Recent SEC enforcement actions put spotlight on prohibited short selling

2014 ◽  
Vol 15 (1) ◽  
pp. 41-44
Author(s):  
Stephen Wink ◽  
Christopher Clark ◽  
Stefan Paulovic ◽  
Kathleen Whipple
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Zero Tolerance ◽  
Short Selling ◽  
Content Type ◽  
Enforcement Action ◽  
Zero Tolerance Policy ◽  
Policies And Procedures

Purpose – To highlight recent enforcement actions by the SEC demonstrating the agency's increased focus on violations of Rule 105 of Regulation M and to provide guidance on how to avoid becoming the target of such an SEC action. Design/methodology/approach – Describes the SEC's 23 recent enforcement actions against firms for violations of Rule 105, explains the conduct prohibited by Rule 105 as well as the exceptions to the Rule, and provides advice on how firms can avoid a Rule 105 related SEC enforcement action. Findings – In light of the SEC's recently announced zero-tolerance policy and the fact that Rule 105 does not require intent on the part of the short seller to engage in a prohibited transaction, firms should provide training to their employees regarding Rule 105, develop and implement policies and procedures to ensure compliance with Rule 105, and enforce those policies and procedures. Originality/value – Practical explanation and guidance by experienced financial services lawyers.

SEC publishes guidance on mutual fund distribution and sub-accounting fees

2016 ◽  
Vol 17 (2) ◽  
pp. 39-42 ◽  
Author(s):  
Marco Adelfio ◽  
Paul J. Delligatti ◽  
Jason F. Monfort
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Financial Services ◽  
Design Methodology ◽  
Investment Management ◽  
Content Type ◽  
Enforcement Action ◽  
Policies And Procedures ◽  
Practical Guidance ◽  
Investment Advisers

Purpose To explain the guidance published on January 6, 2016 by the SEC’s Division of Investment Management containing its views and recommendations relating to mutual fund distribution and sub-accounting fees. Design/methodology/approach Explains the SEC’s Office of Compliance Inspections and Examinations focus on “distribution in guise” payments, its 2013 “sweep exam,” an enforcement action against a fund’s adviser and affiliated distributor related to payments for distribution-related activities outside of a 12b-1 plan, lists SEC staff recommendations with respect to mutual fund distribution and sub-accounting fees, summarizes the SEC’s guidance on board oversight of sub-accounting fees, provides indicia that a payment may be for distribution-related activities, and points to the need for mutual funds to have policies and procedures designed to prevent violations of Section 12(b) and Rule 12b-1. Findings The guidance is an outgrowth of the staff’s observations from a three-year “distribution in guise” sweep exam of mutual fund complexes, investment advisers, broker-dealers and transfer agents conducted by the SEC’s Office of Compliance Inspections and Examinations and other offices and divisions of the SEC to identify whether firms were using fund assets to directly or indirectly finance any activities primarily intended to result in the sale of fund shares outside of an approved Rule 12b-1 distribution plan. Originality/value Practical guidance from experienced financial services lawyers.

MSRB publishes its first compliance advisory for broker-dealers

2016 ◽  
Vol 17 (3) ◽  
pp. 49-51
Author(s):  
Scott R. Anderson ◽  
Kate S. Poorbaugh
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Content Type ◽  
Compliance Programs ◽  
Policies And Procedures ◽  
Practical Guidance ◽  
Effective Compliance ◽  
Practical Implications

Purpose To summarize the Municipal Securities Rulemaking Board’s 2016 Compliance Advisory for brokers, dealers and municipal securities dealers. Design/methodology/approach Summarizes several Municipal Securities Rulemaking Board (MSRB) rules that the Compliance Advisory highlights as presenting key compliance risks for brokers, dealers and municipal securities dealers. Discusses the factors included in the Compliance Advisory that dealers should consider when evaluating compliance procedures and controls. Findings By highlighting some key compliance risks and providing considerations tailored to those risks, the Compliance Advisory can be used as a tool to aid dealers in developing and assessing effective compliance programs. Practical implications Dealers should consider reviewing their firms’ existing compliance policies and procedures in light of the considerations discussed in the Compliance Advisory. Originality/value Practical guidance from experienced securities and financial services regulatory lawyers.

SEC administrative law judge bars investment manager for misrepresenting GIPS compliance

2014 ◽  
Vol 15 (3) ◽  
pp. 38-40
Author(s):  
Michael S. Caccese ◽  
Douglas Y. Charton ◽  
Pamela A. Grossetti
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Performance Standards ◽  
Administrative Law ◽  
Investment Performance ◽  
Content Type ◽  
Policies And Procedures ◽  
Investment Manager ◽  
Practical Guidance ◽  
Practical Implications

Purpose – To explain an administrative law judge (ALJ) decision, along with a censure, fine, and industry disbarment, against an investment adviser for misleading advertising and false claims of compliance with Global Investment Performance Standards (GIPS). Design/methodology/approach – Explains the background to GIPS, the investment adviser’s GIPS violations, the significance of the case, and lessons to be learned by investment advisors on compliance with GIPS standards. Findings – The decision is particularly significant because the ALJ issued such severe sanctions based solely on false claims of GIPS compliance notwithstanding the fact that all reported performance returns were accurate and no investors relied on or were harmed by the false claims of compliance. Practical implications – The Zavanelli case should serve to put firms on notice that persistent noncompliance with the GIPS standards can have serious consequences and that all marketing materials should be subject to effective review and approval policies and procedures prior to distribution or publication to ensure compliance with the GIPS standards. Originality/value – Practical guidance from experienced financial services lawyers.

Step-by-step to stopping the cyber-bully

2015 ◽  
Vol 23 (7) ◽  
pp. 31-33 ◽  
Author(s):  
Anita Sarkar
Keyword(s):  
Design Methodology ◽  
Zero Tolerance ◽  
Job Design ◽  
Cyber Bullying ◽  
Traditional Bullying ◽  
Structured Interviews ◽  
Content Type ◽  
Zero Tolerance Policy ◽  
Practical Implications

Purpose – Describes the role of HR in addressing traditional bullying and cyber-bullying at the workplace. Design/methodology/approach – Explains how organizations can design policy guidelines to tackle the issue of bullying and, thereby, help every employee to contribute to his or her best ability. Findings – Argues that the proliferation of electronic communication has made cyber-bullying rampant in workplaces and has devastating effects on some employees. Practical implications – Advances the view that creating a zero-tolerance policy against bullying, using technological help, conducting structured interviews, providing an employee-sensitization program, crafting effective job design and, from time to time, taking employees’ opinion can go a long way in ensuring a safe workplace for all. Social implications – Shows that bullying in any form is a social menace both for employees and the organization, and it needs to be nipped in the bud. Originality/value – Provides insights into how organizations can effectively address the issue of bullying at the workplace.

FINRA report on broker-dealer management of conflicts of interest

2014 ◽  
Vol 15 (1) ◽  
pp. 62-64
Author(s):  
Scott Anderson
Keyword(s):  
Conflict Management ◽  
Financial Services ◽  
Design Methodology ◽  
Conflicts Of Interest ◽  
Management Systems ◽  
Information Collection ◽  
Focus Attention ◽  
Financial Industry ◽  
Content Type ◽  
Policies And Procedures

Purpose – To summarize the Financial Industry Regulatory Authority report on broker-dealer conflicts of interest. Design/methodology/approach – Discusses background of recent FINRA information collection effort on conflicts of interest upon which FINRA based the report. Outlines FINRA objectives for firms to review their current conflicts management systems. Discusses three key areas where firms should focus attention, including examples of possible practices firms can undertake: a firm's general conflicts of interest framework across all business lines; new products creation and distribution; and compensation practices. Findings – The report highlights areas that FINRA expects broker-dealers to consider in reviewing their compliance policies and procedures to assess whether firms should implement changes to their own conflict management frameworks. FINRA will evaluate whether to pursue future conflicts management rulemaking if broker-dealer firms do not make adequate progress on conflicts management. Originality/value – Practical explanation by experienced financial services lawyer.

MSRB publishes 2017 compliance advisory for broker-dealers

2018 ◽  
Vol 19 (1) ◽  
pp. 50-52
Author(s):  
Scott R. Anderson ◽  
James Audette ◽  
Kate S. Poorbaugh
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Content Type ◽  
Compliance Programs ◽  
Policies And Procedures ◽  
Practical Guidance ◽  
Effective Compliance ◽  
Practical Implications

Purpose To summarize the Municipal Securities Rulemaking Board’s 2017 Compliance Advisory for brokers, dealers and municipal securities dealers. Design/methodology/approach Summarizes several Municipal Securities Rulemaking Board (MSRB) rules that the Compliance Advisory highlights as presenting key compliance risks for brokers, dealers and municipal securities dealers. Discusses the factors included in the Compliance Advisory that dealers should consider when evaluating compliance procedures and controls. Findings By highlighting some key compliance risks and providing considerations tailored to those risks, the Compliance Advisory can be used as a tool to aid dealers in developing and assessing effective compliance programs. Practical implications Dealers should consider reviewing their firm’s existing compliance policies and procedures in light of the considerations discussed in the Compliance Advisory. Originality/value Practical guidance from experienced securities and financial services regulatory lawyers.

The SEC’s Evolving Scrutiny of Private Equity Firms: KKR Hit with an Unprecedented Enforcement Action for Broken Deal Expense Misallocation

2015 ◽  
Vol 16 (4) ◽  
pp. 39-42
Author(s):  
Veronica Rendon Callahan ◽  
Ellen Kaye Fleishhacker ◽  
Robert Holton ◽  
Steven A. Kaplan ◽  
Kevin Lavin ◽  
...  
Keyword(s):  
Hedge Funds ◽  
Design Methodology ◽  
Private Equity ◽  
Hedge Fund ◽  
Private Investment ◽  
Investment Funds ◽  
Content Type ◽  
Enforcement Action ◽  
Policies And Procedures ◽  
Practical Implications

Purpose – To explain and analyze SEC charges and settlement with Kohlberg Kravis Roberts & Co. (“KKR”) related to misallocation of broken deal expenses. Design/methodology/approach – Provides background, including other similar SEC enforcement actions in relation to private equity and hedge funds; explains the regulatory violations in KKR’s broken deal allocation methodology and related disclosure; draws lessons and makes recommendations for private equity firms concerning the need for compliance and disclosure reviews and the benefits of remediation and cooperation. Findings – This enforcement action and other similar ones represents a continuing SEC focus on fee and expense misallocation. It is also relevant to advisers to real estate and hedge fund complexes that face similar allocation issues. Practical implications – Private equity firms and other advisers to private investment funds should re-evaluate their fee and expense allocation policies and procedures to be sure that they adhere to current regulatory and investor expectations. Originality/value – Practical guidance from experienced securities enforcement and litigation and investment management lawyers.

2018 SEC enforcement actions reinforce the importance of effective supervision, policies, and procedures for broker-dealers and investment advisers

2019 ◽  
Vol 20 (2) ◽  
pp. 20-23
Author(s):  
Alec Koch ◽  
Russell G. Ryan ◽  
Laura K. Bennett
Keyword(s):  
Design Methodology ◽  
Content Type ◽  
Enforcement Action ◽  
Policies And Procedures ◽  
Practical Guidance ◽  
Investment Advisers ◽  
Securities Laws ◽  
Effective Supervision

Purpose To provide analysis on several SEC enforcement actions of interest to broker-dealers and investment advisers. Design/methodology/approach The article is organized chronologically based on the dates of the SEC enforcement actions discussed. Findings The SEC enforcement actions discussed in the article demonstrate that broker-dealers and investment advisers must maintain and enforce compliance and supervision policies and procedures reasonably designed to detect and prevent violations of the securities laws. When firm personnel commit violations (either intentionally or inadvertently), the SEC will evaluate whether firms could have been more effective in detecting and preventing those violations.Some of these cases also serve to remind firms that the SEC will often take enforcement action even when there is no evidence of customer harm. Originality/value Practical guidance from experienced securities lawyers that consolidates and analyzes several recent SEC enforcement actions.

SEC guidance on broker-dealer custody of digital asset securities

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Holly Smith
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Position Statement ◽  
Securities And Exchange Commission ◽  
Content Type ◽  
Enforcement Action ◽  
Regulatory Uncertainty ◽  
Digital Asset ◽  
Practical Guidance ◽  
The U.S

Purpose To explain how the U.S. Securities and Exchange Commission (SEC), in its Digital Asset Securities Release, issued on December 23, 2020, laid out its vision for how broker-dealers can comply with the custody requirements of Rule 15c3-3 under the Exchange Act (the Customer Protection Rule) for investments in digital asset securities. Design/Methodology/Approach Explains the current regulatory uncertainty for broker-dealers doing a business in digital asset securities and developing systems and procedures that result in compliance with the custody requirements of the Customer Protection Rule; seven minimum steps that broker-dealers can take and nine terms and conditions with which they can comply to protect against SEC enforcement action; and the SEC’s request for comment in response to its position statement. Findings A broker-dealer operating pursuant to the terms and conditions of the position statement articulated in the Release will not be subject to SEC enforcement action on the basis that the broker-dealer deems itself to have obtained and maintained physical possession or control of customer fully paid and excess margin digital asset securities for the purposes of paragraph (b)(1) of the Customer Protection Rule. Originality/Value Practical guidance from experienced financial services, broker-dealer and securities lawyer.

The SEC brings its first enforcement action under the identity theft red flags rule

2019 ◽  
Vol 20 (1) ◽  
pp. 31-35
Author(s):  
Vincente L. Martinez ◽  
Julia B. Jacobson ◽  
Nancy C. Iheanacho
Keyword(s):  
Design Methodology ◽  
Identity Theft ◽  
Securities And Exchange Commission ◽  
Red Flags ◽  
Content Type ◽  
Enforcement Action ◽  
Policies And Procedures ◽  
The Us ◽  
Practical Guidance ◽  
Investment Advisers

Purpose To explain the significance of the first enforcement action under the Identity Theft Red Flags Rule by the US Securities and Exchange Commission (SEC), which was announced on September 26, 2018. Design/methodology/approach Explains how the SEC’s order not only cites violations of the Safeguards Rule under Regulation S-P (a staple of SEC cybersecurity enforcement actions against broker-dealers and investment advisers) but also is the SEC’s first enforcement action for a violation of the Identity Theft Red Flags Rule under Regulation S-ID, which requires certain SEC registrants to create and implement policies to detect, prevent and mitigate identity theft. Findings Cybersecurity policies and procedures must match business risks and change as business risks change. Originality/value Practical guidance from experienced cybersecurity and privacy lawyers.

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