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Category Archives: SEC Compliance

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Why Should You Care About Cyber-Security

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

The short answer to this question is that the SEC and FINRA care.  Both regulators have made this issue an exam priority for the year, and it was recently a focus of an SEC roundtable.  We hear of data breaches on nearly a daily basis at retail stores, to name a common target.  But what… 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 Discourages Incentivizing Whistleblowers to Keep Complaints In-House

Posted in Compliance and Supervision, Dodd-Frank, SEC Compliance, SEC Enforcement

What’s good for the goose is apparently not so good for the gander, as the SEC warns in-house attorneys against whistleblower contracts.  The SEC has been financially incentivizing whistleblowers to bring securities fraud complaints to the agency’s attention for years, with increasing success.  The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 empowers… Continue Reading

What To Make Out Of FINRA’s Proposed Rule On Bonus Disclosures

Posted in Broker-Dealer Regulation, Conflicts of Interest, FINRA Compliance, SEC Compliance

Bonuses and other forms of compensation are frequently used by one firm to attract talent away from another firm.  FINRA has now proposed a rule that would require brokers who receive in excess of $100,000 to disclose that payment to their customers.  Does this make any sense?  FINRA’s rationale for the rule is that it… 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

Broker Custody and Financial Responsibility Rules Implemented

Posted in Books and Records, Broker-Dealer Regulation, Ponzi Schemes, SEC Compliance

A divided Securities and Exchange Commission adopted new rules to strengthen oversight of broker-dealers’ custody of customer assets. The regulations amend the SEC’s broker-dealer reporting rule Securities and Exchange Act of 1934 Rule 17a-5, requiring firms to file new quarterly reports — Form Custody — containing information as to if and how they maintain custody… 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

What Does A Fiduciary Duty Have to Do with It?

Posted in Broker-Dealer Regulation, Conflicts of Interest, FINRA Compliance, SEC Compliance

As the SEC dawdles and contemplates whether there should be a uniform fiduciary duty, Robert Ketchum, chairman and chief executive of FINRA, has recently laid down the gauntlet when he called for a cultural shift to where broker-dealers act in the best interests of their clients. Acting in the best interests of your clients is… Continue Reading

FINRA Requests Data on Member Firms’ Social Media Use

Posted in FINRA Compliance, SEC Compliance, Social Media

The Financial Industry Regulatory Authority announced that it sent targeted examination letters asking broker-dealer members about their social media use.  See http://www.finra.org/Industry/Regulation/Guidance/TargetedExaminationLetters/P282569. In the letter, FINRA warned that each member firm’s written and electronic communications are subject to periodic spot checks.  Among other questions, FINRA asked the member firms to explain their use of social… 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

SEC EXAM FOCUS REMAINS CONSISTENT

Posted in Broker-Dealer Regulation, JOBS Act, SEC Compliance, SEC Enforcement

The SEC’S Office of Compliance Inspections and Examinations announced its examination priorities to highlight areas of “heightened risk” for registrants.  See http://www.sec.gov/news/press/2013/2013-26.htm.). The OCIE also disclosed areas of emerging risks for registrants, as well as topics to consider the priorities.   Generally, these priorities apply to all registrants as well as specifically to OCIE’s investment adviser… 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

A Secret Concern With Small Firm Supervision And Compliance

Posted in Broker-Dealer Regulation, Compliance and Supervision, FINRA Enforcement, SEC Compliance, SEC Enforcement

A recently released compliance testing survey of the Investment Adviser Association and ACA Compliance showed that 90% of all firms claimed to have a full-time person designated to the compliance function, but nearly two thirds of all chief compliance officers have multiple roles within the firm.  Unless I missed that day of new math, these… 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

Some Things You Should Know About Compliance And Ethics

Posted in Broker-Dealer Regulation, Financial Industry Trends, FINRA Compliance, FINRA Enforcement, SEC Compliance, SEC Enforcement

At a recent conference held by the SEC, a panel highlighted the importance of compliance and ethics for broker-dealers.  The big take away from the conference was that a strong compliance program must have a solid ethical foundation. In other words, a compliance program is not simply making sure that your representatives check the right… Continue Reading

Section 15(a) Registration And Foreign Transactions

Posted in SEC Compliance

A magistrate judge in the Northern District of Illinois recently ruled that Section 15(a) of the Exchange Act does not apply extraterritorially even if a foreign transaction was facilitated by a broker-dealer in the United States.  In the case, unregistered broker-dealers conducted a foreign stock transaction on a foreign exchange from the United States.  The… Continue Reading

What You Need To Know About Disclosures Through Social Media

Posted in SEC Compliance, SEC Enforcement, Social Media

In recognition of the pervasive use of social media, the SEC recently issued guidance that public companies could disseminate material information through social media without violating Regulation FD.  The question remains what is the best way to use social media in this fashion. The critical aspect of complying with Regulation FD is to make sure that… Continue Reading

SEC Agrees with NRSROs Upgrades

Posted in NRSRO, SEC Compliance, SEC Enforcement

The SEC has given a pretty good report card regarding its examinations of nationally recognized statistical rating organizations, stating there was only one mistake.  This “clean bill of health” comes about a year after the SEC issued a scathing report of all NRSROs. Although these agencies had been blamed for some of the problems that… Continue Reading

You May Be Able to Receive In Kind Payments Without SEC Action

Posted in SEC Compliance

The SEC’s Division of Trading and Markets staff, recently, agreed to not recommend enforcement action, pursuant to Securities Exchange Act of 1934 Section 11(d) (1), if a broker-dealer receives payments in-kind to help defray the costs incurred in sponsoring educational and training seminars for a proposed ETF alliance program. In granting the relief, the Staff noted the… Continue Reading

Who Wants To Know How To Weed Out Rogue Stockbrokers

Posted in Compliance and Supervision, Dodd-Frank, FINRA Compliance, Registered Representatives, SEC Compliance

My partner, Ernest Badway, recently blogged about the dangers of a lawyer referring a client to a rogue stockbroker.  The question for the broker-dealer/investment advisors is how do you uncover rogue brokers or prevent them from infecting your firm. In all of the years that I have defended broker-dealers and investment advisors in cases involving… Continue Reading

Gallagher Hopes SEC Soon Will Provide Clarity on Failure-to-Supervise Liability

Posted in Compliance and Supervision, International Securities Regulation, SEC Compliance

In light of the Urban decision, the SEC has indicated it intends on expounding on its views of failure to supervise for legal and securities personnel. Although several of the federal securities laws indicate the SEC has the authority to bring actions for failing to supervise or detect securities law violations, there has been no true… Continue Reading