PEP Episode 011 — Navigating SEC Regulations in Payments with Jarvis & Bill
- September 20, 2023
Today we are joined with Senior Associate Attorney, Jarvis Lagman, along with Associate Attorney Bill Petti to discuss the SEC and its involvement in the ever-evolving payment industry. Both Jarvis and Bill take a deep dive into what the SEC controls, monitors, and governs. All while thoroughly explaining how subpoenas, administrative orders, and violations can come into play.
Jeremy Stock (00:00):
Welcome to the Payments Experts Podcast, a podcast of global legal law firm ISOs, FinTech, pay fax agents, merchants, processors, acquiring banks and card brands. If these terms mean something to you, this podcast is for you. If these terms aren’t so familiar, this podcast is even more for you. We hope you enjoy this episode of pep, the Payments Experts podcast. Welcome to this episode of the Payments Experts Podcast, a podcast of global legal law firm. Today we are very excited to have in studio with us Senior Associate Attorney Jarvis Laman, as well as Associate Attorney Bill Petti. Gentlemen, I believe the topic today is SEC subpoenas regulation. Please jump right in.
Jarvis Lagman (01:01):
Thanks, Jeremy. Thanks, Jeremy. Just to give a quick outline of what exactly are federal securities laws and what they govern? Right. Essentially, federal securities laws are intended to enable potential investors to have access to sufficient information to make an informed investment decision. So a lot of federal securities laws relates to disclosures. So if you ever see things like a Form 10 K, a Form 10 Q a form ak, these are periodic reports issued by public companies detailing information about the business, financial statements, information about the corporate management of the company that are all designed for a customer or potential investor to be able to review this information and understand whether or not an investment in that company is a good or bad decision for them. And a lot of how federal securities law interfaces with the payments industry is that a lot of payments industry entities are public companies.
Jarvis Lagman (2:18):
So to the extent that they’re public companies, they are required to make these disclosures and any representations that they make in the disclosures are essentially going to be governed by securities law. So when we think about how the payments industry actually works, so a lot of it will involve sales agents going to different merchants and making representations as to what kind of services a particular company will offer to the extent that a sales agent may make a misrepresentation to a merchant for the purpose of essentially increasing earnings, which has an effect of increasing a company’s stock price. There may be an administrative action concerning stock fraud or something like that if it is indeed found that agents were making misrepresentations with the ultimate purpose of influencing a company’s stock price. So I think a pertinent question is, if you are a payments company and you essentially receive an administrative notice from the S E C, what should you do?
Bill Petti (03:33):
Well, I think the first question, and first I want to start off by saying thank you, Jarvis, for having me today. It’s great to get your expertise on this area. I guess the first question as a individual in the payments industry is first and foremost, what even is the SEC? Would you be able to explain that to our audience?
Jarvis Lagman (03:59):
Oh, sure. The SEC is an administrative body essentially under the executive branch of the US federal government that administers the federal securities laws, right? So they promulgate different rules and regulations that take the Securities Act, exchange Act, investment Company Act, investment Advisors Act, and helps flush out some of the standards in those laws to develop a body of regulations that are binding upon anybody who could essentially affect the purchase or sale of a security or the operation of a securities market. So to the extent that anyone or any entities in violation of securities laws, the Securities and Exchange Commission will essentially govern that behavior and either enforce administrative action or in a lot of different cases, provide guidance, but they’re essentially the governmental entity that serves as the interface with government to basically interpret federal securities laws and govern how they’re enforced. Which leads to, I guess the question of when you actually go and you’re operating, buying and selling securities.
Jarvis Lagman (05:23):
And I think where a lot of the stuff interfaces with payments is that there are just situations where you may not necessarily intend for your behavior to have the securities laws apply to your behavior. But because the securities laws are pretty broad, they’ll essentially, they will impact how you need to organize your activities. So I think in terms of being able to organize your business in a way that’s compliant, you have to think about to what extent am I doing anything that could constitute misrepresentation, and B, to what extent are the things I am doing involve the person’s sale securities? And I’ll give you a more pertinent example of this. So if you think about what’s going on of cryptocurrency, so now the S E c, I don’t know if you’ve seen all this stuff with Coinbase and Binance. The SS e C has really cracked down and labeled cryptocurrency instruments as securities and as being required to register under the federal securities laws in ion the purchase of sale to investors, which they typically have not done in the past.
Jarvis Lagman (06:49):
So now we kind of see how the slow moving engine of the S E C has finally wrapped their heads around how they actually want to approach some of these issues. So if you take that idea of like, oh, something that you may not necessarily think would be security actually is a security, this influences even the payments industry. So to the extent that a payment card could be used, or let’s say you’re a payments company and you create a payment system that enables people to purchase cryptocurrency using a Visa MasterCard payment method, all of a sudden now it’s not just a typical purchase sale of a good, now, it’s something that you need to comply with federal securities laws. And there are just certain aspects of it where there might be a know your customer obligation. If you’re doing something where you could be deemed to be a broker in the purchase sales securities, now all of a sudden you have all these obligations that you would not necessarily have if not for the securities loss.
Jarvis Lagman (07:59):
So just in terms of how payments interfaces with securities, because payments are evolving now, we see how we actually need to structure payments becomes more complicated because some of these methods of running payments are looking more and more like securities. And I’m defaulting back to crypto because it is one of those things where if you think about the evolution of FinTech, to what extent are these digital transfers of money? At what point can they be considered securities? I think we had a recent case where we had a sales agent who was an agent on behalf of a public company, and they’re going out and basically representing two merchants, a solution that the company offers that was disclosed in their public filings that allegedly they did not actually offer. Right? So that’s another way that the securities laws could interface with payments, because to the extent you’re a public company and you’re representing things to customers, merchants about goods and services that you report in your periodic filings that you actually don’t offer for whatever reason, the S E C could come after you. So could you elaborate more on that process, bill?
Bill Petti (09:33):
Yeah, what aspect would you,
Jarvis Lagman (09:36):
Well, I was speaking specifically in terms of a situation where an agent on behalf of a company that is public but also offers payment solutions, but adverts or essentially solicits merchants in connection with goods and services that they don’t actually offer. And then all of a sudden now the S E C gets involved and there is, there’s an administrative order and subpoenas and your asset go before the S e C and testify. How is that process like, what’s the procedure? What should you do if you’re ever in that situation?
Bill Petti (10:17):
Yeah, so the S E c, they have broad authority to regulate anything related to the potential violations of federal securities laws. With that comes the administrative subpoena power, which most people don’t really understand. Most attorneys don’t understand it. It’s a very complex body of law specific to federal administrative law. So in a situation like that, the S E C might come in and investigate potential misrepresentations. And in doing that issue subpoenas to non parties, upon receiving a subpoena, you might be wondering, why am I being roped into this? In most cases, or some cases, you might not even be the subject of the investigation. So it’s important to hire an attorney to review the subpoena and determine a date of compliance and the scope of the records that the SS e c is requesting from you and comply with what the commission wants you to do. How
Jarvis Lagman (11:29):
Is this process different than a typical civil litigation proceeding?
Bill Petti (11:35):
Yeah, so it differs a lot actually. It’s almost less formal. Most litigators will deal with the federal rules of civil procedure, which they almost, in a way, don’t apply to administrative proceedings. An administrative law judge can apply the federal rules of civil procedure and the federal rules of evidence, but they’re not bound to. So it requires you to think on the fly when handling these types of cases.
Jarvis Lagman (12:14):
So do you think that the discretionary power that these regulatory agency have as compared to maybe a more formalized judicial setting, do you think that’s better for the process, or do you think it’s worse? Do you think that when you actually go through a proceeding that you’re protected by due process to the same extent?
Bill Petti (12:39):
I think that remains to be seen, and it also depends on the regulator. I guess in the context of just the S E c, I think in terms, well, you absolutely have certain rights to due process or you have the rights to due process and the government can’t overstep their regulatory authority. With that being said, if you have an adverse decision made against you, a ruling by an A L J administrative law judge or the commission itself, you have the right to appeal that to either a district court. It depends on the circumstance. In most cases, it’ll actually go to an appellate court in our circuits, the ninth Circuit. So you would appeal that decision to the ninth circuit. But once you’re in court, the judges, they give great deference to the administrative agency. So you’d be hard pressed to fight an s e C decision, but particularly as we’ve seen lately with certain decisions made by the SS e c, there’s some room to fight their decisions. So
Jarvis Lagman (13:59):
Do you think the process works better this way, or do you think that a lot of these actions, right, because I guess part of what I’m thinking is what’s nice about the SS e C and regulatory body adjudicating some of these issues is because they have sophistication and specialized knowledge that may be a typical district court judge may not have. Having said that, how would you balance the pros and cons of the different ways to approach securities regulation? Right, because on the one hand, you have an additional layer, and it sounds like from what you described, even though you do have this right to appeal a decision because of principles of comedy and the deference that judges will show towards the S E C, that obviously puts a finger on the scale in a way that essentially renders any hope of actually overturning any of these decisions.
Jarvis Lagman (15:00):
A relatively illusory point, especially given how there’s been a lot, I feel like that’s a bringing politics here. But on the one hand, there are political positions that really favor a stronger administrative state, and then there are other positions that say, well, these administrative bodies actually create a chilling effect on the way we’re able to actually engage in commercial activity. So do you think that the current system strikes the appropriate balance, or do you think that there are things that we could do to essentially either streamline the process or make some changes to make the process work better? What are your thoughts on that?
Bill Petti (15:54):
I absolutely think that it’s a good process that’s beneficial for society. Having said that, I do believe that people should consult with attorneys or specialists and determine their rights and obligations under these statutes and the agreements they enter into. I believe that people should understanding their rights, push back a little bit on these agencies, the SS E C, the F T C, there’s always going to be a power struggle like balance and imbalance. So I think it’s good that it, it’s a good system, but there’s definitely flaws that need to be worked out through the administrative process.
Jarvis Lagman (16:48):
So are you saying that people are actually more empowered than they think they are, given the structure of the system and the fact that you maybe you’d get some kind of notice from one of these enforcement agencies doesn’t necessarily mean that you need to bow down to them, and then with adequate representation, you can kind of fight. And I guess, like I said, I’m thinking about Coinbase where it’s like, okay, the s e C issued a ruling and then now all of a sudden they’re fighting it in court, and now we’re really having this struggle over not just necessarily how a particular provision in securities law would be applied in any specific case, but just really to what extent can the SS E c, I don’t want to say arbitrarily, but essentially rule make in a way and define the parameters of the conversation. Because I think a lot of these regulatory actions, it’s not just that there’s a law and then they’re applying it.
Jarvis Lagman (17:48):
They’re really shaping the landscape for how future businesses and how we’re all going to conduct or what kind of activities we can and cannot do moving forward in a way that I think is different than maybe a typical case where a lot of it’s very case specific. In my mind, that’s some of the difference between maybe a traditional judicial proceeding and a regulatory proceeding, whereas a judicial proceeding is very, very idiosyncratic to the facts and circumstances of the case. Whereas administrative proceeding, I feel like has a broader reach just because now it’s going to influence how an administrative body’s actually going to enforce the law. I mean, would you agree with that statement?
Bill Petti (18:33):
Yeah, I do. I feel like with the rulemaking, there’s, to your point about receiving a subpoena, it works a lot differently than in the judicial system. There’s different mechanisms that an administrative agency needs to follow certain procedures, and when issuing a subpoena, it requires a formal order, and it’s important to request that type of information upon receiving the subpoena to request from the attorney who issued the subpoena the formal order. If they don’t have the formal order, you could fight the subpoena and potentially quash it in the district court.
Jarvis Lagman (19:23):
So do you think that there is more of a procedural chess match involved in a traditional judicial proceeding than in a regulatory proceeding? So there’s a little more leeway to assert your rights at a judicial proceeding because you can challenge, for instance, the validity of a subpoena, and there’re just different ways to attack actions that necessarily wouldn’t be to your best interests under an administrative action. You’re a little bit more, there’s room to fight, but the scope at which you could fight is diminished as compared to judicial proceeding.
Bill Petti (20:05):
Yeah, it’s in an administrative proceeding. Sorry, can’t talk today. Administrative proceeding. It’s definitely a little bit more, or a lot more, actually, a lot more procedural in terms of what you have at your disposal to challenge either the ruling or the subpoena or whatever it may be. That’s in contrast to the district court where you have more of a factual basis for fighting. You’re more fighting on the facts. But when you’re challenging the administrative ruling, it’s you got to know procedure and you have to know the administrative Procedure Act.
Jarvis Lagman (20:54):
So what do you think best practices would be? So let’s say you’re running a company or you’re a sales agent or someone operating in the payments industry. What are some of the things you need to know to govern your behavior both ethically and legally in order to avoid all of this?
Bill Petti (21:15):
In what sense?
Jarvis Lagman (21:16):
Well, for instance, so what are the kinds of things that you need to be aware of so you don’t get in trouble with any of these bodies? And I’m thinking specifically in the context of just representations and things like that. What are the kinds of causes of action that could be brought against you, and how can people mitigate the risk of being liable for that?
Bill Petti (21:42):
Yeah, so first off, especially if you’re a public company, make sure in all your public filings to have a forward-looking statement when you’re making representations to the public, especially when you’re making representations for the purpose of receiving funds to run your business.
Jarvis Lagman (22:06):
Wait, so what’s a forward-looking statement?
Bill Petti (22:08):
A forward-looking statement is a conditional statement that is made to a,
Jarvis Lagman (22:19):
It’s more of a projection or forecasting. So is it something like language, not saying that you have done something, but you will or you intend to, that kind of qualifying language? Is that what you would say constitutes a forward-looking statement and that there’s a safe harbor for it in terms of misrepresentations in the event that people are relying on it? So I guess to the extent that people are making forward-looking statements, would you say that when people are putting together sales guides and things like that, that they need to essentially coach your sales agents to couch some of the representations that they make to their customers? In this language,
Bill Petti (23:05):
You need to have your compliance procedures on point, and you need to make sure that the language is not definite, you’re not overpromising, and that it is every statement you make that might potentially be found to be misleading needs to be qualified with a forward-looking statement.
Jeremy Stock (23:29):
Where gentlemen would, someone who’s listening to this right now, who is potentially in need of services that you guys are pointing to related to having an attorney review these documents, et cetera. Who is the ideal client in this situation?
Jarvis Lagman (23:47):
Well, I mean, I think a lot of businesses who interface with the customer, everybody could use a little bit of coaching in terms of, because I think what ends up happening with, let’s say you’re an entrepreneur, you start a business, you’re very focused on your operations, you really focus on sales, but there are nuances to how you need to conduct your sales activity in a way that insulates you from some of these laws. So I think that’s maybe one of the things about securities law is that it does impact everybody. Obviously if you’re a public company, but even if you’re a private company and you take on private investment to the extent that you are either making misrepresentations to private investors, if you’re a business and you have someone, an angel investor who invests a hundred grand, and you tell them, okay, give me a hundred grand and I’m going to give you 25% of my company and we’re doing X, Y, and Z, but then you’re actually not doing X, Y, and Z.
Jarvis Lagman (24:59):
It doesn’t matter if you’re a public company, you’re in violation of securities law because you sold somebody’s securities in your company on the basis of misrepresentation. So anybody who’s running a business and they’re raising money or selling equity positions in their company, they all need to be cognizant of the securities laws and the manner in which they represent the value of the business, the structure of the business, the operations of the business, the assets of the business, everything having to do with the business that you’re representing to other people, and then they’re potentially investing some portion of their money into it regardless of whether or not you’re a public or a private company. The securities laws apply to you. And even just something even more basic. And I think a lot of times, because there are specific exemptions from certain securities laws, whenever you’re selling to people, even friends or family, if you’re selling to more than a handful of people, this could essentially constitute an offering where you need to file something known as a forum D.
Jarvis Lagman (26:08):
So if you’re offering securities to essentially more than eight people, you need to file a Form D. And there may be notice requiring if you’re selling securities in California, California securities laws require notice and a payment of a fee. In my experience, I know a lot of companies, they’ll form an L L C, they’ll sell units to different, different investors, but they’ll never actually comply with the specific requirements of California and federal securities law because they don’t think either. They don’t think about it, and a lot of times they’re not required to think about it. Because for instance, when I was doing IPOs, a lot of my job prior to doing the I P O wasn’t just negotiating the underwriting agreement and navigating the S C C approval process and interfacing with the exchanges, it was also cleaning up the company. So it’s ready for public consumption. The idea of going public is you’re taking a peek under the kimono. My job is to make sure that when you actually peek under the kimono, it looks pretty good.
Jarvis Lagman (27:22):
So in my experience, a lot of times without, and this is what’s actually good about securities law, is that because there’s a transparency, it forces everybody to adopt best practices in the way that they manage their records, the way that they do their financial reporting, the way they do their accounting. But without that pressure, people run their business very haphazardly. Maybe they’ll hire a C P A to run their books and file their taxes, but the actual record keeping, for instance, even just the idea of forming an L L C, you need to have an operating agreement. How many LLCs we’ve represented that they file the paperwork, which is like a one page paperwork, they get the l c, they get the federal tax ID number, but they haven’t built out the operating agreement. And then all of a sudden now there’s a dispute between the members and then they don’t actually, they didn’t fulfill all the requirements of what this organizational structure needs for it to operate properly. And then that’s when they bring in the litigators because now they’re suing over dispute over membership interests or profit distributions, but they didn’t actually comply with all the requirements needed to form these entities properly. So I think a lot of what securities law does is it actually does establish a baseline for this is the standard you need to uphold to be able to own and operate a business. And the absence of that, you actually find that the standards at which people operate their businesses isn’t to that standard
Jeremy Stock (28:54):
That seems to provide, like you mentioned, Jarvis a good public utility as well, kind of keeping people open and everyone being straight with one another. I’m curious if you gentlemen are able to discuss at all, obviously not particular details, but is there any case or a particular type of client that Global has represented or is representing that presents an interesting issue related to regulatory defense that you guys are able to discuss?
Jarvis Lagman (29:24):
Well, so I’m more of the transactional guy than the litigator. So I think some of that question is directed towards Bill, but I think just in terms of what global legal law firm can do in terms of securities law. So there’s obviously, you run into a problem with an administrative agency. We have more than a dozen attorneys are eager to take on your case and be a zealous advocate to protect your rights. And I think that’s, without question, that is what we do. But I think from the transactional side, what we could also do is we could provide very, very sophisticated knowledge of the payments industry, but also implement that in a way that takes advantage of the fundraising capabilities permitted under the securities law and essentially structure deals and structure a company in a way that maximizes R O I in a way that’s fully compliant.
Bill Petti (30:26):
And there’ve been instances in the pre-litigation aspect where individuals who have either, whether it be employer or their ongoing business relationships end up getting roped into an S E C investigation. You do have rights in that situation because you’re going to have dealing with an S E C subpoena, it’s not free. It costs money. There’s all types of costs involved and people have rights against whoever it may be that is actually the subject of the investigation. You have rights against whoever that is who caused you to get roped into that, and not many people know that.
Jarvis Lagman (31:19):
So for instance, if you are being called in front of the SS e C because of something that you did within the scope of your employment, are you essentially saying that you’re entitled to reimbursement for your employer because of you’re essentially acting as an agent of the employer?
Bill Petti (31:33):
Well, I first like to qualify that with a forward-looking statement.
Jarvis Lagman (31:41):
Nice best practices there. Yeah,
Bill Petti (31:42):
Right. Some practical lawyering tips. So yeah, there are in certain, it depends. There are certain indemnification statutes depending on the state, it’s usually on the state level. In some situations, there’s administrative guidance that suggests under federal law that you’re entitled to reimbursement. That remains to be seen. I haven’t seen that yet, but depending on what jurisdiction you’re in, we’re in California, we have multiple statutes that provide for indemnification rights. Typically, it needs to be in some sort of written agreement, but there’s ways around that inequity.
Jarvis Lagman (32:38):
So you were, I guess, let me think about this. If you were an employee and your employer asked you to do something that you thought that potentially could be unlawful, what should you do?
Bill Petti (32:54):
First, I would consider all the facts and circumstances. If you come to the conclusion that you believe what you’re doing is wrong, I would refrain from doing that. Definitely don’t break the law. That being said, if you do something that’s in the scope of your employment that somehow involves you getting roped into one of these investigations, I would do a little bit of research to figure out what my rights are.
Jeremy Stock (33:32):
Can I give the correct answer, gentlemen? The answer is call Global Legal Law Firm.
Bill Petti (33:37):
Jarvis Lagman (33:40):
So to what extent do any of these people have a duty to investigate? Right? So I think a lot of this is probably very say specific, but if someone tells you to do something and you’re not sure if it’s a good idea, but you don’t know, I mean, does that change your rights and obligations here at all?
Bill Petti (34:09):
It depends on the circumstance. Or for example, if for whatever reason you’re being investigated for, you are the subject of the investigation under Federal securities laws, depending on what statute, there’s usually a enta requirement. So if you had no knowledge of what really was going on, you didn’t have the intent, you might be able to potentially have a defense to the claims that the S e C is making against you. In some situations that might not be true, but yeah.
Jarvis Lagman (34:49):
So I guess the idea is it’s not just actual knowledge, but there’s a constructive knowledge component to this where they could say, maybe you didn’t know, but you should have known or with reasonable investigation, you would’ve discovered, and we’re not going to let you get away with a willful ignorance in this situation. Is that kind of the design of the signer requirement?
Bill Petti (35:12):
Yeah, absolutely. Yeah. You can’t just bury your head in the sand and just say, oh, yeah, I didn’t know. You have to actually, if you have facts that tip you off that something might be wrong, the commission or even a private party who’s suing you under a private right of action under the federal securities laws, they might be able to point to, Hey, yeah, maybe he didn’t know, but he had all this information, all these documents that showed that
Jarvis Lagman (35:50):
He could have known if he just read the documents that were in his email box. Something like that. Well, I mean, so how often do these situations arise in your experiencing? Do you see a lot of these come across your desk? Are these rarer as opposed to a typical breach of action, a breach of contract action? So how cognizant should people be of the potential for this kind of action against ’em?
Bill Petti (36:21):
Yeah, it’s relatively infrequent as compared to a run of the mill breach of contract action in the litigation context. But that being said, it can always happen, especially if you’re dealing with sophisticated business entities. And like you said, you don’t even need to be the owner of a publicly traded company to be investigated. The securities laws also apply to private LLCs, LLPs, like business entities. If you’re accepting money from someone as an investment, you’re subject to the laws. So it’s becoming more common in the payments industry, for sure.
Jarvis Lagman (37:09):
Yeah. So how does this interface with other administrative bodies? You mentioned the F T C, and I think because we do payments, there’s a lot of stuff with involving the Bank Secrecy Act. So to what extent could there potentially be enforcement by the Federal Reserve because you didn’t do a M L or you didn’t do K Y C. Are those processes different than something in a securities proceeding? How do these proceedings differ across administrative bodies?
Bill Petti (37:46):
The procedure is relatively the same across administrative bodies. The substance is different though. If you’re being investigated by the F T C, you’re not dealing with federal securities laws. You’re dealing with typically the Sherman Antitrust Act or the F T C enforcement will be investigating potential violations of anti-competition laws. So the substance will be different, but the Administrative Procedure Act still applies. So
Jarvis Lagman (38:23):
The way you would attack a regulatory proceeding is pretty uniform across all the bodies, all governed by the same procedural body of law? Is that what you’re saying? The administrative act?
Bill Petti (38:36):
Yeah. Well, all agencies have, not all, but substantially. All administrative agencies have an enabling statute, and the enabling statute gives them authority and most circumstances outlines the procedure they need to follow to issue rulemaking, engage in rulemaking, and perform informal, informal adjudications.
Jarvis Lagman (39:07):
So is attacking then enabling statute something in your toolbox actually fight one of these administrative actions?
Bill Petti (39:17):
And actually, I would say that wouldn’t, the best approach might not even be to attack. You could attack the statute on a facial constitutional challenge, but I think a better approach in most circumstances, from what I’ve seen in our industry is the best way to attack the agency decision is actually to look to that statute and formulate and articulate a reason to the judge why the decision they made is outside the scope of that regulatory authority in the enabling statute.
Jarvis Lagman (39:55):
Fantastic. So is that similar to how essentially people attack decisions on the base of unconstitutionality these things? This is a document of grant. So unless there is authority specifically granted by the language of this document or this provision, they cannot otherwise regulate it. So how do these federal administrative actions differ from something on the state level?
Bill Petti (40:27):
You mean like an administrative action from a state agency?
Jarvis Lagman (40:30):
So for instance, if it was like the California D F P I or something like that, would it be substantially different in terms of how you would contest that kind of action and the way that procedurally that gets evaluated?
Bill Petti (40:45):
Yeah, it’s a procedurally different process, but at the same time, it’s the same analytical process. There’s a state, most states have a state enacted based on the Federal Administrative Procedure Act, but that state will have their own, for example, the California Administrative Procedure Act, and you would look to that statute when challenging A D F P I decision or rulemaking.
Jarvis Lagman (41:18):
So you would say that the way you would approach a state administrative action would be similar. I mean, obviously the specifics are different, different bodies of law, but you’d still approach it the same way analytically.
Bill Petti (41:31):
Jarvis Lagman (41:35):
And I guess could you ever have a situation where you’re being brought before bodies on both the federal and state level, or is there a kind of bar on that? So for instance, insecurities, right? So could the SS e c come after you and the California Securities Commission? Can they also come after you for the same thing?
Bill Petti (41:57):
Yeah, absolutely. Under a state in California are blue sky laws. You could get investigated by the SS E C for violations of federal securities laws, and then by the state regulator for blue sky state securities law violations. Yeah, and you could even be on the federal level. They call it a parallel investigation where you’re being investigated by both the SS e C and the Department of Justice. So you could potentially have
Jarvis Lagman (42:31):
Three different agencies coming after
Bill Petti (42:33):
You. I wouldn’t want to be in that position, but it’s possible.
Jarvis Lagman (42:36):
Well, it sounds like we need you if we’re ever in that position, right, bill?
Bill Petti (42:39):
Yeah, I absolutely know how to handle a situation like that.
Jarvis Lagman (42:47):
So those specific situations, so what’s the kind of behavior that would give rise to that kind of triparty investigation
Bill Petti (43:00):
That would involve some very egregious conduct? It would be extraordinary, but we’re talking about extreme malice, just disregard and potentially criminal behavior.
Jarvis Lagman (43:18):
So would there be any kind of preemption? So if the D O J wants to do something, would that supersede anything that would be done on the state level, or are all these things kind of hammering down on you concurrently?
Bill Petti (43:31):
In many cases, it could be concurrently. It really depends on what section of each statute the agency on each level is relying on. But in a lot of cases, if you’re dealing with a state statute that is valid, facially valid, and it’s not in conflict with a federal statute, you’re getting investigated by both, and it can happen.
Jeremy Stock (44:05):
We want that case. Gentlemen, as we come to the end of this podcast, Jarvis, I’m going to give you the last word, bill, is there something you’d like to leave our audience with when it comes to regulatory defense and how you even in particular, can be of service?
Bill Petti (44:23):
Yeah, like I said before, and this goes with any body of law, any industry just across the board, it’s very important to understand your rights and obligations. You have rights. People need to understand what rights they have and be willing to potentially have those rights enforced to prevent overreach, not only by the government, but private actors
Jarvis Lagman (44:56):
And just in conjunction with what Bill’s saying. I think that because there’s so many different regulatory agencies and bodies of law that really could impact how you conduct your business and under what circumstances, you could come under fire from these different bodies of law. I truly recommend that whenever you’re making a business decision or playing a sales practice, as aggressive as you may want to be in doing that, you must always be truthful in what you do. I think at the core of all these laws is essentially a duty to be honest. So to the extent that you’re engaging in any kind of practices where there’s some kind of dishonesty or you’re pushing the line of what honesty is, I would want to take a step back from that line, 10 foot step back from that line. It’s not worth it. Excellent. Or you’re going to have to call someone like Bill
Jeremy Stock (45:58):
To bail you out. Absolutely. Listen, gentlemen, thank you very much for your time today, and thank you for listening to the end of this episode of the Payments Experts podcast. We’ve had today, senior Associate Attorney Jarvis Laman, as well as Bill Petti associate attorney at Global Legal Law Firm, give us a call. Thank you for listening.
Jarvis Lagman (46:19):
Thank you, Jeremy.
Bill Petti (46:20):
Thank you, Jeremy.
Jeremy Stock (46:22):
Thank you for listening to this episode of The Payments Experts podcast. New episodes first and third Thursdays. If you’re interested in learning more about PEP and how Global Legal Law Firm may be able to assist you, please visit us at global legal law firm.com. To schedule a free consultation, give us a call at eight eight eight four six eight nine zero one or email firstname.lastname@example.org. And once again, thank you for listening. 1, 2, 3.
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