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 ...
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 ...
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 ...
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 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 ...
The Sixth Circuit this week rejected the "definitively and specifically" standard that had required a Sarbanes-Oxley whistleblower's "reasonable belief" to closely track each element of the legal cause of action for the fraud she reports has occurred. The Circuit instead aligned with more recent authority requiring only a subjective belief that is objectively reasonable, given the whistleblower's training and experience. Sarbanes-Oxley makes it illegal for a public company to retaliate against an employee who reports fraud or assists in investigations or enforcement ...
In an opinion Thursday, the Delaware Supreme Court held that independent directors should be dismissed from shareholder derivative litigation - even over transactions presumptively subject to "entire fairness" review - unless plaintiffs adequately plead non-exculpated claims against them. Prior precedent suggested, and the lower courts in these consolidated appeals adopted, a transactional approach to the issue: If the transaction was subject to entire-fairness review, then all the directors presumptively remained in the case through discovery to summary judgment at ...
The SEC confirmed Friday that it may choose to be prosecutor, judge and jury in novel cases where it thinks it knows best and can urge Chevron deference when others seek judicial review.
The Commission dressed up the language a bit, of course:
If a contested matter is likely to raise unsettled and complex legal issues under the federal securities laws, or interpretation of the Commission's rules, consideration should be given to whether, in light of the Commission's expertise concerning those matters, obtaining a Commission decision on such issues, subject to appellate review in the ...
Earlier this week, the SEC approved a whistleblower award of between $1.4-1.6 million to a compliance officer. Ordinarily, the Commission will not consider information to be "derived from [a whistleblower's] independent knowledge or independent analysis" if the whistleblower "obtained the information because" the whistleblower was "[a]n employee whose principal duties involve compliance or internal audit responsibilities . . . ." 17 C.F.R. § 240.21F-4(b)(4)(iii)(B). The case fell within an exception to the compliance-officer exclusion, because the Commission ...
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 ...
Deutsche Bank, a German lender agreed to plead guilty and pay $2.5 billion to settle with regulators in the United States and the United Kingdom in connection with criminal charges that it rigged and manipulated the London interbank offered rate ("Libor"). Regulators announced the settlement Thursday, April 23, 2015. According to the regulators Libor is a benchmark for interest rates that apply to trillions of dollars of financial contracts. (Eyk Henning, "Deutsche Bank to Pay $2.5 billion to Settle Libor Investigation With U.S., U.K. Authorities," Wall Street Journal (April 23 ...
The MSRB filed its Municipal-Advisor conduct rule proposal with the SEC on April 15. The Rule G-42 proposal has been around the block twice, since the Board first floated it in January last year (Reg. Notice 2014-01). The Revised Draft was issued last July (Reg. Notice 2014-12). I discussed them in our July 30, 2014 and January 23, 2014 blogs. As proposed for adoption by the SEC, the Rule broadly imposes:
A fiduciary duty to Municipal Entities, but only of care to Obligated Persons;
An "engagement letter" disclosure regime requiring conflicts and disciplinary disclosures ...
We've all done it: Read the docket description in the notice of electronic filing ("NEF") and have your paralegal download the order and add it to the pleadings file. But you have to read the order: The clerk's mis-description in an NEF could cost your client its appeal. Three of the four post-verdict JMOLs in the patent litigation were confidential, so were filed with motions for leave to seal them. The fourth JMOL wasn't. The first three NEF's read "Order granting motion for leave to file sealed documents" (referring only to the Doc. No. of the motion to seal). Then the court docketed ...
FINRA recently issued Regulatory Notice 15-06 requesting comments on the proposal that would require the registration of associated persons involved in the design, development or modification of algorithmic trading strategies. As automation continues to evolve, firms are relying more on automated systems to trade securities. With the use of pre-programmed trading instructions, or algorithmic trading strategies, firms can input various variables in order to achieve the required trading activity. If an individual, as opposed to an automated system, performed the trade ...
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 ...
The Securities and Exchange Commission announced on March 25, 2015 a proposal to amend Rule 15b9-1 under the Exchange Act to require broker-dealers who trade in off-exchange venues to become members of a national securities association. According to the SEC's press release, "the amendments would enhance regulatory oversight of active proprietary trading firms, such as high frequency traders." Under this proposal, such broker-dealers would be regulated not only by the SEC, but also the industry's self-regulatory agency, the Financial Industry Regulatory Authority ...
After seeking comments last fall, the Securities and Exchange Commission ("SEC") recently approved the Financial Industry Regulatory Authority's ("FINRA") proposed rule governing member firms' verification and investigation of associated persons applying for registration with a member firm. Specifically, the Rule, which is based largely on NASD Rule 3010(e), requires member firms to investigate the qualifications and experience of its applicants as well as adopt written procedures designed to verify the accuracy of the disclosures contained in an applicant's ...
Addressing the annual meeting of the Compliance & Legal Division of the Securities Industry and Financial Markets Association, Manhattan U.S. Attorney Preet Bharara stressed the importance of industry compliance and legal personnel as gatekeepers in risk avoidance and loss prevention. Bharara started with a nod to the "necessity and importance" of corporate prosecutions as drivers of change for persistent and systemic problems. Noting the CommerzBank deferred prosecution agreement among other recent cases, he repeated his now-annual refrain that corporate ...
On February 20, 2015, the Alabama Supreme Court affirmed the order of the Circuit Court of Jefferson County, Alabama dismissing claims asserted by Walter Energy, Inc. against investor Julian A. Treger, his firm Audley Capital Advisors, LLP and other associated investment entities related to a purported "pump and dump" scheme executed by the Audley defendants related to Walter Energy stock. In late 2010, Walter Energy purchased Western Coal Corporation. Walter Energy alleged in the trial court that the Audley defendants initiated a "pump and dump" scheme on July 17, 2011, when ...
On February 20, 2015, Chairwoman of the United States Securities and Exchange Commission ("SEC"), Mary Jo White, spoke at the 2015 SEC Speaks Conference in Washington, D.C. During her speech, Chairwoman White addressed a number of topics in providing an overview of the SEC's activities and initiatives during 2014.
In particular, Chairwoman White commented on reforms made with respect to U.S. money market funds via the promulgation of new SEC rules in July 2014. Under these new rules, institutional prime money market funds will be required to maintain a floating net asset value ...
On May 20, 2014, the Securities and Exchange Commission initiated proceedings to determine whether to approve a proposal by the Financial Industry Regulatory Authority, Inc, (FINRA) to amend the NASD and FINRA rules governing estimated valuations for unlisted direct participation program (DPP) and real estate investment trust (REIT) securities. On January 31, 2014, FINRA filed a proposed rule change to amend NASD Rule 2340 (Customer Account Statements) and FINRA Rule 2310 (Direct Participation Programs), both of which address per share estimated valuations for unlisted DPP ...
The SEC's new MA Rules become effective July 1, 2014, 17 CFR 240.15Ba1-1 through 1-8 and 15Bc4-1. Required by Dodd-Frank § 975, the Rules were adopted last year, but the SEC postponed their implementation from January to July 1. Rel. No. 34-71288 (stayed January 13 until July 1, 2014); Final Rule, Rel. No. 34-70462, here:http://www.sec.gov/rules/final/2013/34-70462.pdf
The Rules implement a registration regime and impose a fiduciary duty upon any person deemed a Municipal Advisor. The Rules are very specific about which circumstances and relationships impose that duty and what ...
On April 24, 2014, the Financial Industry Regulatory Authority (FINRA) announced that its board of governors had approved rules requiring that firms to run background checks on new hires, whether new brokers or transfers, to verify the information on their U4s. Amended FINRA Rule 3110, the supervision rule, will also require firms to establish procedures for verifying information on their representatives' U4s. FINRA itself will search public financial records and criminal records for registered representatives and registered individuals who have not been fingerprinted in ...
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 ...
Arbitration is an alternative to the traditional lawsuit filed in court in order to resolve a dispute. It is a formal dispute resolution process in which the parties-customers, brokers, or brokerage firms-select a neutral, third party (or parties) called an arbitrator to decide the matter. In the securities area, the Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory organization and the largest regulator of securities firms doing business with the public. Any arbitration filed that involves securities will likely be filed with FINRA, which then ...
"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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