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's Featured Articles, Books and Related Sites:
SEC Law.com IPO Information Center
Introductory
Materials:
Featured
Books:
Hedge
Fund Disclosure Documents Line by Line: A User's Guide to Private Placement
Memoranda for Funds Formed as Limited Liability Companies  -
a walkthrough of a private placement memorandum for a hedge fund, but
the concepts are applicable to any private placement memorandum.
Regulation
of Securities: Sec Compliance and Practice - Securities compliance
handbook for public companies, and those responsible for their compliance
issues. This is not an academic treatise, it provides straightforward
answers to real-world questions.
Enforcement
Actions
SEC Charges Austin-Based Investment Adviser in Fraudulent Scheme Utilizing Football
Stars
The Securities and Exchange Commission today filed securities fraud charges
against an Austin, Texas investment adviser and two businesses he controls for operating a multi-
million dollar scam that used former professional football players to promote its offerings.
SEC Charges U.S. Subsidiary of World's Largest Inter-Dealer Broker for Displaying
Fictitious Trades and Misleading Customers
ICAP Securities USA LLC to Pay $25 Million
to Settle SEC Findings
NASDR Notices to
Members
10-04 SEC Approves Consolidated FINRA Rules Governing Clearly
Erroneous Transactions
On December 1, 2009, the SEC approved FINRA's proposed
rule change to adopt a new set of rules governing clearly erroneous transactions in the
consolidated rulebook. The new FINRA Rule 11890 Series replaces NASD Rule 11890, IM-11890-
1 and IM-11890-2 and was adopted as part of a market-wide effort by multiple self-regulatory
organizations to provide transparency and finality with respect to clearly erroneous executions.
Among other things, the new rule series includes a new general rule defining "clearly erroneous"
transactions, separate provisions for the determination of clearly erroneous transactions
depending upon whether the transaction involves an exchange-listed security or an over-the-
counter equity security and procedures for appealing FINRA clearly erroneous determinations. In
addition, the new rule series codifies minimum numerical criteria necessary for a transaction to
qualify as clearly erroneous.
10-03 FINRA Requests Comments on Proposed Consolidated FINRA
Rules Governing Securities Loans and Borrowings, Permissible Use of Customers' Securities
and Callable Securities
As part of the process of developing a new, consolidated
rulebook (the Consolidated FINRA Rulebook), FINRA is requesting comment on three proposed
FINRA rules. Proposed FINRA Rule 4314 (Securities Loans and Borrowings) sets forth the
requirements applicable to a member firm that is a party to an agreement for the loan or borrowing
of securities. Proposed FINRA Rule 4330 (Customer Protection—Permissible Use of Customers'
Securities) sets forth the requirements applicable to a member firm's borrowing or lending of a
customer's margin securities that are eligible to be pledged or loaned. Proposed FINRA Rule 4340
(Callable Securities) sets forth the obligations applicable to any callable securities a member firm
has in its possession or control.
10-01 Proposed Consolidated FINRA Rules Governing FINRA’s
Membership Application Proceedings
As part of the process of developing a new,
consolidated rulebook (the Consolidated FINRA Rulebook), FINRA is requesting comment on
proposals relating to FINRA's membership rules. These rules, which were adopted in August
1997, provide a means for FINRA, through its Membership Application Process (MAP), to know and
assess the proposed business activities of its potential and current member firms. The proposed
amendments revise certain provisions of the existing membership rules to streamline the
standards of review for new and continuing membership applications, clarify certain administrative
aspects of the MAP process, update or eliminate outdated terminology and require certain
additional information (including certain affiliate information) about the applicant and incorporate
certain provisions from the Incorporated NYSE membership rules.
09-73 FINRA Reminds Firms of Their Sales Practice Obligations Relating
to Principal-Protected Notes
The retail market for principal-protected notes (PPNs) has
grown in recent years, in part because they are often marketed as combining the relative safety of
bonds with a potential for growth not available with traditional fixed income products. However,
these products are not risk-free, and their terms and structures can be complex. Firms must
ensure that their promotional materials or communications to the public regarding these products
are fair and balanced, and do not overstate either the level of protection offered or an investment's
potential returns. Firms also have a duty to ensure that their registered representatives understand
the risks, terms and costs associated with these products, and that they perform an adequate
suitability analysis before recommending them to a customer.
FINRA Disciplinary and Other FINRA Actions for December
2009
FINRA has taken disciplinary actions against the following firms and individuals for
violations of FINRA rules; federal securities laws, rules and regulations; and the rules of the
Municipal Securities Rulemaking Board (MSRB).
09-71 SEC Approves Consolidated FINRA Rules Governing Financial
Responsibility
The SEC approved FINRA's proposed rule change to adopt a new set of
financial responsibility rules for the consolidated rulebook (the Consolidated FINRA Rulebook).
FINRA Rules 4110, 4120, 4130, 4140 and 4521 are new consolidated rules governing financial
responsibility that are based in part on, and replace, provisions in the NASD and Incorporated
NYSE Rules. The rule change also amends FINRA Rules 9557 and 9559 to, among other things,
provide members served with a notice under the financial responsibility rules an expedited appeal
process, and makes certain conforming revisions to Section 4(g) of Schedule A to the FINRA By-
Laws.
09-70 FINRA Requests Comment on Proposed Consolidated FINRA
Rules Governing Registration and Qualification Requirements
As part of the process of
developing a new consolidated rulebook (the Consolidated FINRA Rulebook), FINRA is requesting
comment on a proposal to streamline and amend the FINRA registration and qualification
rules.
09-69 FINRA Requests Comment on Proposed Consolidated FINRA Rule
Governing Payments to Unregistered Persons
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 payments to unregistered persons. Proposed FINRA Rule 2040
(Payments to Unregistered Persons) would be a new consolidated rule that streamlines the
provisions of current rules.
09-66 SEC Approves Changes to FINRA's BrokerCheck Disclosure Rule to
Retain and Make Publicly Available Information About Final Regulatory Actions Against Former
Brokers
Beginning November 30, 2009, information concerning final regulatory actions
against brokers—as well as certain administrative information (e.g., employment and registration
history) and information about qualification examinations, if available, and the broker's most
recently submitted comment, if any—will be permanently available in BrokerCheck,® regardless of
when they were employed in the securities industry.
09-60 SEC Approval and Effective Dates 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 August and September, the SEC
approved eleven new consolidated FINRA Rules. The new rules, except for FINRA Rule 3310 (Anti-
Money Laundering Compliance Program), take effect on December 14, 2009. FINRA Rule 3310
takes effect on January 1, 2010.
09-55 FINRA Requests Comments on Proposed New Rules Governing
Communications with the Public
FINRA requests comments on proposed new FINRA
rules governing communications with the public. These new rules would replace current NASD
Rules 2210 and 2211, the Interpretive Materials that follow NASD Rule 2210, and portions of
Incorporated NYSE Rule 472.While the proposed rules are based upon these rules' current
provisions, the new FINRA rules would employ new communications categories and require the
filing of certain types of communications that currently are not required to be filed. The proposal
also would make a number of other changes to the communications rules.
News
Items
SEC Issues Concept Release Seeking Comment on Structure of Equity Markets
SEC Issues Concept Release Seeking Comment on Structure of Equity Markets
The
SEC issued a concept release as part of its review of the equity market structure, voting
unanimously to issue a concept release seeking public comment on such issues as high
frequency trading, co-locating trading terminals, and markets that do not publicly display price
quotations.
SEC Proposes New Rule to Effectively Prohibit Unfiltered Access and Maintain Market
Access Controls
The Securities and Exchange Commission today voted unanimously to
propose a new rule that would effectively prohibit broker-dealers from providing customers with
"unfiltered" or "naked" access to an exchange or alternative trading system (ATS).
SEC Announces Initiative to Encourage Individuals and Companies to Cooperate and
Assist in Investigations
The SEC announced a series of measures to further strengthen
its enforcement program and encourage greater cooperation by individuals and companies in the
agency's investigations and enforcement actions.
SEC Charges California Telecom Company With Bribery and Other FCPA
Violations
The Securities and Exchange Commission today charged Alameda, Calif.-
based telecommunications company UTStarcom, Inc. with violations of the Foreign Corrupt
Practices Act (FCPA) for authorizing millions of dollars in unlawful payments to foreign government
officials in Asia.
FINRA Fines Pacific Cornerstone Capital, CEO $750,000 for Private
Placement Offering Failures
$750,000 in fines for failing to include full and complete
information in private placement offering documents and marketing material. FINRA also charged
Pacific Cornerstone and Roussel with advertising violations and supervisory failures.
FINRA Expels Meeting Street Brokerage, Bars Broker, Sanctions Firm's
Owner for Market Manipulation, Other Violations
All Three Schemed to Create Artificial
Price and Trading Volume for Relay Capital Corporation
FINRA Fines Terra Nova Financial $400,000; Firm Made Over $1 Million in
Improper Soft Dollar Payments
Three Former Employees Also Sanctioned
SEC Charges Broker for Manipulation Using
Internet
Once again, the SEC is moving quickly. It is a welcome change, as they have
always been known for closing the barn door after the horse has bolted. Only three weeks after an
alleged fraud began, the SEC charged a securities broker with securities fraud for repeatedly
creating and then distributing fake press releases to manipulate the stock prices of multiple
publicly traded companies.
Morgan Stanley Plans to Double High Net Worth
Advisors
Morgan Stanley Smith Barney announced the integration of Smith Barney’s Citi
Family Office into its own ultra-high-net-worth division, which will now be called Morgan Stanley
Private Wealth Management. Unlike the old family office, the newly combined unit will exclusively
serve clients with a minimum of $20 million in assets. Morgan said it plans to add more advisors
to PWM through a combination of "organic growth and selective acquisitions."
Schwab Receives Wells Notice For Mutual
Funds
In an 8-K filing, Charles Schwab Corp. disclosed that it has received a Wells
Notice from the SEC. Accordign to the filing, the Company has been responding to civil litigation
claims and regulatory investigations regarding two fixed income mutual funds, the Schwab
YieldPlus Fund(R) and the Schwab Total Bond Market Fund(TM). The Wells Notice reflects that the
SEC staff intends to recommend the filing of a civil enforcement action against Schwab
Investments, Charles Schwab Investment Management, Charles Schwab & Co., Inc. and the
president of the funds for possible violations of the securities laws with respect to the two funds.
Beware of Auction Rate Securities Settlement "Phishing"
Scam
FINRA has issued an Investor Alert to warn the public about a recent auction rate
securities (ARS) "phishing" scam that promises compensation from ARS settlements in exchange
for personal information. Follow the link to the FINRA web site. The email looks like it originated
from FINRA—although it did not. It purports to inform the recipient of regulatory actions, including
fines imposed by FINRA related to ARS, and states that the recipient is due $1.5 million regardless
of the amount of their ARS investment or loss. The email then “phishes” for personal information
including occupation, address and phone number.
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