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Tag Archives: SEC

SEC Proposes to Update Longstanding Investment Adviser Advertising and Solicitation Rules

Posted in Investment Adviser Regulation

The Securities and Exchange Commission (SEC) proposed amendments to both the advertising rule and the cash solicitation rule under the Investment Advisers Act of 1940 (the “Advisers Act”) on November 4, 2019. Neither rule — adopted in 1961 and 1979, respectively — has been amended significantly since it was adopted, although the SEC and its… Read More

SEC Clarifies Investment Adviser Standard of Conduct

Posted in Investment Adviser Regulation

On June 5, 2019, the SEC issued an Interpretive Release designed to “reaffirm, and in some cases clarify, the standard of conduct that investment advisers owe to their clients.” The Interpretive Release highlights existing principles relevant to an adviser’s fiduciary duty; it does not create any new regulation. The Interpretive Release sets forth the SEC’s views… Read More

New SEC Privacy and Cybersecurity Risk Alert Tells Broker Dealers and Investment Advisers Common Deficiencies to Avoid

Posted in Broker-Dealer Regulation, Cybersecurity/Privacy

The SEC’s new Risk Alert provides valuable insight as to what the OCIE wants to see broker dealers and investment advisers accomplish with their privacy notices and their cybersecurity policies and procedures. The SEC wants this written documentation to be comprehensive, to accurately reflect the registrant’s practices, and to be implemented effectively throughout their business…. Read More

SEC Announces Settlements Resulting from the Share Class Selection Initiative

Posted in Investment Adviser Regulation, SEC Enforcement

On March 11, 2019, the SEC announced settlements with 79 investment advisers who self-reported violations of the Investment Advisers Act of 1940 (the “Advisers Act”) in connection with the Division of Enforcement’s Share Class Selection Disclosure Initiative (the “Share Class Initiative”). The advisers, collectively, agreed to return more than $125 million in fees and prejudgment interest… Read More

The SEC Continues to Spread Sunshine on Private Equity: Reflections on Two Recent Enforcement Actions

Posted in Fund Regulation, SEC Enforcement

The end of 2018 was notable for two SEC enforcement actions against private equity fund managers for violations of the Investment Advisers Act of 1940 arising from improper allocations of expenses, undisclosed conflicts of interest, and insufficient compliance policies and procedures.  The two actions demonstrate the SEC’s continued focus on private equity fund managers’ use… Read More

Beware of Texting While Advising: OCIE Issues an Electronic Messaging Risk Alert

Posted in Investment Adviser Regulation

In December 2018, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) published its fifth and last risk alert of 2018 on the topic of electronic messaging by personnel of registered investment advisers. In the alert, OCIE focuses its attention on the growing use by advisory personnel of various types of electronic… Read More

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