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.

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.

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.

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.

OCIE issues risk alert on the most frequently identified advisory fee and expense compliance issues

2018 ◽  
Vol 19 (4) ◽  
pp. 1-3
Author(s):  
Robert Van Grover
Keyword(s):  
Design Methodology ◽  
Best Practice ◽  
Investment Management ◽  
Content Type ◽  
Informed Decisions ◽  
Policies And Procedures ◽  
The Us ◽  
Investment Advisers ◽  
Practical Implications

Purpose To summarize and interpret a Risk Alert issued on April 12, 2018 by the US SEC’s Office of Compliance Inspections and Examinations (OCIE) on the most frequent advisory fee and expense compliance issues identified in recent examinations of investment advisers. Design/methodology/approach Summarizes deficiencies identified by the OCIE staff pertaining to advisory fees and expenses in the following categories: fee billing based on incorrect account valuations, billing fees in advance or with improper frequency, applying incorrect fee rates, omitting rebates and applying discounts incorrectly, disclosure issues involving advisory fees, and adviser expense misallocations. Findings In the Risk Alert, OCIE staff emphasized the importance of disclosures regarding advisory fees and expenses to the ability of clients to make informed decisions, including whether or not to engage or retain an adviser. Practical implications In light of the issues identified in the Risk Alert, advisers should assess the accuracy of disclosures and adequacy of policies and procedures regarding advisory fee billing and expenses. As a matter of best practice, advisers should implement periodic forensic reviews of billing practices to identify and correct issues relating to fee billing and expenses. Originality/value Expert guidance from experienced investment management lawyer.

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.

Parties push to enforce statutory time limits on SEC enforcement actions

2015 ◽  
Vol 16 (3) ◽  
pp. 30-32
Author(s):  
Benjamin Neaderland ◽  
Jared Cohen
Keyword(s):  
Design Methodology ◽  
District Of Columbia ◽  
Securities And Exchange Commission ◽  
Courts Of Appeals ◽  
Content Type ◽  
Time Limits ◽  
Court Of Appeals ◽  
Securities Law ◽  
The Us ◽  
Practical Implications

Purpose – To alert companies and individuals subject to regulation and investigation by the US Securities and Exchange Commission (SEC) of potential arguments to enforce time limits on enforcement actions that have heretofore commonly been ignored. Design/methodology/approach – Analyzes two cases - one recently decided and one pending - in US Courts of Appeals, explains significance of issues at stake. Findings – The Courts of Appeals for District of Columbia Circuit has recently reviewed, and the Court of Appeals for the 11th Circuit will soon decide whether statutory timing provisions effectively remove SEC power to bring enforcement actions past their deadlines, at least in some circumstances. Practical implications – Depending on the outcomes of the cases, companies and individuals may gain a new procedural defense or two against SEC enforcement actions. They may also expect the SEC to respond by more actively seeking tolling agreements, and/or being more cautious in issuing Wells notices. Originality/value – Guidance based on pending decisions interpreting US securities law, may bring regulatory adjustments to agency practice and procedure.

A review of the SEC Participating Affiliate No-Action Letters’ relief from Investment Advisers Act of 1940 registration for foreign investment advisers

2017 ◽  
Vol 18 (4) ◽  
pp. 22-28 ◽  
Author(s):  
Wendy E. Cohen ◽  
David Y. Dickstein ◽  
Christian B. Hennion ◽  
Richard D. Marshall ◽  
Allison C. Yacker ◽  
...  
Keyword(s):  
Foreign Investment ◽  
Financial Services ◽  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Content Type ◽  
The Us ◽  
Information Update ◽  
Practical Guidance ◽  
Investment Advisers

Purpose To explain the US Securities and Exchange Commission (the “SEC”) staff’s (the “Staff”) participating affiliate exemption from investment adviser registration for foreign advisers set forth in a line of Staff no-action letters issued between 1992 and 2005 (the “Participating Affiliate Letters”) and to discuss recent guidance issued by the Staff in an information update published in March 2017 (the “Information Update”) with respect to complying with requirements of the Participating Affiliate Letters. Design/methodology/approach Reviews the development of the Staff’s approach regarding the non-registration of foreign advisers that rely on the Participating Affiliate Letters from prior to the issuance of those letters through the Information Update and sets forth recommendations for registered investment advisers and their participating affiliates. Findings While there are arguments that the Information Update goes beyond restating established standards and does not clearly explain whether submission of all listed documentation is required, the Information Update will likely standardize the information submitted to the SEC. Originality/value Practical guidance for advisers relying on the Participating Affiliate Letters from experienced securities and financial services lawyers.

OCIE to investment advisers: focus on these five problem areas

2017 ◽  
Vol 18 (2) ◽  
pp. 16-18
Author(s):  
Brynn D. Peltz ◽  
Ilan S. Nissan ◽  
Evyn W. Rabinowitz
Keyword(s):  
Design Methodology ◽  
Code Of Ethics ◽  
Securities And Exchange Commission ◽  
Content Type ◽  
Policies And Procedures ◽  
Funds Management ◽  
Practical Guidance ◽  
Investment Advisers ◽  
Practical Implications

Purpose To explain a Risk Alert published on February 7, 2017 published by the Securities and Exchange Commission (SEC) Office of Compliance Inspections and Examinations (OCIE) describing the five compliance topics most frequently identified in deficiency letters sent to investment advisers after the completion of an OCIE examination. Design/methodology/approach Discusses deficiencies noted by the OCIE relating to the Compliance Rule, required regulatory filings, the Custody Rule, the Code of Ethics Rule, and the Books and Records Rule. Findings The OCIE published the Risk Alert with its noted deficiencies only one month after releasing its exam priorities for the year. Practical implications All investment advisers should consider reviewing their compliance practices, policies and procedures in light of the deficiencies and weaknesses identified in the SEC Risk Alert. Originality/value Practical guidance from experienced lawyers specializing in asset and funds management.

Heightened supervision of branch offices

2015 ◽  
Vol 16 (2) ◽  
pp. 18-21
Author(s):  
Daniel A. Nathan ◽  
Lauren Navarro ◽  
Kevin Matta
Keyword(s):  
Regulatory Authority ◽  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Financial Industry ◽  
Content Type ◽  
National Examination ◽  
Policies And Procedures ◽  
The Us ◽  
Branch Office ◽  
Practical Implications

Purpose – To explain expectations of the US Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) as to what constitutes successful branch inspection programs for broker-dealers. Design/methodology/approach – Summarizes FINRA’s rules requiring firms to implement branch inspection programs; examines the SEC’s and FINRA’s joint 2011 National Examination Risk Alert, which expanded upon FINRA’s rules, requiring firms to conduct risk-based analyses on each branch office to determine the appropriate frequency, intensity, and focus of inspections; discusses FINRA’s expectation that firms examine their registered representatives’ financial circumstances to reduce the risk of fraud; explains how FINRA’s Comprehensive Automated Risk Data System may impact branch inspections; and recommends several sources that firms should review when implementing a successful branch inspection program. Findings – Regulators have heightened their expectations as to what constitutes successful branch inspection programs for broker-dealers. Practical implications – To avoid regulatory intervention and discipline, firms should continue to review their policies and procedures to ensure that their programs are sufficiently comprehensive. Originality/value – This article will encourage firms with branch offices to review their branch inspection programs, and assist those firms in implementing sufficiently comprehensive policies and procedures.

SEC issues Staff Legal Bulletin after four-year comprehensive review of proxy system

2015 ◽  
Vol 16 (1) ◽  
pp. 63-65
Author(s):  
John E. Sorkin ◽  
Abigail Pickering Bomba ◽  
Steven Epstein ◽  
Jessica Forbes ◽  
Peter S. Golden ◽  
...  
Keyword(s):  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Third Parties ◽  
Comprehensive Review ◽  
Content Type ◽  
Policies And Procedures ◽  
Practical Guidance ◽  
Investment Advisers ◽  
Practical Implications

Purpose – To provide an overview of the guidance for proxy firms and investment advisers included in the Staff Legal Bulletin released this year by the Securities and Exchange Commission (SEC) after its four-year comprehensive review of the proxy system. Design/methodology/approach – Discusses briefly the context in which the SEC’s review was conducted; the general themes of the guidance provided; the most notable aspects of the guidance; and the matters that were expected to be, but were not, addressed by the SEC. Findings – The guidance does not go as far in regulating proxy advisory firms as many had anticipated it would. The key obligations specified in the guidance are imposed on the investment advisers who engage the proxy firms. The responsibilities, policies and procedures mandated do not change the fundamental paradigm that has supported the influence of proxy firms – that is, investment advisers continue to be permitted to fulfill their duty to vote client shares in a “conflict-free manner” by voting based on the recommendations of independent third parties, and continue to be exempted from the rules that generally apply to persons who solicit votes or make proxy recommendations. Practical implications – The SEC staff states in the Bulletin that it expects that proxy firms and investment advisers will conform to the obligations imposed in the Bulletin “promptly, but in any event in advance of [the 2015] proxy season.” Originality/value – Practical guidance from experienced M&A lawyers.

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