Header graphic for print
The BD/IA Regulator Providing securities regulatory, enforcement and litigation trends for broker-dealers, investment advisers and investment funds

Tag Archives: SEC

SEC Charges Alt Fund Adviser with Custody Violations

Posted in Investment Adviser Regulation, SEC Enforcement

The Securities and Exchange Commission on February 12, 2015, entered findings against an investment adviser to several alternative mutual funds for maintaining $247 million in cash collateral at broker-dealer counterparties instead of the fund’s custodial bank.  The SEC staff discovered the alleged violations during a routine examination.  Without agreeing with or denying the charges, the… Read More

SEC: Non-Transparent ETFs Not Ready for Prime Time

Posted in Fund Regulation

The SEC has given a preliminary thumbs-down to non-transparent exchange traded funds (ETFs).  In two separate notices issued on October 21, 2014, (found here and here), the Commission stated that applications to allow actively managed ETFs to withhold daily disclosure of portfolio holdings did not “meet the standard for exemptive relief” under Section 6(c) of… Read More

SEC Staff Finds that Broker-Dealers Still Are Not Conducting Adequate Section 5 Reviews

Posted in Broker-Dealer Regulation

The staff of the SEC recently addressed broker-dealers’ obligations when engaging in transactions in unregistered securities by issuing FAQs and a Risk Alert that reported the results of examinations of a number of broker-dealers’ practices in handling unregistered securities.  The SEC’s core focus in these areas is curbing and preventing activities that undermine, or threaten… Read More

Updated JOBS Act Book

Posted in Uncategorized

Download a free copy of our recently updated JOBS Act book. The updated book discusses emerging practices in IPOs by emerging growth companies, the SEC’s final Rule 506 rules and investor verification and other developments. You also may email us to obtain hard copies.  Send an email to Harrison Lawrence at hlawrence@mofo.com.

SEC Staff Closes Loophole on BDC Asset Coverage Requirements

Posted in SEC Enforcement

In a Guidance Update published on June 30, 2014 by the SEC’s Division of Investment Management, the staff closed a loophole that allowed business development companies (BDCs) with wholly owned Small Business Investment Company (SBIC) subsidiaries to avoid meeting asset coverage requirements when the SBIC subsidiaries issue debt that is not guaranteed by the Small… Read More

Paying for Playing: SEC Brings First Pay-to-Play Action against an Investment Adviser

Posted in Enforcement, Investment Adviser Regulation, SEC Enforcement

The SEC has brought the first action under the “pay-to-play” rule adopted under the Investment Advisers Act.  The SEC also found that two affiliated exempt reporting advisers were operationally integrated and as such should have registered as an investment adviser. Pay-to-Play Violation.  Rule 206(4)-5 under the Investment Advisers Act provides that investment advisers (whether registered… Read More

SEC Staff Warns Against “Disclosure Creep”

Posted in Investment Adviser Regulation

The staff of the SEC’s Division of Investment Management warned against “disclosure creep” invading fund prospectuses in regulatory guidance posted in June 2014. In reviewing registrant filings, the staff cited a “significant number of prospectuses,” which contained disclosure that is “complex, technical and duplicative.”  Moreover, it found many Summary Sections to be “unnecessarily long.” The… Read More

Stay on Municipal Advisor Rules Expires July 1, 2014

Posted in Broker-Dealer Regulation, Investment Adviser Regulation

The temporary stay previously imposed on the SEC’s final municipal advisor rules expires July 1, 2014.  Accordingly, municipal advisors will be required to register with the SEC on Form MA on a phased-in schedule beginning July 1, 2014, and ending October 31, 2014. Registration of “municipal advisors” under Section 15B of the Exchange Act was… Read More

SEC Staff: Measure Percentage Ownership by Fund, not by Complex

Posted in Fund Regulation, Investment Adviser Regulation

In its June 2014 Guidance Update, the SEC’s Division of Investment Management said that series funds are individual investment companies for purposes of compliance with certain investor protections, including the 1940 Act’s restrictions on principal transactions. Section 17(a) of the 1940 Act generally prohibits an “affiliated person” of a mutual fund, or an affiliated person… Read More

Something Old, Something New: SEC Brings Action for Prohibited Principal Transactions and Retaliation Against Whistleblower

Posted in Broker-Dealer Regulation, Investment Adviser Regulation, SEC Enforcement

Clearly signaling its intention to support whistleblowers who provide actionable evidence of wrong-doing, the SEC this week settled the first case brought under the authority granted by the Dodd-Frank Act enabling anti-retaliation enforcement actions.  The case arose after an employee of a hedge fund advisory firm reported potentially illegal activity related to improper principal transactions…. Read More

SEC Decision Regarding TIC Advertisements Offers Broader Lessons About Providing Fair and Balanced Disclosures

Posted in Broker-Dealer Regulation, FINRA Enforcement

Earlier this year, the SEC found that CapWest Securities, Inc., a defunct broker-dealer, had failed to comply with advertising rules in promoting investments that use Section 1031 of the Internal Revenue Code (“1031 Exchanges”) or tenant-in-common investments (TICs).  The SEC’s decision, recently reported by FINRA, upheld FINRA’s decision and sustained the sanctions of a censure… Read More

Spreading Sunshine or Shining a Spotlight?

Posted in SEC Enforcement

Andrew Bowden, Director of the SEC’s Office of Compliance Inspections and Examinations (OCIE), recently “spread sunshine” on private equity industry practices gathered through so-called “presence exams” of newly registered private fund advisers. The goal, he said, is to help these advisers spot potential issues before they find themselves in regulatory hot water.  But the “sunshine”… Read More

Securities Regulators Are Inspired by an Academic Article to Seek Information Regarding Order Routing

Posted in Broker-Dealer Regulation, Enforcement, Fund Regulation

Apparently attempting to understand how broker-dealers provide best execution in the face of incentives to trade at certain exchanges, the SEC and FINRA are asking broker-dealers for extensive transaction information regarding how they route trades to exchanges.  By collecting this data, the regulators can monitor how firms, that have an incentive to trade with the… Read More

Cybersecurity: SEC Is Starting to Scrutinize Registrants’ Practices

Posted in Broker-Dealer Regulation, Cybersecurity/Privacy, Enforcement, FINRA Enforcement, Investment Adviser Regulation, SEC Enforcement

The SEC plans to examine the cybersecurity practices of over 50 registered broker-dealers and investment advisers. The SEC announced its plan in an April 15, 2014 Risk Alert, which closely follows the March 26 Cybersecurity Roundtable at which Chair Mary Jo White underscored the importance of cybersecurity to market security and customer data protection. At… Read More

New Regulatory Guidance on Use of Social Media by Investment Advisers

Posted in SEC Enforcement

Acknowledging the growing demand by consumers for information through social media, the Division of Investment Management set some ground rules on how investment advisers can use social media and publish advertisements featuring public commentary about them from social media sites. Click here to read Morrison & Foerster’s summary on the Socially Aware blog. 

A Blast from the Past: The SEC Fines Investment Adviser/Broker-Dealer for Breakpoint Violations

Posted in Broker-Dealer Regulation, Enforcement, Investment Adviser Regulation, SEC Enforcement

In a case reminiscent of the “breakpoint” enforcement actions brought 10 years ago by securities regulators, the SEC recently found that a registered investment adviser and broker-dealer overcharged clients because it improperly calculated advisory fees. According to the SEC’s settlement order, the firm offered breakpoint discounts designed to reduce advisory fees payable by clients who… Read More

Yelp for Advisers—SEC Determines That Some Online Client Reviews Are Not Prohibited Client Testimonials

Posted in SEC Enforcement

The SEC’s Division of Investment Management recently released a guidance update on the “testimonial rule” and the use of social media by investment advisers. Found in rule 206(4)-1(a)(1) under the Advisers Act, the testimonial rule prohibits investment advisers that are registered or required to be registered with the SEC from publishing any advertisement that refers… Read More

SEC Sanctions Non-U.S. Firm for Failing to Register as Broker-Dealer/Adviser

Posted in SEC Enforcement

The SEC charged a non-U.S. multi-national financial institution with a large U.S. presence with violating federal securities laws by providing brokerage and investment advisory services to U.S. clients without registering with the SEC. The company agreed to pay $196 million to settle charges that it established as many as 8,500 accounts containing an average of… Read More

Division of Investment Management Lists 2013 Accomplishments; Sets 2014 Agenda

Posted in Fund Regulation

The SEC’s Division of Investment Management summarized its activities in 2013, highlighting its intensified rulemaking program, efforts to identify new and emerging risks and its disclosure initiatives. The Division also took the opportunity to discuss its agenda for 2014. In the March 2014 edition of its Information Update, the Division describes its rulemaking accomplishments in… Read More

Money Market Reform Inches Forward

Posted in Fund Regulation

The staff of the SEC’s Division of Economic and Risk Analysis (DERA) made available its analyses of data and academic literature relevant to pending money market fund reform. DERA said that the analyses could assist the public in “evaluating final rule amendments for the regulation of money market funds” and DERA encouraged comment on the… Read More