It is almost axiomatic that the SEC “enjoys” bringing enforcement actions against lawyers.  The SEC believes that lawyers have a special duty to protect and police the securities markets, and, when a lawyer fails, the SEC is right there to pounce.

In fact, the SEC fined and barred an attorney from practicing before the Commission because the attorney failed to conduct proper due diligence when acting as underwriter’s counsel in misleading municipal bond offerings.  See https://www.sec.gov/litigation/admin/2017/33-10335.pdf.  The SEC claimed that the lawyer prepared erroneous documents regarding on-going disclosure obligations. The SEC stated the lawyer never went beyond relying upon the issuer’s claims, and ignoring red flags concerning the inaccuracy of the disclosure.

If you are lawyer, you cannot outrun the long-arm of the SEC, please take precautions!

Ernie Badway is scheduled to co-host a webinar discussion on new developments in AML and training requirements on Wednesday, September 13, 2017 at 1:00 p.m.  See http://mailchi.mp/e5dd1d2898b8/webinar-sample.  Details are below:

New Developments in AML and Training Requirements

New Developments in AML and Training Requirements
Date: Wednesday, September 13, 2017
Time: 1:00pm ET / 12:00pm CT / 11:00am MT / 10:00am PT / 9:00am AT

Webinar Description:
With numerous high profile incidents reported on a regular basis, it is little wonder that FINRA, FinCEN and the SEC continue to focus on AML, cybersecurity and the relationship between the two. For the last three years, FINRA has listed AML and cybersecurity in its annual priorities letter and FinCEN released an advisory on cyber-enabled crime late last year. With their relationship to terrorism and national security, these topics remain near the top of the list.
Join Matt Wadley, General Manager USA for GRC Solutions and Ernie Badway, Partner with Fox Rothschild as they discuss recent developments in AML, cybersecurity and specifically how your company can optimize training in this area.
The webinar will highlight recent developments related to AML and what they mean with respect to compliance obligations and training. The attendees will learn about:

  • Proposed rules requiring registered investment advisers to establish AML programs;
  • The need to tailor AML training to your specific needs, based on your company’s size and activities; and
  • The increasing focus on cybersecurity and how it relates to AML.

 

 

 

Most brokers despise the fact that they need to re-take their examinations if they are not employed with a broker-dealer for 2 years or if they are not associated with a member firm.   Now, FINRA comes to the rescue with a new proposal to permit registered representatives to avoid re-taking their exams for up to 7 years so long as they fulfill continuing education requirements.  See http://www.finra.org/sites/default/files/rule_filing_file/SR-FINRA-2017-007.pdf.

The proposal also allows a person associated with a member firm to obtain any qualification and registration permitted by the member firm regardless of current need at the member firm, and FINRA will also create a new Securities Industries Essentials exam for those who are not associated with a member firm.  These individuals, who pass the SIE, may then take a second specific exam if they join a member firm.

Although this is great step by FINRA, it is not a guarantee that it will be approved so we will continue to monitor the situation to see if changes occur.

 

Despite numerous warnings, some people just do not get it.   The SEC barred a broker from the industry because the broker used personal email and text messages to obtain client investments.  See the Commission’s website.

The SEC found these personal communications were never submitted to the firm for review.  As a result, the broker aided and abetted his firm’s books and records violations.  Further, the broker also made numerous other violations as well.

This scenario demonstrates the critical requirement to only use firm sponsored media for client communications.

 

Over the last several months, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) has been conducting a “sweep examination” of over 70 broker-dealers and investment advisers to assess their cybersecurity policies and procedures.  https://www.sec.gov/files/observations-from-cybersecurity-examinations.pdf.  In particular, OCIE looked at their preparedness regarding governance and risk assessment; access rights and controls; data loss prevention; vendor management; training; and incident response.

For the most part, OCIE found policies and procedures in place, and these firms did, in fact, conduct penetration tests and vulnerability scans; used a system to prevent data loss; installed software patches; adopted response plans; and conducted vendor risk assessments.  However, all the news was not good.  OCIE believes that these firms should have better tailored policies and procedures; conduct enhanced employee training; replace outdated systems; and make sure that various vulnerabilities were addressed in a timely fashion.  OCIE also informed these firms that it will continue to be vigilant in the cybersecurity sphere in both its examinations and testing.

In sum, with the exception of tweets from the White House, no area is getting more attention from the public and the government than cybersecurity precautions and detection.  It is critical that senior management and compliance at broker-dealers and investment advisers take this threat seriously or there could be serious repercussions if their business is attacked.