The United States Department of Labor (“DOL”) has had a very active summer regulating the securities industry. Yes, you heard it right, the DOL has made certain pronouncements that have considerable effect on the securities industry.

Initially, the DOL allowed 401(k) plans to invest in private equity funds so long as they are managed by an investment professional. The DOL allowed specific types of private equity investments provided the investment professional satisfied its fiduciary obligations. Since these investments are illiquid, the DOL capped these investments at 15%.

Additionally, the DOL has now proposed a new fiduciary advisor rule to replace the previous rule that was abandoned by the current administration. Ironically, the current Secretary of Labor led the legal attack that scuttled the previous rule. The “new” rule adopts the previous test if a registered investment advisor or broker-dealer constitutes an “investment advice fiduciary”: (1) securities value advice; (2) regularity; (3) agreement; (4) investment decisions’ basis; (5) and individualized. This “investment advice fiduciary” must also satisfy the SEC’s new best interest standard, provide sufficient disclosure, and have appropriately implemented compliance policies as well as reviews.

In sum, the DOL’s pronouncements indicate that it will be looking very closely at the actions of securities professionals. As such, it would be important for securities professionals to be prepared for those inquiries by consulting with counsel at the earliest convenience.

By Jesse Fishman and Laura Holm

In Quarterly Reports on Form 10-Q, companies are required to disclose any material changes to risk factors that were included in their most recent Annual Report on Form 10-K.  Many companies do not update risk factors in their first quarter 10-Q filing because no material changes have occurred since the filing of the Form 10-K.  However, the world changed drastically in the first and second quarters of 2020 and many companies have felt that impact of COVID 19.

Companies need to consider whether additional risk factor disclosure in their 10-Q filings is appropriate to address material risks exacerbated or introduced in connection with COVID-19.  Some risk factors that companies may wish to consider are:

Risks related to changes to in demand;

  • Risks related to cybersecurity issues;
  • Risks related to supply chain disruption;
  • Risks related to financial markets and economic conditions; and
  • Risks related to general uncertainty.

Some special considerations should be made by those in the travel industry where stay at home orders and corporate restrictions on travel have greatly affected their revenues in Q1 and may affect their revenue projections in the coming months.  Additionally, because of stay at home orders, more employees are working from home.  This situation presents unique opportunities for cyber criminals and exposure to phishing attacks.

SEC’s guidance stresses companies to tailor the risks to their company and to avoid generic risk factors that could apply to any issuer or offering.  If the company has experienced a situation which requires risk factor disclosure, the company should be careful to avoid posing that situation as a hypothetical.

Reviewing peer companies and companies who have the same SIC code as your company are important practices.  You can also look at risk factors for companies in industries who have been severely impacted by the pandemic, such as the travel, restaurants and retail industry.


Join our colleagues, Jon Heyl and Alex Kerzhner, in what is sure to be an important review of the challenges facing the PE/HF industry during the pandemic.   The webinar will take place on Thursday, June 4, 2020 at 2 p.m. (EDT)/ 11 a.m. (PDT).

Please register (or click) at this site:



Sadly, the hackers of the world have not let the pandemic get in the way of their nefarious activities.  In particular, BDs and RIAs have been primary targets.   In our prior blog postings, we discussed business continuity plans and the requirement these plans include cybersecurity provisions.   We believe that the SEC, FINRA, and the various states could begin to review these firms for cybersecurity issues as early as this summer.  Thus, the old adage– be prepared– has never been more true.  We strongly recommend that these firms consult with securities counsel to prepare for this regulatory onslaught.

Oksana Wright and Charles DeMonaco discuss the management and corporate compliance measures for the companies to prioritize during the time of cost-cutting and uncertainty:

Although we are certain that Shakespeare never had to deal with the vagaries of Regulation BI, we do, and, in a series of questions relating to Regulation BI, the SEC Staff made it abundantly clear that, if you are a broker-dealer and not also a registered investment adviser, you cannot use the term “adviser” or “advisor.”  See

The SEC Staff went further to state that, if the terms “adviser” or “advisor” are used in a name or title by a BD, who is not also registered as a RIA, the BD would be violating the disclosure requirements relating to its capacity as a BD pursuant to Regulation BI.   The SEC Staff, essentially, is stating you can only hold oneself out to be what one is registered to be (yet another play on a Shakespeare reference!).  Nonetheless, BDs may use those terms if they are acting as, among other things, a municipal advisor, commodity trading advisor, or advisor to a special entity.  Similarly, if you are both a BD and a RIA, you may use the terms “adviser” or “advisor” in the name or title.

In sum, one needs to be very careful how they describe themselves to the public, and securities counsel should be consulted prior to choosing or changing any securities entities’ name.

As proxy season approaches for a number of public companies, the Securities and Exchange Commission (SEC) and certain state authorities have taken steps to revise their current corporation laws or provide guidance for companies regarding the conduct of annual shareholder meetings in light of the COVID-19 outbreak. The SEC has provided relief for companies seeking to comply with the proxy rules promulgated under the Securities Exchange Act of 1934.  always, the goals of the recent guidance from the SEC is to keep investors and shareholders informed.  A number of states have made some of their requirements for conducting shareholder meetings or virtual shareholder less burdensome than under normal conditions.

In a recent client alert, we discussed recent guidance from the SEC and states and explain how companies should assess compliance measures.

Click here to read the full alert.

In 2 separate actions, the SEC came down very hard on private equity/hedge funds regarding both disclosure and operational issues.  See; and

In the first action, a firm settled for $1 million because it allegedly mischaracterized its prior investments in its marketing materials.  This purported misrepresentation led to an over-statement of the fund’s performance.  The SEC brought an action against the fund for allowing such an over-inflation in its disclosures to occur.   Similarly, the SEC drained nearly $2 million out of another fund that was charging its portfolio companies for “services” thereby obtaining most of its costs, and then did not disclose it or obtain informed consent from these companies.

The bottom line for these actions is that the SEC does not like when funds try to “pull the wool” over their clientele or business partners.  If these funds had sought out securities counsel, they likely would not have had to endure these actions because they would have been advised of the SEC’s tendencies.


Last month, we discussed business continuity plans and how important they were to firms.  Further, my partner, Josh Horn, and I, recently, conducted a webinar for the NSCP on this very topic.

Now, we know both the SEC and FINRA will be conducting examinations to evaluate securities firms response to the pandemic as well as their BCPs.  In particular, the regulators have indicated that they will be focusing on business operations and continuity; firm policies; unforeseen issues and weaknesse in the firm’s policies; the BCP plan and its interplay with various third-parties; and cybersecurity and remote access among other things.  Firms should take the opportunity to review their policies and correct any issues that may have arisen since the beginning of the pandemic.

Firms are going to have answer questions from these regulators as well as provide documents and information to ensure that they do not face further regulatory scrutiny.  The critical item to keep in mind is that, although firms need to have and implement BCPs, the standard that regulators usually use to evaluate these plans is not perfection, but compliance.

No one could have predicted this pandemic, however, we have all have an obligation to respond in a clear and effective manner.  The regulators will be looking to see if firms have followed through on those obligations, and consulting with securities counsel is the best place to start in preparing for these inquiries.