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

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

NEP Announces Never-Before-Examined Initiative

Posted in Investment Adviser Regulation

The SEC’s Office of Compliance Inspections and Examinations (OCIE) announced this week that its National Exam Program (NEP) launched an initiative to “engage with” investment advisers that have never been examined by the SEC.  Advisers to private funds that registered after the implementation of the Dodd-Frank Act, and which are subject to the NEP’s presence… Read More

Second Circuit Maintains Expansive View of Civil Liability for Insider Trading

Posted in Enforcement, Insider Trading, SEC Enforcement

On February 18, 2014, in SEC v. Contorinis,[1] the Court of Appeals for the Second Circuit affirmed an order requiring Joseph Contorinis to personally disgorge more than $7 million in insider trading profits realized by a fund he co-managed, even though he did not personally receive those profits. In doing so, the court continued its… Read More

NFA Requests Comments on Need for CPO/CTA Capital Requirements

Posted in Fund Regulation, Investment Adviser Regulation

Should the National Futures Association (NFA) impose capital requirements on commodity pool operators (CPOs) and commodity trading advisors (CTAs)? On January 23, 2014, the NFA published a Notice to members seeking public comments on this controversial proposal. The proposal does not appear to exclude advisers of registered investment companies that are required to register as… Read More

SEC Compliance Outreach Program Reinforces Familiar Themes

Posted in Fund Regulation, Investment Adviser Regulation

Last week, key members of the SEC’s staff reinforced their expectation that CCOs and other gatekeepers should help the SEC with its core mission of protecting investors, promoting fair, orderly and efficient markets and facilitating capital formation. Based on the presentation materials from the national Compliance Outreach Program for Investment Advisers and Investment Company Senior… Read More

SEC Sanctions Adviser for Failing to Inform ERISA Clients of Improper Investment Allocation

Posted in Investment Adviser Regulation

The Securities and Exchange Commission sanctioned an investment adviser for allowing some of its ERISA plan clients to invest in private placements, even though the issuer specifically restricted investments by ERISA plans.  In a January 27, 2014 order instituting administrative and cease-and-desist proceedings, the SEC alleged that the adviser violated its error correction policies by… Read More

New FINRA Supervision Rules Impact Broker-Dealers’ Insider Trading Procedures and Supervisory Controls

Posted in Broker-Dealer Regulation, Enforcement, FINRA Enforcement, Insider Trading, SEC Enforcement

Financial Industry Regulatory Authority (FINRA) rules require member firms to establish and maintain a system of written procedures to supervise the activities of its members. On December 23, 2013, the SEC approved new FINRA rules. Among other provisions, the new rules require procedures for detecting and reporting insider trading and impose heightened standards on supervisory… Read More

SEC Staff Urges Bond Fund Advisers to Reassess Risk Management in Light of Market Volatility

Posted in Fund Independent Directors, Fund Regulation

The SEC’s Division of Investment Management recommends that fixed income fund advisers take steps to assess portfolio risk in light of “potential market volatility” and review the adequacy of related prospectus disclosures. In particular, the staff suggests that fund advisers “consider taking” the following steps: Assess and stress-test liquidity during normal and stressed environments, taking… Read More

Another Bestseller: The SEC’s Examination Priorities for 2014

Posted in Broker-Dealer Regulation, Fund Regulation, Investment Adviser Regulation

Following closely on the heels of FINRA’s publication of its examination priorities for 2014 (see our recent client alert), OCIE’s National Exam Program (NEP) released a summary of its 2014 priorities. OCIE’s priorities represent a cross-divisional effort at the SEC and reflect the staff’s assessment of information including: data from reports filed with the SEC;… Read More

SEC: Adviser Violated Advisers Act by Charging Performance Fees to Non-Qualified Clients

Posted in Investment Adviser Regulation, SEC Enforcement

A recent SEC enforcement action illustrates the challenge of complying with changing regulations, particularly for newly registered advisers. The SEC found that the adviser violated the prohibition against charging performance fees to “non-qualified” clients. Section 205(a)(1) of the Advisers Act generally prohibits registered investment advisers, and advisers required to register, from charging performance-based fees; that… Read More

SEC Intensifies Scrutiny of Fee-Based Accounts and Reverse Churning

Posted in Broker-Dealer Regulation, Enforcement, FINRA Enforcement, SEC Enforcement

The SEC is crunching a lot of data these days, and it apparently intends to use some of that data to identify “reverse churning.” Reverse churning is the practice of placing a client who trades infrequently in a fee-based, rather than a commission-based, account; Chair Mary Jo White recently identified this as a problem that… Read More

Is Exercising Employee Stock Options Illegal Insider Trading? Maybe

Posted in Broker-Dealer Regulation, Enforcement, Insider Trading, SEC Enforcement

Amidst the flurry of Securities and Exchange Commission (SEC) cases involving improper employee stock option backdating several years ago, many commentators opined on the potential insider trading implications of companies’ issuance of stock options to officers and directors. Yet the literature is surprisingly scant concerning the potential insider trading implications of an insider exercising her… Read More

House Passes Bill to Restore Registration Exemption for Private Equity Fund Advisers

Posted in Investment Adviser Regulation

The United States House of Representatives passed a bill on December 4, 2013, that would restore an exemption from registration to advisers of certain private equity funds that limit leverage, an attempt to undo another Dodd-Frank Act provision that some claim hurts the economy. H.R. 1105, the Small Business Capital Access and Job Preservation Act,… Read More

A View of EB-5 Program Issues from a Top SEC Enforcement Official

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

As participation in the U.S. Citizen and Immigration Services (USCIS) Immigrant Investor Program or “EB-5 program” grows, regulatory interest is showing a commensurate uptick.  On November 20, 2013, Associate Director Stephen Cohen of the SEC’s Division of Enforcement spoke to a meeting sponsored by the Federal Bar Association about the securities law issues implicated by… Read More

SEC’s Recent Actions Against Two Investment Advisers Raise Important Lessons for All Investment Advisers

Posted in Investment Adviser Regulation, SEC Enforcement

Recently announced cases against two registered investment advisers and certain of their executives serve as timely reminders of where the SEC is focusing its attention. Although the SEC’s actions are based on alleged intentional violations or disregard of certain regulations, they impart important lessons for law-abiding registered investment advisers. Advisers should be aware of the… Read More

Investment Advisory Committee Recommends Rulemaking on Uniform Fiduciary Standard

Posted in Broker-Dealer Regulation, Investment Adviser Regulation

This is an update to our November 15 post, Uniform Fiduciary Standard Still a Priority, But No Timeline Yet. Last week, the SEC’s Investment Advisory Committee recommended that the SEC enact rules to impose a fiduciary duty on broker-dealers when they provide personalized investment advice to retail investors.  The Committee’s draft recommendations make clear, however,… Read More

SEC Grants Rare Exemptive Relief from Pay-to-Play “Time-Out” Provision

Posted in Investment Adviser Regulation

In what appears to be a case of first impression, the SEC recently granted exemptive relief from the “time-out” provision of the pay-to-play rule, which prohibits a registered investment adviser from providing investment advisory services for compensation to a government entity within two years after an adviser or any of its covered associates contributes money… Read More

“Guaranteed!” “Protected!” Blog Entry on Fund Names

Posted in Fund Regulation, SEC Enforcement

The SEC’s Division of Investment Management is cracking down on funds that use names that suggest safety or protection from loss. In Guidance Update No. 2013-12, the staff stated that fund names suggesting safety or protection from loss may contribute to investor misunderstanding of investment risks.  The staff said that it recently requested that some… Read More