May 27, 2019

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California Ponders Mandating That Brokers And Investment Advisers Report Financial Elder Abuse

The California Elder Abuse and Dependent Adult Civil Protection Act mandates reporting of suspected financial abuse of an elder or dependent adult.  Cal. Welf. & Inst. Code § 15630.1.  Under the act, a "mandated reporter of suspected financial abuse of an elder or dependent adult" means all officers and employees of financial institutions [as defined]".  

Senator John M. W. Moorlach recently introduced a bill, SB 496, that would expand the list of mandated reporters to include broker-dealers (as defined in Corp. Code § 25004) and investment advisers (as defined in Corp. Code § 25009).  The bill would also allow a mandated reporter to delay temporarily a requested disbursement from an account of an elder or dependent adult or an account to which an elder or dependent adult is a beneficiary provided specified conditions are satisfied.

By imposing state specific requirements on broker-dealers, the bill may run afoul of Section 15(i)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) which states:

"No law, rule, regulation, or order, or other administrative action of any State or political subdivision thereof shall establish capital, custody, margin, financial responsibility, making and keeping records, bonding, or financial or operational reporting requirements for brokers, dealers, municipal securities dealers, government securities brokers, or government securities dealers that differ from, or are in addition to, the requirements in those areas established under this title [the Exchange Act].”

The issue of federal preemption has become red hot as states move to impose fiduciary obligations on broker-dealers.  See Is Nevada's Broker-Dealer Fiduciary Standard Constitutional?

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...

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