What does it take to make the SEC happy? SEC criticism of broker-dealers’ due diligence for sales of unregistered securities leaves more questions than answers

2015 ◽  
Vol 16 (1) ◽  
pp. 52-58
Author(s):  
Bruce Bettigole ◽  
Charlie Kruly
Keyword(s):  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Due Diligence ◽  
Content Type ◽  
Enforcement Action

Purpose – To highlight the insufficient guidance offered by a recent Securities and Exchange Commission settlement regarding a broker-dealer’s obligation to inquire into its customers’ sales of unregistered securities. Design/methodology/approach – Discusses the traditional interpretation of Section 4(a)(4) of the Securities Act of 1933, which requires broker-dealers to conduct a reasonable inquiry into the basis for their customers’ proposed sales of unregistered securities. Then reviews a recent SEC settlement that appears to suggest the SEC believes there is a more stringent obligation on broker-dealers to inquire into their customers’ proposed sales of unregistered securities. Findings – The SEC’s recent settlement states that various inquiries conducted by a broker-dealer into its customers’ claimed registration exemptions were insufficient to satisfy the broker-dealer’s obligation under Section 4(a)(4). However, the settlement does not address why these inquiries were insufficient or what inquiries, if any, would have satisfied the broker-dealer’s obligations under Section 4(a)(4). Originality/value – This article analyses an SEC settlement that may, either intentionally or inadvertently, have used an enforcement action to attempt to heighten broker-dealers’ obligations under Section 4(a)(4).

SEC credits self-reporting and cooperation in not imposing penalty on ICO sponsor

2019 ◽  
Vol 20 (2) ◽  
pp. 13-15
Author(s):  
Daniel Hawke
Keyword(s):  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Self Report ◽  
Content Type ◽  
Enforcement Action ◽  
Expert Analysis ◽  
Securities Laws ◽  
Insight Into ◽  
Civil Penalty ◽  
Do So

Purpose To explain a February 20, 2019 US Securities and Exchange Commission (SEC) settled enforcement action against Gladius Network LLC for failing to register an initial coin offering (ICO) under the federal securities laws, in which Gladius was able to avoid a civil penalty by self-reporting the violation and cooperating with the SEC enforcement staff. Design/methodology/approach Explains Gladius’ self-reporting, cooperation and remedial steps; why the SEC imposed no civil penalty on Gladius; and two similar cases the SEC instituted in July 2018 against companies that conducted unregistered ICOs, did not self-report, and were penalized. Provides analysis and conclusions. Findings The Gladius case offers important insight into how the SEC and its staff think about cooperation credit in resolving SEC enforcement actions and sends a clear message that self-reporting to the SEC can result in meaningful cooperation credit. In three recent cases, the Commission has made clear that once it put the industry on notice that ICOs could be securities that must be registered under the federal securities laws, a party risks enforcement action by failing to do so. Originality/value Expert analysis and guidance from an experienced securities lawyer who counsels clients on all manner of SEC enforcement, examination and regulatory policy matters.

Bringing order to non-GAAP financial measures: SEC sues to enforce “equal-or-greater-prominence” requirement

2019 ◽  
Vol 20 (4) ◽  
pp. 51-57
Author(s):  
Richard J. Parrino
Keyword(s):  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Content Type ◽  
Financial Measures ◽  
Generally Accepted Accounting Principles ◽  
Enforcement Action ◽  
Accounting Principles ◽  
Depth Analysis ◽  
The Us ◽  
Earnings Releases

Purpose This article examines the first action by the US Securities and Exchange Commission to enforce the “equal-or-greater-prominence” requirement of its rules governing the presentation by SEC-reporting companies, in their SEC filings and earnings releases, of financial measures not prepared in accordance with generally accepted accounting principles (GAAP). Design/methodology/approach This article provides an in-depth analysis of the equal-or-greater-prominence rule and the SEC’s enforcement posture in the context of the SEC’s concern that some companies present non-GAAP financial measures in a manner that inappropriately gives the non-GAAP measures greater authority than the comparable GAAP financial measures. Findings Although the appropriate use of non-GAAP financial measures can enhance investor understanding of a company’s business and operating results, investors could be misled about the company’s GAAP results by disclosures that unduly highlight non-GAAP measures. The SEC’s enforcement action signals a focus on the manner in which companies present non-GAAP financial measures as well as on how they calculate the measures. Originality/value This article provides expert guidance on a major SEC disclosure requirement from an experienced securities lawyer.

Sanofi settles FCPA charges with SEC for $25.2 million

2019 ◽  
Vol 20 (1) ◽  
pp. 27-30
Author(s):  
Jennifer Kennedy Park ◽  
Abena Mainoo
Keyword(s):  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Internal Controls ◽  
Healthcare Industry ◽  
Foreign Corrupt Practices Act ◽  
Content Type ◽  
Enforcement Action ◽  
Compliance Programs ◽  
The Us ◽  
Practical Implications

Purpose To explain a recent enforcement action by the US Securities and Exchange Commission (SEC) highlighting risk factors for Foreign Corrupt Practices Act (FCPA) violations. Design/methodology/approach Summarizes the basis of the SEC’s enforcement action against Sanofi for violating the FCPA’s books and records and internal controls provisions, reviews the terms of the SEC’s resolution with Sanofi, explains Sanofi’s remedial efforts and cooperation with the SEC’s investigation, and discusses factors contributing to corruption risks in the healthcare industry. Findings The SEC’s enforcement action against Sanofi, and other recent enforcement actions, underscore the importance of comprehensive anti-corruption compliance programs and strong internal controls across large multinationals and their subsidiaries. Practical implications Companies operating in high-risk industries and markets should regularly assess and address corruption risks. Originality/value Practical guidance from experienced enforcement lawyers.

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.

SEC’s examination program issues a risk alert on investment adviser due diligence processes

2014 ◽  
Vol 15 (2) ◽  
pp. 26-28
Author(s):  
John H. Walsh
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Third Party ◽  
Risk Indicators ◽  
Due Diligence ◽  
Content Type ◽  
The Usa ◽  
Investment Advisers ◽  
Warning Indicators

Purpose – To summarize and interpret a Risk Alert titled “Investment Adviser Due Diligence Processes for Selecting Alternative Investments and their Respective Managers,” issued by the USA Securities and Exchange Commission Office of Compliance Inspections and Examinations on January 28, 2014. Design/methodology/approach – Focuses on investment advisers selecting underlying alternative investment managers. Discusses the scope of the Staff’s observations. Describes several due diligence practices observed by the staff, including seeking greater transparency; utilizing third-party information aggregators, administrators, custodians, and auditors; using more quantitative analysis; and extending due diligence process to include operational and liquidity reviews. Lists several observed warning indicators that could lead an advisor to conduct additional due diligence, request the underlying manager to make appropriate changes, or reject or veto an investment. Identifies both positive and negative compliance practices. Findings – The Risk Alert noted several observed risk indicators that could lead an adviser to conduct additional due diligence, request the underlying manager to make appropriate changes, or reject or veto the investment. Advisers can assume that SEC Staff will ask about these risks in future adviser examinations. Originality/value – Practical guidance from an experienced financial services and securities lawyer.

Expense allocation: the SEC brings down the hammer

2015 ◽  
Vol 16 (1) ◽  
pp. 66-68
Author(s):  
Kenneth Berman ◽  
Gregory Larkin ◽  
Phil V. Giglio ◽  
Erica Berthou ◽  
Michael P. Harrell ◽  
...  
Keyword(s):  
Design Methodology ◽  
Private Equity ◽  
Securities And Exchange Commission ◽  
Content Type ◽  
Enforcement Action ◽  
Equity Funds ◽  
Private Equity Funds ◽  
Investment Advisers ◽  
Private Equity Sponsors ◽  
Practical Implications

Purpose – Describe an important recent enforcement action by the Securities and Exchange Commission (SEC) regarding expense allocations by private equity funds. Design/methodology/approach – Discusses a recent enforcement action by the SEC regarding a registered investment adviser’s handling of expense allocation with respect to two private fund clients and certain of their underlying portfolio companies. Findings – The settlement and sanctions are noteworthy because: (i) there was no suggestion that the misallocations of expenses were designed to systematically favor one private fund client over the other, that the manager benefited from such misallocations, or that the failure to allocate expenses in accordance with the policy had been deliberate and (ii) while not stated explicitly, it appears likely that a significant portion of the disgorgement related to misallocations that occurred before the manager was a registered investment adviser. Practical implications – Registered investment advisers should ensure that they and their portfolio companies have written policies in place designed to fairly allocate all expenses among all entities that benefit from the activities driving such expenses and that none of the sponsor’s clients are directly or indirectly benefited or harmed from allocation policies at the portfolio company level. Originality/value – Description of a noteworthy SEC enforcement action regarding expense allocation and practical guidance from investment management lawyers to remind private equity sponsors to ensure that they have adopted and implemented expense allocation policies.

Cybersecurity enforcement actions: is the SEC bringing strict liability cases?

2016 ◽  
Vol 17 (1) ◽  
pp. 112-116
Author(s):  
Brian Rubin ◽  
Amy Xu
Keyword(s):  
Design Methodology ◽  
Strict Liability ◽  
Securities And Exchange Commission ◽  
Cyber Attack ◽  
Content Type ◽  
Enforcement Action ◽  
The Us ◽  
Investment Advisers ◽  
Practical Implications

Purpose To analyze how the US Securities and Exchange Commission (SEC) has sanctioned broker-dealers (BDs) and registered investment advisers (RIAs) when cybersecurity breaches have occurred and to discuss whether the SEC is imposing a strict liability approach. Design/methodology/approach Describes the cyber-attack of a small RIA, the remedial steps the RIA took after the attack, the SEC’s enforcement action, why this particular case is noteworthy, and the case’s implications for RIAs and BDs. Findings RIAs and perhaps BDs may face strict liability from the SEC if they are victims of cybersecurity attacks. Practical implications Firms may want to address the likelihood of an SEC enforcement action if a breach occurs by reviewing recent enforcement actions, SEC reports and statements, and FINRA reports and statements. Originality/value Discusses the possible future of SEC enforcement actions regarding cybersecurity breaches.

Recent civil and criminal enforcement action involving high frequency trading

2015 ◽  
Vol 16 (1) ◽  
pp. 5-12 ◽  
Author(s):  
Matthew Rossi ◽  
Greg Deis ◽  
Jerome Roche ◽  
Kathleen Przywara
Keyword(s):  
High Frequency ◽  
Design Methodology ◽  
High Frequency Trading ◽  
Content Type ◽  
Enforcement Action ◽  
The Past ◽  
Trading Patterns ◽  
Federal Prosecutor ◽  
Enforcement Activity ◽  
Practical Implications

Purpose – To alert high frequency trading firms to the increased regulation and prosecution of manipulative trading practices during 2014 and early 2015. Design/methodology/approach – Reviews four significant proceedings against high frequency trading firms (and/or individuals employed by such firms) and other developments from the relevant government agencies as a possible preview of the enforcement and prosecution of high frequency trading practices in 2015. Provides advice to high frequency trading firms on how to decrease the risk of regulatory or criminal actions against them in this changing environment. Findings – Although the focus on high frequency trading has only recently begun to intensify, firms should be aware of the increased enforcement activity of the past year. These actions, both regulatory and criminal, have already resulted in large penalties and have helped initiate a strengthening of rules and regulations regarding manipulative trading practices, of which firms need to be aware and stay current. Practical implications – High frequency trading firms should be aware of the recent regulatory and criminal actions in order to better evaluate their own practices and controls, to ensure that their trading patterns do not resemble manipulative practices, and to avoid similar actions. Originality/value – Practical guidance from experienced litigators and securities regulatory lawyers, including a former SEC Assistant Chief Litigation Counsel and a former federal prosecutor, that consolidates and describes several recent actions and developments in one piece.

How firms borrow in international bond markets

2018 ◽  
Vol 26 (1) ◽  
pp. 135-169
Author(s):  
Alberto Fuertes ◽  
Jose María Serena
Keyword(s):  
Emerging Economies ◽  
Design Methodology ◽  
Choice Behavior ◽  
Global Financial Crisis ◽  
Securities And Exchange Commission ◽  
Bond Markets ◽  
Data Set ◽  
Content Type ◽  
Parametric Analyses ◽  
The Global Financial Crisis

Purpose This paper aims to investigate how firms from emerging economies choose among different international bond markets: global, US144A and Eurobond markets. The authors explore if the ranking in regulatory stringency –global bonds have the most stringent regulations and Eurobonds have the most lenient regulations – leads to a segmentation of borrowers. Design/methodology/approach The authors use a novel data set from emerging economy firms, treating them as consolidated entities. The authors also obtain descriptive evidence and perform univariate non-parametric analyses, conditional and multinomial logit analyses to study firms’ marginal debt choice decisions. Findings The authors show that firms with poorer credit quality, less ability to absorb flotation costs and more informational asymmetries issue debt in US144A and Eurobond markets. On the contrary, firms issuing global bonds – subject to full Securities and Exchange Commission requirements – are financially sounder and larger. This exercise also shows that following the global crisis, firms from emerging economies are more likely to tap less regulated debt markets. Originality/value This is, to the authors’ knowledge, the first study that examines if the ranking in stringency of regulation – global bonds have the most stringent regulations and Eurobonds have the most lenient regulations – is consistent with an ordinal choice by firms. The authors also explore if this ranking is monotonic in all determinants or there are firm-specific features which make firms unlikely to borrow in a given market. Finally, the authors analyze if there are any changes in the debt-choice behavior of firms after the global financial crisis.

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