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Category Archives: Investment Adviser Regulation

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SEC “Presence” Exam Ahead of Schedule

Posted in Hedge and Private Equity Funds, Investment Adviser Regulation

The SEC’s push to conduct narrowly focused examinations of newly registered investment advisers is ahead of schedule and providing it with insights about compliance weaknesses, hedge fund advisers, and private equity companies. To date, the SEC has completed 210 presence exams while 42 are currently open.  Exam teams are focused on compliance associated with marketing… Continue Reading

RIAs Permitted to More Freely Advertise on Social Media

Posted in Investment Adviser Regulation, SEC Compliance

The SEC’s Division of Investment Management  issued guidance permitting advisers  greater use of social media while maintaining the  prohibition on testimonials.   See http://www.sec.gov/investment/im-guidance-2014-04.pdf. IM indicated that advisers could link public commentary from a third social media party site, and it would not violate the Investment Advisers Act of 1940 so long as the adviser had no ability to… Continue Reading

SEC Announces Exam Priorities

Posted in Books and Records, Broker-Dealer Regulation, Compliance and Supervision, Hedge and Private Equity Funds, Investment Adviser Regulation, Investment Company Regulation, SEC Compliance, SEC Enforcement

Tis the season for the regulators to announce their examination priorities.  No less than the SEC’s Office of Compliance Inspections and Examinations released its 2014 Examination Priorities for its National Examination Program (“NEP”). In particular, the SEC identified several new issues for registered investment advisers, primarily for those RIAs, who are at least three years old and have never… Continue Reading

What To Expect In 2014 From The SEC’s Enforcement Division

Posted in Broker-Dealer Regulation, Hedge and Private Equity Funds, Insider Trading, Internal Investigations, Investment Adviser Regulation, SEC Compliance, SEC Enforcement, SEC Organization, SEC Structure, Whistleblowers

Now that 2014 is here, it is a good idea to understand what the Enforcement Division might focus on this year.  In a recent article that appeared in the BNA, David Marder, a partner with Robins, Kaplan, Miller & Ciresi identified fifteen things to expect in the coming year.  The fifteen things he noted to… Continue Reading

THE SEC DEFEATS INFLATION SORT OF… PENALTIES ADJUSTED

Posted in Broker-Dealer Regulation, Investment Adviser Regulation, Investment Company Regulation, Sarbanes-Oxley, SEC Enforcement

The SEC adopted a rule to adjust the maximum amounts it may recover for civil monetary penalties imposed under the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940 and the Investment Advisers Act of 1940 for inflation.  The SEC’s new rule-was effective upon publication, and also adjusts… Continue Reading

SEC EXAMS MAY NOT BE AS BAD FOR REGISTERED ENTITIES

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

Despite registrants’ concerns about the increasingly close cooperation between the SEC’s examination and enforcement arms, only about 10 % of SEC exams over the last two years were referred for enforcement. In deciding to refer a case to the Enforcement Division, OCIE considers questions such as: Is there an ongoing fraud? Is there egregious harm… Continue Reading

No-Action Relief For Delivery of Subadvisers’ Form ADV

Posted in Investment Adviser Regulation

The Staff of the Division of Investment Management agreed to not recommend enforcement action under Investment Advisers Act of 1940 Rule 204-3 against unaffiliated registered investment advisers, who manage client assets if the subadviser delivers its Form ADV Part 2, to the adviser, rather than the client.  See Goldman Sachs & Co., Inc., SEC No-Action Letter,… Continue Reading

RIAS NEED TO FOCUS ON FORM ADV AND ADVERTISING REVENUE

Posted in Dodd-Frank, Investment Adviser Regulation, SEC Compliance

The SEC Division of Investment Management, is reviewing the applications of private fund advisers, and focusing on two particular areas: advertising and the Form ADV. The Division’s review will be “informed” by the questions and concerns raised by private fund advisers regarding the Investment Advisers Act of 1940 application to their practices and business models…. Continue Reading

FALSE AUM CLAIMS RESULT IN BAR

Posted in Investment Adviser Regulation, SEC Enforcement

A registered investment adviser was terminated and its principal barred because it failed to keep proper records.  This failure lead to a charge of false registration and Form ADV claims as well as overcharging clients.  See http://www.sec.gov/litigation/admin/2013/34-69601.pdf. The RIA misstated its AUM by nearly $30 million so that it could continue as a SEC-registered adviser. … Continue Reading

CONFLICTS OF INTEREST MAJOR ISSUE FOR RIAS AND SEC

Posted in Conflicts of Interest, Investment Adviser Regulation, SEC Enforcement

  While the overwhelming majority of registered investment advisers are operating in the best interest of their clients in a very complex business, others do not, according to the SEC.   These bad actors usually are either liars, cheaters, reckless or involved in conflicts of interest.  The former usually face the wrath of regulators sooner… Continue Reading

So You Don’t Think You Need A Business Continuity Plan; Here Are 15 Considerations Why You Should Have One

Posted in Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, Investment Adviser Regulation, Registered Representatives, SEC Compliance

Now that summer is in its waning days, the hurricaine season is about to take off.  Hurricaine Sandy had a devastating impact on the financial markets, closing the equity markets for two days and some firms for at least a week.  The SEC, CFTC and FINRA recently provided financial firms a framework to improve their… Continue Reading

Do You Want To Know What Keeps The Regulator Up At Night

Posted in Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, FINRA Enforcement, Investment Adviser Regulation, SEC Compliance, SEC Enforcement, Social Media

At a regulator’s round table during a recent National Society of Compliance Professionals meeting, the regulators framed out those issues that are keeping them up at night.  The issues include: The increasing complexity of investment products. Social media beyond things like Twitter or LinkedIn. Cyber security. Cyber fraud; i.e. hacking into customer accounts. AML issues… Continue Reading

What Investment Advisers Need To Know About The SEC

Posted in Compliance and Supervision, Financial Industry Trends, Investment Adviser Regulation, SEC Compliance

The SEC recently announced that its top priority is to increase the number of investment adviser examinations it conducts on an annual basis.  Considering that the SEC only examined 8% of all investment advisers in 2012 (where 40% have never been examined), the SEC could only increase the number of such examinations. The talk, for… Continue Reading

What You Need To Know About Identity Theft

Posted in Compliance and Supervision, Cyber-Security, Investment Adviser Regulation, SEC Compliance

Hardly a day goes by without hearing horrible stories of a person having their identity stolen and their finances ruined as a result.  The SEC is now stepping into this hornet’s nest by adopting new rules for financial advisors who have the authority to move client funds to third parties.  The new rules require firms… Continue Reading

You Should be Concerned With Expanding BrokerCheck

Posted in Broker-Dealer Regulation, Compliance and Supervision, FINRA Compliance, Investment Adviser Regulation, Public Customer Arbitrations, Registered Representatives

FINRA announced that it is seeking proposed rule changes to make it easier for investors to use BrokerCheck.  See http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/. These proposed amendments to FINRA Rule 2267, Investor Education and Protection, would require member firms to include a BrokerCheck reference on their websites and those of any associated person.  Additionally, FINRA Rule 8312, BrokerCheck Disclosure,… Continue Reading

One Thing An RIA Need Not Worry About.

Posted in Dodd-Frank, Financial Industry Trends, Investment Adviser Regulation, SEC Compliance, SEC Enforcement

Ever since Dodd-Frank, there has been much concern in the RIA world regarding who would be its regulator.  At this point, RIAs can dispense with any concern that FINRA will be its regulator because FINRA pulled its hat out of the oversight ring, at least for now. Even thought FINRA spent nearly $2 million lobbying Congress… Continue Reading

BDs Remember to File Marketing Material

Posted in Broker-Dealer Regulation, Closed-End Mutual Funds, FINRA Compliance, Investment Adviser Regulation, Investment Company Regulation, Open-Ended Mutual Funds

FINRA has published guidance on its new marketing Rule 2210.  See http://www.finra.org/Industry/Issues/Advertising/P197604   FINRA has indicated that retail communications that will now be subject to this filing requirement has to be filed by February 19, 2013.  FINRA suggested that retail communications relating closed-end funds and structured products must be filed.  FINRA wants, among other things, filed certain presentation… Continue Reading

The SEC’s Battle Continues with The Fund Industry

Posted in Hedge and Private Equity Funds, Investment Adviser Regulation, SEC Compliance, SEC Enforcement

The Chief of the SEC’s Enforcement Division’s Asset Management Unit, recently, indicated that the SEC Staff is now looking at identifying hedge and private equity fund RIAs, who may have higher risk issues like previous fraud allegations.  See http://www.sec.gov/news/speech/2012/spch121812bk.htm   In particular, the SEC is looking at when RIA managers delay fund liquidation to continue to receive fees–… Continue Reading

Is this FINRA’s First Play for RIA Oversight? Opening FINRA Arbitration to RIAs

Posted in Arbitration, Intra-Industry Arbitrations, Investment Adviser Regulation, Public Customer Arbitrations

FINRA is now permitting RIAs to participate in its arbitration process.  The details will be forthcoming. Traditionally, FINRA arbitrations were for broker-dealers to resolve their disputes.  This is a significant opening for FINRA.  Nonetheless, FINRA claims it is ready for RIA cases if the parties agree.  Further, there are differences in standards under federal law for both. … Continue Reading

What Brokers Need to Know About Receiving Cash Fees

Posted in Broker-Dealer Regulation, Investment Adviser Regulation, No-Action Relief, SEC Enforcement

The SEC’s Division of Investment Management allowed a sanctioned broker-dealer official to be paid a cash solicitation fee from a RIA.  See J.P. Turner & Co. LLC, SEC No-Action Letter, avail. 9/10/12, and http://www.sec.gov/divisions/investment/noaction/2012/jpturner091012-206-4.pdf. The SEC Staff allowed the cash fees because the sanctioned official was not engaged in cash solicitation activities in his individual capacity.  The SEC Staff… Continue Reading

Investment Advisers Wary of State Civil and (Gulp!) Criminal Action

Posted in Federal and State Criminal Activities, Investment Adviser Regulation, State Enforcement

State securities regulators are going after investment adviser firms with a vengeance, including, but not limited to, seeking prison time for those who violate the their securities laws. A recent NASAA report indicated that investment adviser actions nearly doubled from the previous year.  In fact, these actions comprised approximately 15% of all state securities enforcement actions.  Criminal actions also rose… Continue Reading

You Need to Prepare for SEC RIA Inspections

Posted in Investment Adviser Regulation, SEC Compliance, SEC Enforcement

With the new year here, the SEC is beginning its registered investment adviser inspection program.  There are, generally, routine, compliance, cause and sweep examinations and inspections.  Depending upon where your investment adviser sits, the RIAmay be subject to one of these examinations.  Generally, new RIAs are more, frequently, examined than those that have an established history.  Of course,… Continue Reading

SEC Hedge Fund Adviser Exams Concentrate on Four Areas

Posted in Compliance and Supervision, Financial Industry Trends, Hedge and Private Equity Funds, Investment Adviser Regulation, SEC Compliance

The SEC announced that it will most likely look at four main areas when examining newly registered hedge fund advisers. Those areas are marketing and advertising, portfolio management, conflicts of interest, and client asset safety.  This approach will be followed as a result of certain risk assessments made by the SEC Staff.  Essentially, the SEC Staff does… Continue Reading