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.

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 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.

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.

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.

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.

Are your customer accounts in order? – SEC announces sweep of broker-dealers and implementation of the customer protection rule initiative

2017 ◽  
Vol 18 (1) ◽  
pp. 68-74
Author(s):  
Melissa Beck Mitchum ◽  
Bob Xiong
Keyword(s):  
Current Account ◽  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Content Type ◽  
Policies And Procedures ◽  
Practical Guidance ◽  
Reporting Mechanism

Purpose To explain the Customer Protection Rule Initiative announced by the Securities and Exchange Commission (SEC) and offer practical guidance for complying with Rule 15c3-3 under the Securities Exchange Act of 1934. Design/methodology/approach This article discusses Rule 15c3-3 under the Securities Exchange Act of 1934, related interpretative guidance, and the Customer Protection Rule Initiative announced in June 2016 by the SEC. Findings This article concludes that broker-dealers should take advantage of the Customer Protection Rule Initiative’s self-reporting mechanism and use this time to review their current account arrangements with banks, existing internal policies and procedures, and account documentation. Originality/value This article contains valuable information about the SEC’s Customer Protection Rule Initiative and practical compliance guidance from experienced securities lawyers.

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.

SEC approves long-anticipated FINRA research rules

2016 ◽  
Vol 17 (1) ◽  
pp. 39-44 ◽  
Author(s):  
Amy Natterson Kroll ◽  
John Ayanian
Keyword(s):  
Design Methodology ◽  
Comprehensive Review ◽  
Content Type ◽  
Research Activities ◽  
Policies And Procedures ◽  
Equity Research ◽  
Practical Guidance ◽  
Research Analysts ◽  
Required Disclosures ◽  
Insight Into

Purpose To analyze the changes to the FINRA equity research rules and evaluate concerns that may be important to and have an impact on equity research activities following the effective date. Design/methodology/approach This article provides an overview of the changes reflected in FINRA Rule 2241 pertaining to equity research analysts and research reports, as well as changes to licensing requirements for equity research analysts. It highlights potential issues for firms and provides some commentary on how these issues should be considered in light of FINRA’s articulated position and assurances FINRA has given to the SEC. Findings This article concludes that firms should anticipate these changes and begin a comprehensive review of research policies and procedures, the personnel who prepare research reports and the scope of their research products so as to be compliant with Rule 2241 from its effective date. Firms should also begin an investigation of technologies used to gather, produce and disseminate research and required disclosures to ensure they meet the new requirements when they are effective. Originality/value This article provides insight into the new FINRA Rule 2241 and practical guidance from experienced securities lawyers.

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.

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.

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