Posts from August 2015.
In an August 18 letter to SEC Enforcement Director Ceresney, the National Society for Compliance Professionals ("NSCP") urged the SEC to adopt an internal guideline requiring a higher "aiding and abetting" standard for compliance-officer liability in enforcement actions. While underscoring its commitment to a strong enforcement program in appropriate circumstances, NSCP expressed concern over the hindsight breadth of the "caused" standard used in recent actions against compliance professionals. The group urged the SEC to consider several issues when making ...
Posted in: SEC
Tags: burr forman, compliance-officer liability, enforcement actions, higher “aiding and abetting” standard, National Society for Compliance Professionals, NSCP, SEC, SEC Compliance-Officer Liability, SEC Compliance-Officer Liability Standard, SEC Enforcement Director Ceresney, Securities and Exchange Commission, securities litigation, Securities Litigation & Arbitration, “aiding and abetting”
The District of Columbia Circuit Court of Appeals Tuesday rejected a challenge to the SEC's investment-adviser pay-to-play rule, holding that two state Republican Party organizations filed it almost four years too late. A lower court previously dismissed the case because the statute requires such challenges to go directly to the Court of Appeals. But the lower court also criticized prior appellate rulings on the subject, arguing they were unclear. We covered that ruling here. But the Court of Appeals would have none of it, saying its 40-year-old precedent was clear and had become ...
Posted in: SEC
Tags: burr forman, DC Circuit, District of Columbia Circuit Court of Appeals, New York Republican State Committee v. SEC, Pay-to-Play Rule, SEC, Securities Exchange Commission, securities litigation, Securities Litigation & Arbitration
On August 24, 2015, FINRA Rule 2040 concerning payments to unregistered persons went into effect. The rule, approved by the SEC in January 2015, is aligned with § 15(a) of the Securities Exchange Act of 1934. Generally, FINRA firms or associated persons are forbidden from "paying any compensation, fees, concessions, discounts, commissions or other allowances" to persons not registered as broker-dealers under § 15(a) but who are required to be registered (as a result of receiving such compensation) or appropriately-registered association persons outside of compliance with ...
Tags: burr forman, Financial Industry Regulatory Authority, finra, FINRA Rule 2040, SEC, Securities and Exchange Commission, Securities Exchange Act of 1934, securities litigation, Securities Litigation & Arbitration, unregistered persons
The first Court of Appeals to rule in the recent round of challenges to the Securities and Exchange Commission's administrative enforcement mechanism has held courts lack authority to consider the matter. The US Seventh Circuit yesterday affirmed the district court's earlier dismissal for lack of subject-matter jurisdiction. The Seventh Circuit held it was "fairly discernible" from statute that Congress intended the internal SEC administrative process (then followed by judicial review) to be the norm, unless a party can demonstrate that her constitutional challenge meets ...
Posted in: SEC
Tags: administrative enforcement mechanism, burr forman, Court of Appeals, dodd-frank, SEC, Securities and Exchange Commission, securities litigation
FINRA this week released its targeted exam letter requesting information on firms' conflict-of-interest policies surrounding broker compensation and retail accounts. The sweep follows up on FINRA's Conflicts Report from October 2013, which recommended changes to firm supervision and oversight of conflicts of interest. The letter requests extensive categories of information covering retail accounts during the period from August 2014 through July 2015. FINRA seeks information about firm policies and procedures to:
- Identify and manage conflicts;
- Surveillance of ...
Posted in: FINRA
Tags: broker compensation, burr forman, conflict-of-interest policies, finra, FINRA Conflicts Report, FINRA Sweep Exam on Compensation Conflicts, retail accounts, rule 2243, securities litigation, targeted exam letter
The Financial Institutions Regulatory Authority fined a UBS unit $750,000 for mistakenly reporting customers' municipal-bond-account interest was tax-exempt, when the firm's handling of the trades made it taxable instead. Because the brokerage itself paid over 4000 customers about $1.2 million in interest, the payments weren't tax exempt; to qualify, the interest must be paid directly by a municipal issuer. Instead, the firm had used the customers' long positions in those bonds to cover the firm's short positions and so made substitute interest payments. FINRA's AWC stated ...
Posted in: FINRA
Tags: Financial Institutions Regulatory Authority, finra, FINRA Fines UBS for Muni-Interest Reporting Errors, MSRB Rule G-27, Muni-Interest Reporting Errors, municipal-bond-account, Regulatory Notice 15-27, tax-exempt, UBS
The MSRB responded August 12 to the SEC's initiation of proceedings on proposed conduct standards for Municipal Advisors, filing some amendments to the proposed Rule. The MSRB's Amendment No. 1:
- Eliminates "includes, without limitation" language from the fiduciary-duty standard in Proposed Rule G-42(a)(ii) in response to SIFMA's comment that it raised unnecessary ambiguity, because a fiduciary duty generally is understood to encompass duties of both care and loyalty. MSRB retained that language in Supplementary Material .02 to be clear that the Rule doesn't purport to ...
Posted in: MSRB
Tags: burr forman, MSRB, Municipal Advisor Conduct Rule, SEC, Securities Litigation & Arbitration, Securities Litigation blog
The U.S. Department of Labor ("DOL") recently heard public comment[1] to its proposed regulatory changes implementing a fiduciary duty on any individual receiving compensation for advice tailored to a plan sponsor, participant or individual retirement account owner if that advice seeks to assist the recipient in retirement planning decisions.[2] Currently, a customer does not have a specific private right of action for a breach of contract or a breach of fiduciary duty toward the investment selections within an ERISA plan or an individual retirement account. Put another way ...
Posted in: Department of Labor
Tags: BICE, burr forman, DOL, ERISA, Fiduciary Duty, Retirement Accounts, Securities Litigation & Arbitration, Securities Litigation blog, U.S. Department of Labor
Manhattan federal Judge Richard Berman yesterday (August 12) issued a preliminary injunction halting the SEC's administrative action against former S&P executive Barbara Duka, holding the SEC's in-house courts were "likely unconstitutional" based on the way the SEC selects its administrative judges. Earlier this summer, Atlanta federal Judge Leigh Martin May enjoined an SEC administrative insider-trading action against developer Charles Hill for the same reasons. A month later, May enjoined a second SEC action against Atlanta investment-advisory firm Gray Financial ...
Posted in: SEC
Tags: Barbara Duka, burr forman, Chair Mary Jo White, Constitution's Appointment Clause, dodd-frank act, Judge Richard Berman, Likely Unconstitutional, preliminary injunction, S&P, SEC, SEC Admin Actions, Second Federal Judge, Securities Litigation & Arbitration, Securities Litigation blog
The SEC instituted proceedings August 6 to allow additional time - and analysis - of the MSRB's proposed Rule G-42 establishing broad conduct standards for municipal advisors. The Order essentially buys more time for the SEC to consider, and the MSRB to respond to, industry comments on the proposed Rule. Release No. 34-75628; File No. SR-MSRB-2015-03 (Aug. 6, 2015) The MSRB itself took two runs at the Rule proposal during 2014 before submitting the Rule for SEC consideration last April. The usual approval process ran on August 6 thus requiring the "proceedings" to extend the time to ...
Tags: broad conduct standards for municipal advisors, burr forman, Exchange Act, MSRB, Municipal Advisor Conduct Rule, Rule G-42, SEC, Securities Litigation & Arbitration, Securities Litigation blog
FINRA issued its late-July Regulatory Notice 15-27 warning brokerage firms that inadvertent short positions or fail-to-delivers in municipal securities trading can create situations where the member-firm pays a customer substitute interest that is not tax-deductible. Firms need to ensure their supervisory and compliance systems, and just as importantly their customer communications, address those situations. Short sales of municipal securities (selling a borrowed position, and buying it in lower, later) are rare. But the IRS has held that the lender's receipt of interest ...
Posted in: FINRA
Tags: burr forman, compliance system, finra, IRS, municipal markets, municipal-securities, Regulatory Notice 15-27, Securities Litigation & Arbitration, supervisory system