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Articles - Statutes - Rules - Decisions - News

Featured Books:

The Securities Enforcement Manual, Second Edition: Tactics and Strategies - Published by the American Bar Association, this new Second Edition completely updates the first edition published in 1997. Included is comprehensive coverage to proven approaches and techniques for dealing with an enforcement threat from the SEC, self regulatory organizations, or state securities regulators. It takes you step-by-step through enforcement investigations and proceedings, providing you with strategies to influence the outcome of an investigation and prevent or minimize the adverse effects of enforcement actions

Capital Markets Handbook considered by some to be the definitive desk reference for capital market professionals and a complete resource for anyone working in the financial markets field. Written by seasoned professionals in association with the SIA, Capital Markets Handbook covers the latest developments in major securities legislation, and all aspects of documentation, underwriting, pricing, distribution, settlement, immediate aftermarket trading of new issues, compliance issues, a glossary, a bibliography, and appendices containing the full text of the primary statutes and regulations.

21st Century Complete Guide to the SEC with Forms, Regs, Answers, Bulletins, Orders and more - This electronic book on CD-ROM presents the complete story of the Securities and Exchange Commission (SEC) with an enormous library of SEC documents: Public Forms and Regulations, Fast Answers from A to Z, Staff Legal Bulletins, Publications for Investors, Rulemaking, Commission Opinions and Orders, Policy Statements, Proceedings, and Reports.

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.

Introductory Materials

Guide to Broker-Dealer Registration - an updated version of the SEC's original guide is now online.

Introduction to the Federal Securities Laws - an introduction to the laws which govern the purchase and sale of securities in the United States, including the Securities Act of 1933 and the Securities Exchange Act of 1934

Introduction to the Blue Sky Laws (State Securities Laws)- in addition to the federal securities laws, each state has its own securities laws, rules and regulations. This article provides an overview to the function and purpose of those state laws, known as "blue sky laws."

Introduction to Securities Arbitration - today, nearly all disputes between customers and firms, and between brokerage firms, are resolved in binding arbitration. An overview of the process, from Mark Astarita.

Introduction to the Initial Public Offering Process -any offer to sell securities must be registered with the federal and/or state securities regulators, or exempt from registration. A description of the law, and the registration process.

Introduction to Private Placements - stock offerings which are not made to the general public are called private placements, and are exempt from registration with the securities regulators. A description of the exemption, and the private placement process.

Introduction to Insider Trading - insider trading refers to two types of trading, one that is legal, and the other that is not.

Commentary

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.

NASDR Notices to Members

09-13 SEC Approves Amendments Raising the Threshold for Single Arbitrator Cases to $100,000
SEC Approves Amendments Raising the Threshold for Single Arbitrator Cases to $100,000; Effective Date: March 30, 2009

News Items

SEC Charges California-Based Hedge Fund Manager for Operating Ponzi-Like Scheme
The SEC charged a Chula Vista, Calif. resident and two entities he controls for operating a Ponzi-like scheme through five hedge funds.

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.

SEC Charges Two Accountants and Antiguan Regulator for Roles in Stanford Ponzi Scheme
The Securities and Exchange Commission today charged two accountants who produced bogus financial statements and an Antiguan regulator who took bribes to look the other way as Robert Allen Stanford conducted an alleged $8 billion 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.

SEC, DOL Announce Panelists, Agenda for Joint Hearing on Target Date Funds
The Securities and Exchange Commission and the Department of Labor (DOL) today announced the agenda and expected panelists for their June 18 joint hearing about target date funds and other similar investment options.

SEC Halts Ponzi Scheme Run by Convicted Felon Siphoning Investor Funds for Sports Talk Venture
The Securities and Exchange Commission today obtained a court order halting an $11 million Ponzi scheme in which a Chicago-based promoter who is a convicted felon promised investors unusually high returns from purported investments in payday advance stores.

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.

Chairman Schapiro Statement on Executive Compensation
Securities and Exchange Commission Mary Schapiro's statement regarding executive compensation.

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 Evergreen for Overvaluing Holdings in Mortgage-Backed Securities and Making Selective Disclosures to Investors
The Securities and Exchange Commission today charged Boston-based Evergreen Investment Management Company LLC and an affiliate with securities law violations for overstating the value of a mutual fund that invested primarily in mortgage-backed securities, and then only selectively telling shareholders about the fund’s valuation problems.

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 Office of the Chief Accountant Releases Staff Accounting Bulletin
The Securities and Exchange Commission's Office of the Chief Accountant today announced the release of Staff Accounting Bulletin (SAB) No. 112.

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 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 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.

SEC Announces $78 Million Fair Fund Distribution to Harmed Investors in AIM Mutual Funds
The SEC announced the Fair Fund distribution of more than $78 million to more than 590,000 investors who were affected by undisclosed market timing in certain AIM mutual 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.

FINRA Reminds Firms of Their Obligation to Provide Accurate Information in Disseminating, or Using Services to Disseminate, Indications of Interest
FINRA is issuing this Notice to remind firms of their obligation to communicate accurate information when disseminating, or using services to disseminate, indications of interest to the marketplace.

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 Takes Steps to Strengthen Existing Rules Governing Securities Trading by Personnel
Securities and Exchange Commission Chairman Mary Schapiro outlined a series of measures the agency is taking to strengthen its internal compliance program to guard against inappropriate employee securities 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 Votes to Propose Rule Amendments to Facilitate Rights of Shareholders to Nominate Directors
The Securities and Exchange Commission today voted to propose a comprehensive series of rule amendments to facilitate the rights of shareholders to nominate directors on corporate boards.

SEC Approves New FINRA Rule 5122 Relating to Private Placements of Securities Issued by a Member Firm or a Control Entity
Effective June 17, 2009, new FINRA Rule 5122 will require FINRA member firms and associated persons that engage in a private placement of such firm's securities or those of a control entity (member private offering or MPO) to comply with certain disclosure and filing requirements and limitations of the use of proceeds.

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.

Proposed Consolidated FINRA Rules Governing Suitability and Know-Your- Customer Obligations
As part of the process to develop a new consolidated rulebook (the Consolidated FINRA Rulebook), FINRA is requesting comment on proposed consolidated FINRA rules governing suitability and know-your-customer (KYC) obligations.

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 Brings Emergency Charges Involving Fraudulent Securities Sold on Craigslist
The SEC charged two New Jersey men with orchestrating a fraudulent scheme that sold unregistered securities and commingled investor funds with their payroll service used by New Jersey municipalities and small businesses.

SEC Approves Amendments Expanding the Definition of "TRACE-Eligible Security"
Effective June 15, 2009, firms must begin reporting transactions in additional TRACE-eligible securities and otherwise comply with all other FINRA Rule 6700 Series requirements regarding such securities.

SEC Proposes Rule Amendments to Strengthen Safeguards of Investor Funds Controlled by Investment Advisers
The SEC has proposed rule amendments to substantially increase protections for investors who entrust their money to investment advisers.

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 Charges Los Angeles-Based "Finder" in Kickback Scheme Involving N.Y. Pension Fund
The SEC charged Julio Ramirez, Jr., who was formerly affiliated with Los Angeles- based broker-dealers DAV/Wetherly Financial L.P. and Park Hill Group LLC, in connection with a multi-million dollar kickback scheme involving New York's largest pension fund.

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.

Past Articles and Commentary
Every month The Securities Law Home Page brings together commentary and updates from securities law practitioners and regulators. Past articles are collected here in chronological order, or simply search for the topic you are interested in.

Statutes and Rules

Investment Adviser's Act

Questions? Contact

Mark Astarita

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