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 ...
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:
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 ...
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 ...
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 ...
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 ...
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 ...
The SEC's administrative forum has been under increasing scrutiny over the past year. Now the SEC has removed an ALJ from a high-profile case, after he refused the Commission's "invitation" to provide a no-bias affidavit in similar case. In a May 6 article, "SEC Wins With In-House Judges," the Wall Street Journal reported that former ALJ Lillian McEwen felt pressured by the SEC's Chief Administrative Law Judge over her failure to rule more often in the Commission's favor. Respondents appealing an administrative case to the full Commission have alleged the process is unfair and ...
The Department of Justice today appealed the Second Circuit's Newman decision to the U.S. Supreme Court, after several extensions. United States v. Newman, No. 15-137 (U.S. filed July 30, 2015). Last December's ruling narrowed the scope of tippee liability in insider-trading cases. The latest extension of the cert-petition deadline resulted in a bit of row, when the government hand-delivered the request June 15 and Justice Ginsburg granted it June 16, (extending the filing deadline to August 1). But Newman's counsel apparently wasn't even served with the government's request ...
The Financial Industry Regulatory Authority (FINRA) announcedlast week that it is seeking comment on a proposal to create a new academic Trade Reporting and Compliance Engine (TRACE) data set. While academic researchers already use historic TRACE data, the data currently available to researchers does not include identifying information about dealer identities. The new data product, which would be available solely to institutions of higher education, would include masked dealer identities. FINRA's proposal, which is similar to a proposal recently made by the Municipal ...
Last week the US Chamber of Commerce, through its Center for Capital Markets Competitiveness, issued a white paper proposing wide-ranging changes to the SEC's enforcement process. Most of the 28 recommendations were refinements of existing processes or prior recommendations, but some likely would require congressional mandate. The report called for changes to five categories of enforcement policy, to Commissioners' oversight of the enforcement process and improvements to SEC investigations. The Center's objective is to ensure "vigorous, effective enforcement coupled ...
In mid-June, SEC Commissioner Gallagher issued a strongly-worded public dissent from two enforcement actions against investment-adviser CCOs, accusing the Commission of "cutting off its nose to spite its face" by punishing CCOs upon whom regulators depend to help ensure legal and regulatory compliance. Our blog post covering the remarks is here. Commissioner Aguilar responded June 29 to Gallagher's remarks, "concerned [they] may have unnecessarily created an environment of unwarranted fear in the CCO community," and calling it "unhelpful." Aguilar cited agency ...
The U.S. Securities and Exchange Commission recently proposed rules under the Investment Company Act of 1940 and related regulations that would require certain funds, including Exchange-Traded Funds, to provide additional information to the SEC relating to, among other things, certain types of investments, liquidity, pricing, and risk metrics. This additional information will assist the SEC with assessing potential risks to investors and allow investors to better understand their exposure and risk factors. The proposal requires that the information be reported in a ...
On November 22, 2013, the SEC's Investor Advisory Committee voted to encourage the U.S. Securities and Exchange Commission to adopt a fiduciary duty for broker-dealers giving investment advice. The recommendation came from the Investor as Purchaser Subcommittee, and proposes either that the SEC conduct rulemaking under the Investment Advisers Act to narrow the broker-dealer exclusion from the Investment Advisers Act or that the SEC create a new rule under § 913 of the Dodd-Frank Act. In either case, the Committee recommended that the U.S. Securities and Exchange Commission ...
In Regulatory Notice 13-40, FINRA announced that the SEC had approved amendments to its Discovery Guide. The Discovery Guide applies to customer cases (rather than intra-industry cases) and outlines presumptively discoverable documents that the parties to an arbitration should exchange without FINRA or an arbitrator intervening. The amendments concern three areas: (1) electronic discovery, (2) product cases, and (3) affirmations. First, the Discovery Guide was amended to clarify that electronic files are "documents" under the meaning of the Discovery Guide and that ...
"Securities regulation and litigation is a field of law that covers various aspects of transactions and other dealings which involve securities or financial instruments. For example, debt securities, such as bonds, and equity securities, such as common stocks, that may be purchased through the New York Stock Exchange (NYSE) or the National Association of Securities Dealers Automated Quotations (NASDAQ).
Burr & Forman attorneys have the experience to assist clients in all forms of securities disputes, whether it is a dispute over the suitability of an investment, over a ...
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