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Regulation, Not Growth, Is Top
Concern for RIAs Market turmoil nearly always generates more regulation for the most
heavily regulated industry in the nation. Now investment advisors have become the focus, and it is
causing problems for the industry.
Big Name Boutiques Flex Their
Muscles Wirehouses are tossing brokers out on their ears as consolidation moves
forward. While those brokers continue to arbitrate with the firms, the boutiques are looking for new
talent. A good fit? On Wall Street asks the question - do they want you?
Supreme Court Might Side With Investors on
Fees After years of the court system siding with the mutual fund industry on the
discrepancy between retail and institutional mutual fund fees, the case that the Supreme Court will
hear this fall might be a watershed one for investors.
SEC Charges Massachusetts-Based Money Manager in Multi-Million Dollar Ponzi
Scheme The Securities and Exchange Commission today charged a money manager
who lives in Wayland, Mass., for conducting a multi-million dollar Ponzi scheme in which he
promised investors lofty returns as high as 20 percent but instead often stole their money for his
personal use
SEC Proposes Rule Amendments to Strengthen Regulatory Framework for Money
Market Funds The Securities and Exchange Commission today voted unanimously to
propose rule amendments designed to significantly strengthen the regulatory framework for
money market funds to increase their resilience to economic stresses and reduce the risks of runs
on the funds.
SEC Charges Madoff Solicitors and Feeder With Fraud The Securities and
Exchange Commission today charged a New York-based broker-dealer and four individuals with
securities fraud, alleging that they collectively raised billions of dollars from investors for Bernard L.
Madoff's Ponzi scheme.
FINRA Requests Comment on Proposed Consolidated FINRA Rule
Governing Investment Company Securities As part of the process to develop a new
consolidated rulebook (the Consolidated FINRA Rulebook), FINRA is requesting comment on a
proposed FINRA rule regarding the distribution and sale of investment company securities. The
proposal is based on NASD Rule 2830, subject to certain changes, including proposed new
requirements regarding disclosure of cash compensation.
SEC Charges Former Quest Executives With Fraudulently Concealing Millions of
Dollars of Self-Dealing The Securities and Exchange Commission today charged two
Oklahoma City residents with securities fraud and other violations for a scheme in which they
misappropriated to themselves millions of dollars from Quest Resource Corporation, Quest
Energy Partners, L.P. and their affiliates while they were executives at the company.
SEC Approval and Effective Date for New Consolidated FINRA
Rules Following the consolidation of NASD and the member regulation, enforcement and
arbitration functions of NYSE Regulation into FINRA, FINRA established a process to develop a
new consolidated rulebook (Consolidated FINRA Rulebook), which FINRA has discussed in
previous Information Notices. FINRA is proposing new consolidated rules in phases for approval
by the SEC as part of the Consolidated FINRA Rulebook. In April and May 2009, the SEC approved
eight new consolidated FINRA Rules, which will take effect on August 17, 2009.
Information for Investors in the Reserve Primary Fund The Securities and
Exchange Commission today posted information on its Web site for investors in the Reserve
Primary Fund, which "broke the buck" last September when its net asset value fell below $1 per
share. Since then, the fund has withheld a significant amount of money from investors pending the
outcome of numerous lawsuits filed against the fund, its trustees, and other officers and directors
of Reserve entities.
SEC Approves Amendments to NASD Rule 2821 Governing Purchases and
Exchanges of Deferred Variable Annuities On April 15, 2009, the SEC approved
amendments to NASD Rule 2821 governing purchases and exchanges of deferred variable
annuities. Among other things, the amendments:
-limit the rule's application to recommended transactions;
-change the triggering event that begins the principal review period; and
-clarify various other issues through new supplementary material to the rule.
The rule text is set forth in Attachment A and is effective February 8, 2010.
SEC Obtains Asset Freeze to Halt Nationwide Prime Bank Scheme The
Securities and Exchange Commission has obtained an emergency court order and asset freeze to
shut down a fraudulent prime bank scheme that promised massive returns to investors
nationwide and then offered a range of administrative excuses when investors had not received
any payments.
FINRA Reminds Firms of Sales Practice Obligations Relating to Leveraged
and Inverse Exchange-Traded Funds Exchange-traded funds (ETFs) that offer leverage or
that are designed to perform inversely to the index or benchmark they track—or both—are growing
in number and popularity. While such products may be useful in some sophisticated trading
strategies, they are highly complex financial instruments that are typically designed to achieve their
stated objectives on a daily basis. Due to the effects of compounding, their performance over
longer periods of time can differ significantly from their stated daily objective. Therefore, inverse
and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold
them for longer than one trading session, particularly in volatile markets.
SEC and ASC Charge Alabama Broker-Dealer for Rampant Churning and Extensive
Supervisory Violations The Securities and Exchange Commission and the Alabama
Securities Commission (ASC) have charged a Birmingham, Ala.-based broker-dealer in
connection with rampant churning of customer accounts, widespread supervisory failures, and
other securities violations that resulted in significant harm to clients and substantial profit to the
firm. Also charged by the SEC and ASC were several of the firm's senior officers and registered
representatives. Churning is a fraudulent practice that occurs when a broker engages in excessive
trading without regard to the customer's investment objectives for the purpose of generating
commissions and other revenue.
SEC Charges New York-Based Investment Adviser for Stealing Client
Funds The Securities and Exchange Commission today charged an investment adviser
who lives in Armonk, N.Y., for orchestrating a scheme in which he stole more than $6 million in
investor funds for his own personal use, in some instances victimizing clients who were terminally
ill or mentally impaired.
SEC Charges Operators of $80 Million Ponzi Scheme Targeting Korean-
Americans The Securities and Exchange Commission today charged two California men
and two companies they control for conducting an $80 million Ponzi scheme that targeted Korean-
American investors with false promises of extraordinarily high returns from foreign currency (forex)
trading.
SEC Charges Former Countrywide Executives With Fraud The Securities and
Exchange Commission today charged former Countrywide Financial CEO Angelo Mozilo and two
other former executives with securities fraud for deliberately misleading investors about the
significant credit risks being taken in efforts to build and maintain the company's market share.
Mozilo was additionally charged with insider trading for selling his Countrywide stock based on
non-public information for nearly $140 million in profits.
SEC Finalizes ARS Settlements With Bank of America, RBC, and Deutsche
Bank The SEC announced finalized settlements with Bank of America, RBC Capital
Markets, and Deutsche Bank to resolve SEC charges that the firms misled investors regarding the
liquidity risks associated with auction rate securities (ARS) that they underwrote, marketed, or
sold.
SEC Approves Rule Establishing an Interim Pilot Program on Margin
Requirements for Transactions in Credit Default Swaps The SEC has approved new
FINRA Rule 4240, which establishes an interim pilot program (the Interim Pilot Program) with
respect to margin requirements for certain transactions in credit default swaps (CDS) and
addresses related risk monitoring procedures and guidelines. The Interim Pilot Program's
requirements extend to any transactions in CDS executed by a member (regardless of the type of
account in which the transaction is booked), including those in which the offsetting matching
hedging transactions are effected by the member in CDS contracts that are cleared through the
central counterparty clearing services of the Chicago Mercantile Exchange (CME). The Interim Pilot
Program expires on September 25, 2009.
SEC Announces Creation of Investor Advisory Committee Securities and
Exchange Commission Chairman Mary Schapiro today announced the formation of an Investor
Advisory Committee to give investors a greater voice in the Commission's work. SEC
Commissioner Luis A. Aguilar will serve as the Commission's primary sponsor of the
Committee.
FINRA Requests Comment on Proposed FINRA Rule Addressing the
Origination and Circulation of Rumors As part of the process of developing a new,
consolidated rulebook (the Consolidated FINRA Rulebook), FINRA is requesting comment on
proposed FINRA Rule 2030 relating to the origination and circulation of rumors. FINRA initially
sought comment on the proposed rule, which is based on FINRA Rule 6140 and Incorporated
NYSE Rule 435(5), in Regulatory Notice 08-68. In response to the comments received, FINRA is
proposing substantial changes to proposed FINRA Rule 2030. The proposed changes include
amendments to the general prohibition in Rule 2030 and the proposed reporting requirement, as
well as adopting Supplementary Material to Rule 2030 that will address exceptions for certain
communications, the definition of the term "rumor," additional rules of which member firms should
be aware, and a firm's obligation to adopt written policies and procedures concerning rumors.
FINRA is requesting comment on the proposed revisions to Rule 2030.
SEC Charges 10 Brokers with Fraud for Disguising Risks of Investing in Mortgage-
Backed Securities The SEC charged 10 brokers with fraud for falsely marketing
investments in derivatives of mortgage-backed securities as safe and suitable for retirees and
others with conservative investment goals. The SEC alleges that the brokers enriched themselves
with millions of dollars in commissions and salaries while the investors suffered millions of
dollars in losses.
SEC Halts Foreign Exchange Offering Fraud by College Professor and Houston-Based
Lawyer The Securities and Exchange Commission has obtained an emergency court
order to freeze the assets of Texas A&M finance professor Robert D. Watson, who resigned from
that position last month, as well as Houston lawyer and certified public accountant Daniel J.
Petroski and two firms. They are charged with defrauding U.S. investors by using forged bank
records to make it appear they were earning spectacular returns in foreign exchange trading.
SEC, DOL Accepting Requests to Participate in Joint Hearing Examining Target Date
Funds The Securities and Exchange Commission and the Department of Labor
announced today that they are accepting requests to participate in a joint hearing on June 18
examining target date funds. Target date funds and other similar investment options are
investment products that allocate their investments among various asset classes and
automatically shift that allocation to more conservative investments as a "target" date approaches.
This shift in asset allocation, often referred to as a fund’s "glide path," may differ significantly
among funds with the same target date.
SEC Obtains Asset Freeze Of Wisconsin-Based Investment Adviser Charged in
Kickback Scheme The Securities and Exchange Commission has obtained an
emergency court order to freeze the assets of an Appleton, Wisc.-based investment adviser
charged with engaging in a kickback scheme and other fraudulent conduct involving six
unregistered investment pools it managed.
SEC Charges Florida Trader for Issuing Fake Press Release to Manipulate Stock
Price The Securities and Exchange Commission today charged a trader from Fort Myers,
Fla., with fraud for writing and disseminating a fake press release that, when reported in the
media, caused a company's stock price to soar and allowed him to reap thousands of dollars in
illicit profits.
SEC Charges Eight Participants in Penny Stock Manipulation Ring The
Securities and Exchange Commission has charged eight participants in a penny stock
manipulation ring that allegedly pumped the market prices of at least four stocks and generated
more than $6.2 million in illicit profits when they dumped shares on the market.
Securities Industry/Regulatory Council on Continuing Education Issues
Firm Element Advisory Update This Notice advises firms of the second-quarter 2009
Securities Industry/Regulatory Council on Continuing Education Firm Element Advisory, which
identifies regulatory and sales practice topics that firms should consider in their Firm Element
training plans. Topics updated or added since the prior Advisory are indicated in the document as
such.
SEC Announces $843 Million Fair Fund Distribution to Harmed AIG
Investors The Securities and Exchange Commission today announced that a federal
court has approved the distribution of more than $843 million to harmed investors in the American
International Group, Inc. from a Fair Fund that the SEC established after the company’s settlement
of an SEC enforcement action for accounting fraud.
SEC to Hold Public Seminar on New Interactive Data Reporting
Requirements The Securities and Exchange Commission will conduct a public seminar
on June 10 from noon to 3 p.m. ET to help companies and preparers comply with new rules that
require financial reports to be filed using interactive data (XBRL).
SEC Charges Monster Worldwide Inc. for Backdating Scheme The SEC
charged employment search provider Monster Worldwide, Inc. for its multi-year scheme to secretly
backdate stock options granted to thousands of Monster officers, directors and employees.
Monster agreed to pay a $2.5 million penalty to settle the SEC's charges that the company
defrauded investors by granting backdated, undisclosed "in-the-money" stock options while failing
to record required non-cash charges for option-related compensation expenses.
SEC Announces First Distribution From $267 Million Bear Stearns Fair
Fund The SEC announced the start of a $267 million Fair Fund distribution to mutual
funds and mutual fund shareholders who were harmed by late trading and market timing that
occurred through Bear Stearns, which was charged by the SEC in a 2006 enforcement action.
SEC Approval of Proposed Changes to Forms U4 and U5 and FINRA Rule
8312 (FINRA BrokerCheck Disclosure) The SEC recently approved amendments to
Forms U4 and U5 as well as FINRA Rule 8312 (FINRA BrokerCheck® Disclosure). The
amendments, among other things, make significant changes to disclosure questions on the
Forms, including the addition of questions about certain regulatory actions. The new regulatory
action questions will enable FINRA and other regulators to identify more readily persons subject to
a particular category of statutory disqualification under the federal securities laws and the FINRA
By-Laws.
SEC, DOL to Hold Joint Hearing Examining Target Date Funds The SEC and
the U.S. Department of Labor will hold a joint one-day hearing on June 18 to explore issues
relating to target date or lifecycle funds and other similar investment options.
Michael Lauer to Pay More Than $62 Million in Hedge Fund Fraud Case The
SEC announced that Michael Lauer, the head of two Connecticut-based hedge fund advisors, has
been ordered to pay more than $62 million within 15 days as a result of being found liable on SEC
fraud charges last fall.
SEC Charges Investment Adviser for Proxy Voting Rule Violations The SEC
charged West Palm Beach, Fla.-based INTECH Investment Management LLC and its former chief
operating officer David E. Hurley for violating the SEC's proxy voting rule for investment advisers by
not sufficiently describing its proxy voting policies and procedures and failing to address a material
potential conflict of interest.
Amazon.com
makes it easy to order books online, and we have compiled what we believe
to be the most useful books for the brokerage legal and compliance officer
in the Compliance and Law Department
at the SECLaw.com Bookstore.
The
Law of Securities Regulation - from West Publishing, an excellent
introduction and overview of the securities laws. This is a "hornbook",
books written for law students to introduce a new subject. Excellent reference
material for layman, compliance officer or an attorney seeking an introduction
to the subject. With full citations, attorneys can quickly locate the
major cases on a particular topic and obtain additional information.
Securities
Regulation in a Nutshell (6th ED) - This book summarizes the essential
background and current status of each major area, while keeping details
and citations to a minimum. It includes references to the relevant statutes,
SEC rules and releases, and other governmental materials, as well as to
"leading cases."
Nothing
herein is intended as legal or financial advice. The law is different in
different jurisdictions, and the facts of a particular matter can change
the application of the law. Please consult an attorney or your financial
advisor before acting upon the information contained in this article.
SECLaw.com
was created by and is sponsored by Mark
J. Astarita, Esq., a securities attorney and partner in the law firm
of Beam & Astarita, LLC, who represents
financial professionals in a wide variety of matters. Mr. Astarita can be
contacted by email at astarita@beamlaw.com.
Copyright 2009. All
Rights Reserved.
VGIS Communications,
LLC
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