A panel of the D.C. Circuit recently relied on Lucia and Cochran to enjoin a FINRA regulatory enforcement action pending appeal of an Appointments Clause challenge.
In securities-regulatory enforcement, the Securities Exchange Commission (“SEC”) and its delegates long have had a trinity-like advantage over those it seeks to punish: It is prosecutor, judge, and jury, with home-field advantage. Enabling the Commission, Congress empowered it to prosecute violations of the securities laws and the regulations promulgated under them. The SEC can choose to proceed in federal ...
In a January 21, 2016 Report of Investigation, the Inspector General for the Securities Exchange Commission found no evidence to substantiate allegations of pro-agency bias among SEC administrative law judges. The allegations of bias by a retired SEC ALJ appeared in a May 2015 Wall St. Journal article; the article's statistical analysis also revealed the SEC won 90% of contested cases brought in its "home court" administrative forum. The SEC's administrative forum has been under fire ever since Dodd-Frank expanded its jurisdiction to include non-registered persons. Then ...
An SEC administrative law judge ("ALJ") found that former Wells Fargo trader Joseph Ruggieri traded on material nonpublic information tipped him by former analyst Greg Bolan, but dismissed the insider-trading charges against Ruggieri, because the Division of Enforcement did not prove personal benefit to his tipper. The bottom line: It doesn't violate anti-fraud rules to trade on material non-public information obtained from a casual acquaintance who "simply could not follow the rules and keep his mouth closed," where there is no clearly-demonstrable personal benefit to ...
The Municipal Securities Rulemaking Board ("MSRB") announced September 2 that it has submitted for SEC approval proposed amendments extending its gift-limitations Rule G-20 to municipal advisors. In general, the Rule prohibits gifts or services (including gratuities) exceeding $100 per year to any person if they relate to the provision of municipal advisory services, with some exceptions, including:
Normal Business Dealings: Occasional gifts of meals or tickets to events hosted and attended by advisors, or sponsored business functions recognized by the IRS as deductible ...
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 ...
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 ...
Last week, SEC Administrative Law Judge Grimes dismissed administrative charges against an investment adviser and its principals for allegedly failing to disclose material conflicts of interest in its Form ADV and willfully filing false ADVs. The SEC instituted administrative proceedings against an investment advisor and several of its personnel, asserting that the firm's form ADV Part 2 did not adequately disclosure material conflicts of interest arising from Fidelity's revenue-sharing program in connection with some among the many funds on its platform, and also for ...
The MSRB recently released a content outline for the new Series 50 Municipal Advisor Representative examination, which the SEC approved in principle earlier this year. See MSRB Reg. Notice 2015-06. The MSRB filed the Rule Proposal with the SEC on April 22 for immediate effectiveness. SR-MSRB-2015-04. The Series 50 exam will require MA Representative candidates to complete 100 multiple-choice questions within 3 hours on a range of topics, including:
SEC and MSRB Rules on municipal advisor activities;
Municipal Finance generally;
Credit analysis and due diligence of municipal ...
The "boomer bulge" in the US aging demographic, combined with a persistent low-interest-rate environment, leads regulators to renew their warnings about retail sales of complex investment products to older investors. SEC Commissioner Aguilar told an April 14 meeting of state securities regulators that the two agencies should work together to increase disclosure regulations and enforcement actions targeting retail sales of structured notes and other complex products. The structured notes market is a $45 Billion market, of which about 99% is sold to retail investors, said ...
Not April Fool's for one public-company registrant, as the SEC filed its first settled action today over corporate confidentiality provisions that run afoul of Dodd-Frank whistleblower protections. The clause in question was part of the company's standard internal-investigation script and required investigation interviewees to sign an acknowledgement that they couldn't discuss the investigation or its subject matter without prior approval of the Law Department. The company paid a $130,000 fine, changed its provision to allow whistleblower reporting to SEC and DOJ, and ...
On February 26, 2015, the Securities and Exchange Commission ("SEC") approved a rule proposed by the Financial Industry Regulatory Authority, Inc. ("FINRA"). The rule, originally proposed by FINRA on June 17, 2014, amends FINRA Rule 12100(p) of the Code of Arbitration Procedure for Customer Disputes and FINRA Rule 13100(p) of the Code of Arbitration Procedure for Industry Disputes defining the term "non-public arbitrator" and FINRA Rule 12100(u) of the Customer Code and FINRA Rule 13100(u) of the Industry Code defining the term "public arbitrator." The proposed rule change was ...
In an address Friday at the 44th annual "SEC Speaks" conference, SEC Commissioner Michael Piwowar suggested that the Securities Exchange Commission might do well to apply its own rules to itself. He suggested the Commission might best build on its 2014 accomplishments by "apply[ing] the same objective that we have for the markets we regulate - that they fair, orderly, and efficient - to ourselves." Addressing "fairness," Piwowar suggested the agency must not engage in rulemaking by enforcement or exam findings and "must resist the temptation to include undertakings in ...
The SEC and FINRA each issued February 3 cyber security "alerts" summarizing last year's sweep exams and pointing out the obvious. In two parts, the SEC's press-release covered the results of the Commission's 2013-2014 sweep exams and an investor bulletin. SEC Press Release 2015-20, here. The Commission's Office of Compliance Inspections and Examinations ("OCIE") conducted a "sweep exam" - or wide industry survey on the subject among broker-dealers and investment advisers- during 2013 and 2014. The good news is that a wide majority of them have have information security ...
On January 29, the Commission dismissed its insider-trading suit against Canadian analyst Jordan Peixoto in connection with his purchase of puts on the stock of Herbalife in advance of a negative hedge fund presentation on the company. The SEC instituted proceedings against Peixoto last September in its administrativeforum - something it could not have done before Dodd-Frank against the non-registered Canadian-citizen research analyst. In the Matter of Jordan Peixoto, AP File No. 3-16184 (SEC Sept. 30, 2014)(OIP here) Dodd-Frank reforms expanded the availability of the ...
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 made numerous, and significant, changes to the Securities and Exchange Commission's regulatory powers particularly with respect to regulated professionals in the securities industry. But its broad sweep did not ignore non-regulated persons either. And, the significance of these changes to non-regulated individuals should not be underestimated.
929P(a) of Dodd-Frank granted the SEC authority to initiate the administrative proceedings against both regulated and non-regulated persons and to seek ...
With only three official days left of the current Congress, conversations Wednesday turned towards cybersecurity in the financial sector. The Commodity Futures Trading Commission, Office of the Comptroller of the Currency, and the Securities Exchange Commission all discussed planned or ongoing strategies to prepare for future cyber-attacks, highlighting such methods as compliance examinations of firms' cybersecurity measures. These organizations' efforts emphasize the substantial scrutiny on the effects that cyber-attacks can have on both financial institutions and ...
Responding to industry complaints, the SEC's Enforcement Division modified its Municipal Continuing-Disclosure Cooperation ("MCDC") Initiative to (a) extend the deadline for issuer disclosures until December 1 (from September 1) and (b) implement a tiered set of caps on fines, more proportional to underwriters' revenues. Announced last March, the Initiative offers standardized terms for settlement of administrative proceedings for those municipal-securities-market participants who admit their participation in securities offerings having mis-stated a public ...
The SEC recently made the unusual move of asking the Eleventh Circuit to publish its previously-unpublished per curiam decision in SEC v. Monterosso, 2014 WL 2922670 (11th Cir. June 30, 2014). The decision was not merely a win for the Staff, who presumably sought publication due to the Court's unwarranted language purporting to limit the Supreme Court's Janus precedent only to cases explicitly charged solely under Rule 10b-5(b). In Monterosso, the Commission's Enforcement Staff pursued civil prosecution of three individuals who - in their roles as the issuer's COOs and officers of ...
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