discount.” I absolutely agree, and I suspect that’s part of the reason that litigation funding is treated so differently from other financing practices that are equally prone to abuse.

But the irony is that the 60-minutes segment itself is mostly devoted to perpetrating the nefarious corporate influence it articulately describes. Aside from the segment’s misleading comparisons between regulations of traditional loans and regulations of litigation funding (discussed above), the segment is otherwise filled with anecdotes that seem intended to demonize litigation funding.

For example, the segment’s longest story is about a 9/11 responder named Donald Sefcik, who suffered significant medical issues because of the dust he inhaled at ground zero. Stahl says that there was no question that he was entitled to eventually receive $90,000 from the 9/11 Victim Compensation Fund. But he needed the money immediately, and an evil corporation convinced him to sign a vague contract that gave him just $25,000 while the company gained rights to $64,800 of the compensation fund. 

The problem with using Sefcik’s story as a criticism of litigation financing is that he was not the victim of any litigation financing. He was the victim of an evil and unconscionable loan, but that loan had nothing to do with any litigation. In fact, Sefcik’s story supports my main point: unreasonably expensive funding to individuals is pervasive in all funding to consumers; it is not a problem specific to litigation funding.

Nonetheless, featuring a 9/11 hero victimized by scam artists was probably effective propaganda, however non-sensical it may be. That is the sort of messaging that may lead the public to believe, wrongly, that litigation funding presents a predatory-financing problem fundamentally more dangerous than the threat of predation presented by other sources of financing.

Contingency Fees Are Similar To Litigation Funding

Litigation-funding discussions are important issues to me as a contingency-fee lawyer because contingency fees are similar to litigation funding. A contingency fee lawyer agrees to work without being paid any fee unless and until he or she recovers money for the client. It’s as though a contingency fee lawyer is making a loan to his or her client to fund the litigation and then immediately getting back the loaned money as payment for the attorney’s time. For that reason, it’s fair to think of the contingency-fee lawyer as funding the litigation, and I’ll do that for the rest of this blog post.

Given their similarities, it shouldn’t be surprising that people make criticisms about contingency fees that are very similar to the criticisms CBS makes about litigation funding. That is, people criticize contingency fees because some contingency-fee attorneys charge unreasonably high fees for their “funding.” And just as I wholeheartedly agree that some litigation funders charge too much, I also agree that some contingency fee lawyers charge too much.

But—maybe you can see where this is going—that’s not fundamentally a criticism specific to contingency-fees. It is instead part of the much more general problem that it is far too easy in this country for the greedy to overcharge for providing financing to individuals. The solution is not to ban contingency fees—which tortious corporations sometimes advocate for because of the devastating impact the ban would have on individuals’ access to justice—but to have better regulations (such as caps on contingency fees) and enforcement.

Plaintiffs May Be Wise To Use Both Litigation Funding And Contingency Fee Lawyers

Let me finish by discussing how litigation funding and contingency fee lawyering are different from each other and, relatedly, how they may be able to complement each other. The difference is that in contingency fees arrangements, but not in litigation funding, the funder is the lawyer, and the recipient of the funding is the lawyer’s client. That difference has at least two implications.

First, only in contingency fee arrangements will the funder (that is, the lawyer) be bound by attorney ethics rules, including the rule against charging unreasonable fees and acting in its client’s best interests (to be sure, those ethics rules are often not obeyed and are underenforced).

Second—and more importantly—contingency fee lawyers often have perverse incentives to settle cases prematurely. As a simplified illustration, suppose a contingency-fee lawyer has two choices: (1) settle a case for $50,000 after spending fifty hours of time on it, or (2) settle the case for $75,000 after spending 150 hours of time on it. It is in the client’s interest, of course, for the contingency-fee lawyer to spend more time and get the larger settlement. But the contingency fee lawyer might be tempted to take the first option because that outcome will result in an effective fee of $1,000 per hour, whereas the lawyer would make $500 per hour if he or she takes the second option. Litigation funders, of course, do not have the same issue because the litigation funders aren’t spending much more time on the case as it progresses. They, like the client, would prefer that the attorney spend as much time as necessary to get the highest settlement possible.

So, a possible strategy for an individual who needs litigation funding is to obtain funding from a litigation financer but, instead of spending that money on a pay-by-the-hour attorney, hire a contingency-fee lawyer. The litigation funder and the contingency-fee lawyer might keep each other in check. Specifically, the attorney can help the client negotiate the litigation funding to make sure the funding arrangement is fair. In doing so, the attorney will be bound by his or her ethical duties to act in their client’s best interest. Then, the litigation funder can consult with the client to make sure that the attorney does not accept a premature low-ball settlement. As discussed above, the litigation consultant’s incentives would be aligned with the client’s (and possibly opposed to the attorney’s).

Ethical contingency-fee lawyers may be able to offer that strategy to clients or potential clients to ease anxiety the client may have about contingency fee lawyers acting opportunistically.

On March 2, 2022, Fitbit and the United States Consumer Product Safety Commission (CSPC) announced a recall of Fitbit Ionics because there were more than 100 reported incidents of individuals being burned by the watch overheating. Some individuals even suffered third-degree burns.

Fitbit allegedly refused to pay many individuals who submitted more than five Ionics to the recall program.

One individual sued Google, Fitbit’s parent company, in Gwinnett County Magistrate Court (or “small claims court”) alleging that he submitted 50 Ionics to the recall program but did not receive the promised payment of $299.00 per watch. Google did not appear in person in the proceeding but submitted a brief to the court. In the brief, Google requested that the court dismiss the case on various grounds, including that the “recall is intended only for eligible customers who purchased and utilized the devices for personal use. . . . the Fitbit recall center received forty-three devices [from the plaintiff], all of which had never been paired to any of the @vat.beauty email addresses provided by Plaintiff during recall registration. . . . Plaintiff has also failed to provide any proof of purchase or proof of personal use.”

According to sources, the court later entered an award requiring Google to pay the plaintiff for the watches he submitted in the reimbursement program. If true, Banks Law Office believes that award was the legally correct decision. Fitbit/Google cannot refuse to pay individuals submitting Ionics in the recall program merely because they have not personally used the devices or paired the devices to their email addresses. The refusal clearly violates Fitbit’s and the CSPC’s announced terms of the recall.

Fitbit’s refusal to pay also runs contrary to the objectives of a recall. The CSPC has stated in its recall handbook that “[t]he objectives of a recall are (1) to prevent injury or death from defective or violative products; (2) to locate all such products as quickly as possible; (3) to remove such products from the distribution chain and from the possession of consumers; and (4) to communicate to the public in a timely manner accurate and understandable information about the product defect or violation, the hazard, and the corrective action. Companies should design all informational materials to motivate retailers and the media to get the word out and to spur consumers to act on the recall.”

By refusing to pay people who have not personally used or connected the Ionics they are submitting, Fitbit is encouraging people to use the Ionics instead of submitting them in the recall program.

If Fitbit has refused to pay you for Fitbit Ionics that you mailed in connection with the Fitbit Ionics Recall program, please contact Banks Law Office today.

The SEC refuses to recommend  a fiduciary rule for broker-dealers; new rule reiterates FINRA suitability standard and allows  conflicts of interest between brokers and investors.

The Securities and Exchange Commission in a 4-1 vote has rejected the fiduciary rule as the standard of conduct for broker-dealers and their representatives.  Instead, the SEC has proposed “Regulation Best Interest,”  a rule that largely maintains the status quo. See SEC Proposed Regulation § 240.15l-1.  Regulation Best Interest begins with promising language,  stating that a broker must act in the best interest of a client and not place the financial or other interests of the broker ahead of the investor’s interest when making an investment recommendation.  But, the rule goes on to provide that the best interest standard is met by satisfying FINRA’s existing suitability requirements — reasonable basis, customer specific and quantitative suitability.    And, the proposed Regulation Best Interest includes a conflict of interest section that does not prohibit conflicts.  Rather, it requires only that brokers “identify” and “disclose and mitigate”  material conflicts with their clients.  That is a far cry from a true fiduciary standard that investors have hoped for.   The dissenting SEC Commissioner, Kara M. Stein, accurately summed up the new proposal, saying “…Despite the hype, today’s proposals fail to provide comprehensive reform or adequately enhance existing rules. In fact, one might say, the Emperor has no clothes.”

How did we get here?

The Quest For A Uniform Fiduciary Standard. 

Traditionally broker-dealers and their registered representatives have been held to a different standard of conduct than registered investment advisors.  The former are licensed by the Financial Industry Regulatory Authority (FINRA) and their conduct is governed by FINRA’s  suitability standard requiring that a firm or associated person have a reasonable basis to believe a recommended transaction or investment strategy involving a security or securities is suitable for both some investors and the specific client receiving the investment.  See FINRA Rule 2111.   Registered Investment Advisors, on the other hand, are held to a fiduciary standard that includes an affirmative duty of utmost good faith, and full and fair disclosure of all material facts, as well as an affirmative obligation to employ reasonable care to avoid misleading clients.  See Sec. Exch. Comm’n v. Capital Gains Research Bureau, 375 U.S. 180, 192 (1963) (interpreting the duties under the Investment Advisor Act of 1940).

Although the standards are significantly different for brokers and advisers, several studies have shown that most retail investors are not aware of the difference between brokers and investment advisors.  See, e.g., Study on Investment Advisors and Broker-Dealers, Securities and Exchange Commission, 2011, As a result, regulators, legislators and investor advocates have sought to develop a uniform fiduciary standard applicable to all financial advisers.

Efforts to implement a uniform fiduciary standard have been underway for some time.  Former SEC Chairwoman Mary Shapiro favored the adoption of a fiduciary rule, as did her successor, Mary Jo White.  However, neither had the support they needed on the Commission to adopt a fiduciary rule.  Section 913 of the Dodd Frank Act, Public Law No. 111-203, directed the SEC to study the standards of conduct that should govern investment advisors and broker-dealers, and even gave the SEC the specific authority to promulgate a fiduciary standard rule if its study indicated a need for one.  Current SEC Chairperson Jay Clayton had been on record as being in in favor of some form of a fiduciary standard and seemed to be moving in that direction.  On June 1, 2017, he sought public comment from investors and other interested parties on the standards of conduct to govern investment advisors and broker-dealers.

The Department of Labor Fiduciary Rule

Six years after Dodd-Frank’s directive to the SEC became law, the SEC was still studying the fiduciary issue.  Perhaps because of the SEC’s inaction, in 2015 President Obama called upon the Department of Labor to create a rule requiring all advisors of retirement accounts—brokers and registered investment advisors alike — to place their clients’ interests first.  The DOL subsequently proposed new regulations in April 2016.  Known as the DOL Fiduciary Rule, it provides that anyone giving investment advice for compensation in retirement accounts (including IRA and SEP-IRA accounts, pension plans, 401s, and defined benefit plans) must act in the account holder’s best interest and must disclose all potential conflicts of interest.  Part of the DOL Fiduciary Rule became effective in June 2017.  The two provisions that have gone into effect require advisers to give advice that is in the best interests of their clients, charge reasonable compensation, and avoid “misleading statements” about investment transactions and what they are being paid.

The DOL Fiduciary Rule has met staunch opposition from some members of the financial services industry and they got  considerable high-level support after the election of Donald Trump.  On February 3, 2018, President Trump issued a memo for the Department of Labor to re-assess the rule’s impact on retirement advice.   Bills have since been introduced in Congress to kill the DOL Fiduciary Rule.  And, lawsuits were filed challenging the Rule on various theories. Two cases have reached the federal appellate courts, and those courts reached different outcomes on the validity of the DOL rule.  The Tenth Circuit rejected an Administrative Procedures Act challenge to the application of the DOL Rule to fixed indexed annuity sales.  Market Synergy Group, Inc. v. United States Department of Labor, Case No. 17-3038 (10th Cir.  March 13, 2018).  Two days later, the Fifth Circuit held in a 2-1 decision that the DOL lacked statutory authority to enact the rule and struck it down.  Chamber of Commerce v. United States Department of Labor, Case No. 17-10238 (5th Cir.  March 15, 2018).  The DOL has not said whether it will appeal the decision, but it seems unlikely that an agency that was directed by the President to re-assess the rule that was invalidated would seek certiorari to argue for its validity.

Present Uncertainties

As a result fo these developments, we not only are left without a uniform standard, but we don’t know for certain what standards the federal regulators will apply.   The DOL continues to reassess its fiduciary rule and is not enforcing it so long as advisors are making a good faith effort at changing their policies. And, the federal appellate courts have reached different outcomes on the validity of the DOL rule.  For its part in making things progressively more confusing and less investor-friendly, the SEC has proposed a conduct rule that does little more than maintain the status quo.  Its Best Interest Rule proposal will be challenged by investors over course of the 90 day comment period to come.

Fiduciary Standard and State Law

Is there a silver lining anywhere for investors in all of this?   Investors looking for one should look to the states and individual investor rights lawyers.  Although the standard remains elusive on the federal level, things are different in some states.  The California Supreme Court in Duffy v. Cavalier, 264 Cal. Rptr 740, 752 (1989), affirmed an earlier decision in Twomey v. Mitchum, Jones & Templeton, Inc. 262 Cal.App.2d 690, 69 Cal.Rptr. 222 (1968) and held that “[a]s repeatedly stated in Twomey and the many subsequent cases following it, the relationship between any stockbroker and his or her customer is fiduciary in nature, imposing on the former the duty to act in the highest good faith toward the customer.”  However, the extent of the fiduciary duty depends upon the relationship between the adviser and the customer.  Where the broker is merely an order taker, his fiduciary duty is simply to execute the order as placed.  But, where the broker essentially controls the account, either through discretionary trading authority or making recommendations that are routinely followed, then the duty becomes a traditional fiduciary duty.  Duffy, 264 Cal Rptr. at 753.  See also:  Ashburn v. AIG Fin. Advisors, Inc., 183 Cal.Rptr.3d 679, 694, 234 Cal.App.4th 79 (Cal. App. 2015)(citing Duffy with approval).

The rule in Oregon is similar.  In Wallace v. Hinckle Northwest, 79 Or. App. 177, 182  (1986), the court summarized the rule as “A stockbroker is a fiduciary if his client trusts him to manage and control the client’s account and he accepts that responsibility.”  The court held that whether the account is discretionary is not controlling, and that the courts had to review the facts underlying the nature of the relationship.  Cf.  Berki v. Reynolds Securities, Inc., 27 Or. 335 (1977), where the court found no fiduciary relationship because the broker had no control over the investments that were made.

The Nevada legislature recently took matters into its own hands and enacted a statute imposing fiduciary responsibilities on financial planners, who are defined as a person “who for compensation advises others upon the investment of money or upon provision for income to be needed in the future, or who holds himself or herself out as qualified to perform either of these functions.”  NRS 628A.010.   NRS 628A.020 provides:

A financial planner has the duty of a fiduciary toward a client. A financial planner shall disclose to a client, at the time advice is given, any gain the financial planner may receive, such as profit or commission, if the advice is followed. A financial planner shall make diligent inquiry of each client to ascertain initially, and keep currently informed concerning, the client’s financial circumstances and obligations and the client’s present and anticipated obligations to and goals for his or her family.

There are exemptions, including those for advisers who are not located in Nevada.  NRS 90.310 – NRS 90.340.

Meanwhile, state securities regulators have made clear that they may act where they believe an investment adviser has violated the DOL Fiduciary Rule, even if the DOL itself is refraining from doing so.  The Massachusetts Securities Division has filed an action against Scottrade for violation of the fiduciary rule when it ran a sales contest that affected retirement accounts.   A spokesperson for Secretary William Galvin was quoted in The Wall Street Journal stating, “The secretary feels that since the federal government is unclear” on the future of the fiduciary rule, “the states have to step up and protect the people.”   The Wall Street Journal, February 15, 2018.  The Journal also reported that “A bipartisan group of 13 state treasurers, in a letter to Labor Secretary Alexander Acosta dated June 7, said: ‘We are committed to protecting the financial interests of our constituents—in particular, ensuring that retirement planning and investment advice is not conflicted.’ The treasurers, including those from Pennsylvania, Oregon and Iowa, asked Mr. Acosta to preserve the ‘common-sense measure.’”  The Wall Street Journal, September 12, 2017. Lawyers representing investors in arbitrations and court will no doubt continue to rely on state law and fiduciary standards where applicable as well.

The bottom line for investors: don’t rely on the SEC or DOL for investor protection. Look to your lawyer and your state regulators to protect your rights. If you have questions or concerns please contact me at 503-222-7475 or bob@bankslawoffice.com

Robert Banks is a securities litigation attorney based in Portland, Oregon.  He represents investors in FINRA arbitrations and court cases.  He is a member of FINRA’s National Arbitration and Mediation Committee and is the Chair of its Rules and Procedures Subcommittee.  He is a former president and a Director Emeritus of the Public Investors Arbitration Bar Association.  The views expressed above do not represent the views of FINRA, the National Arbitration and Mediation Committee, or necessarily, PIABA.