Updated December 02, 2006
Commentary
The Perils of
Paulson
While Wall Street, public companies and many investors praise Treasury
Secretary Paulson's recent remarks on over-regulation and the negative impact on our economy
and markets, Matthew Goldstein of TheStreet.com raises questions from the other side.
Remarks by Treasury Secretary Henry M. Paulson
on the Competitiveness of U.S. Capital Markets
Treasury Secretary Paulson has been
beating the drum for a decrease in regulations in the financial markets area. His comments are
significant, as he acknowledges the decline in the US IPO market because of regulatory issues,
and the issue we have been pounding for years - an ever-expanding rulebook in which multiple
regulators impose rule upon rule upon rule.
New rules are not the answer. There are plenty of rules, and virtually every fraud in the securities
markets that has occurred in the past 20 years was a violation of an existing rule, yet regulators
continue to create more rules. Those rules are a public relations ploy, which is now coming back to
haunt us.
Will Paulson get the job done? We'll be watching
Broker-Dealer Examination and
Compliance Developments
Remarks Before the National Society of Compliance Professionals
2006 NSCP National Membership Meeting
This speech by Mary Ann Gadziala of the SEC
provides an overview of the examination process, and some insight into potential areas of interest
for the Commission. She points out supervision, in particular supervision of branch offices,
supervision of outsourced functions, suitability, disclosure, in particular in the case of senior
citizens. She notes that there have been over 90 suitability examinations in Florida, California,
Texas, Arizona, North Carolina and Alabama - states with large retirement communities. Also on
the list, 529 plans, variable annuities and sales of illiquid securities. The ever popular mutual fund
breakpoint is still on the list.
Guide To Broker-Dealer
Registration
Complete overview and information regarding the process to become a
registered broker-dealer. Who needs to register, how to register, the effects of registration, etc. An
SECLaw.com update to an SEC release
Thomas Sandell's
Execution Problem
Hedge fund manager Thomas Sandell is bracing for a fight with
securities regulators over allegations that his $4 billion fund broke the rules on short-selling in a
bid to cash in on the havoc wrought by Hurricane Katrina
Morgan Tinkers with Grid; Wants FAs to Aim
High
In a broadcast Thursday afternoon to the firm’s U.S. financial advisors, retail head
James Gorman announced the rollout of a new compensation program for 2007—one that will
increase the firm’s spending on compensation by tens of millions of dollars. But, in an effort to get
reps to think big, accounts below $50,000 will no longer generate any compensation for the rep
(unless they are in certain favored accounts).
Money Managers Don’t Get RIA Market
A large number of money managers still haven’t
figured out how to tap the registered investment advisor (RIA) market to sell their funds…
NASD Sets Sights on Crooks
Who Scam the Elderly
Scammers beware. The NASD'S new chief executive, Mary L.
Schapiro, has vowed to send her enforcement unit after those who dupe seniors.
Enforcement Actions
NASD
Fines EKN Financial Services, Suspends Principals for Securities Registration Violations in PIPE
Deals
NASD has imposed a $200,000 fine against EKN Financial Services Inc. of
Woodbury, NY - along with its CEO. Presidenty, Head Trader, and FINOP - for engaging in improper
short selling in connection with three unregistered securities offerings, commonly referred to as
PIPE (Private Investment in Public Equity) deals, and other violations. As part of the settlement,
EKN will be suspended for six months from engaging in any PIPE transactions.
Information and Lists
New Surveys Show Attorneys Favor Use
of Alternative Dispute Resolution
The National Arbitration Forum recently collaborated
with both the General Practice Solo and Small Firm Division (GPSolo) and the Tort Trial &
Insurance Practice Section (TIPS) of the American Bar Association (ABA) to conduct surveys to
assess the usage and preferences regarding negotiation, mediation and other forms of alternative
dispute resolution (ADR). Survey respondents from both ABA member groups report an increasing
support of ADR.
NASDR Notices to Members
06-68 SEC Approves Amendments to Rule 2340 to Allow DVP/RVP Customers to Elect Not to
Receive Account Statements
The Securities and Exchange Commission (SEC) has
approved amendments to Rule 2340 that permit customers whose accounts are carried solely for
the purpose of execution on a DVP/RVP (delivery versus payment/receive versus payment) basis to
opt out of receiving customer account statements
06-67 SEC Approves Amendments to NASD Rules to Align Them with Regulation
NMS
On September 28, 2006, the Securities and Exchange Commission (Commission
or SEC) approved amendments to NASD Rules, including the rules governing the Alternative
Display Facility (ADF),1 in order to align them with Regulation NMS.2 In addition, the SEC approved
amendments to rules governing quoting, trade reporting, and clearing applicable to the ADF and
extended this functionality to all NMS stocks, including stocks listed on the New York Stock
Exchange (NYSE), American Stock Exchange (Amex), and certain other exchanges. Furthermore,
the amendments reorganize ADF trade reporting rules and make changes to ADF rules to enhance
their clarity. The SEC also approved changes to the ADF Trading Center Certification Record,
which became effective upon SEC approval on September 28, 2006.
06-65 Securities Industry/Regulatory Council on Continuing Education Issues Firm Element
Advisory
The Securities Industry/Regulatory Council on Continuing Education (Council)
has issued the annual Firm Element Advisory, a guide for firms to use when developing their
continuing education Firm Element training plans. The Council suggests that firms use the Firm
Element Advisory as part of the Firm Element Needs Analysis to help identify relevant training
topics for all covered persons, including supervisors. Among the subjects you should consider for
inclusion in Firm Element training are new rules and regulations, such as supervisory control
amendments, business continuity plans and any new products or services the firm plans to
offer.
06-64 SEC Approves Amendments to Rule 10308 Regarding the Classification of
Arbitrators
The Securities and Exchange Commission has approved amendments to the
arbitrator classification criteria set forth in Rule 10308 of the NASD Code of Arbitration Procedure
(Code) to ensure that individuals with significant ties to the securities industry may not serve as
public arbitrators in NASD arbitrations
06-63 Amendments to Registration Rules Extending the Date by which Eligible Registrants
must Complete Continuing Education Program before Engaging in Security Futures
Activities
Amendments to Registration Rules Extending the Date by which Eligible
Registrants must Complete Continuing Education Program before Engaging in Security Futures
Activities; Effective Date: November 15, 2006 On October 16, 2006, NASD filed with the Securities
and Exchange Commission (SEC) for immediate effectiveness a rule change to amend Rule 1022
(Categories of Principal Registration) and Rule 1032 (Categories of Representative Registration)
to extend to December 31, 2009 the date by which all eligible registrants must complete a firm-
element continuing education program to qualify to engage in security futures activities
06-62 SEC Approves Rule 3160 Regarding Submission and Reporting Requirement for
Regulation T and SEC Rule 15c3-3 Extension of Time Requests
the Securities and
Exchange Commission (SEC) approved new NASD Rule 3160 that requires: (1) all clearing firm
members for which NASD is the designated examining authority (DEA) pursuant to Rule 17d-1
under the Securities Exchange Act of 1934 (Exchange Act) to submit to NASD requests for
extensions of time under Regulation T promulgated by the Federal Reserve Board (FRB) or
pursuant to Rule 15c3-3(n) under the Exchange Act; and (2) each clearing firm member for which
NASD is the DEA to file a monthly report with NASD indicating all broker-dealers for which it clears
that have overall ratios of requested extensions of time to total transactions for the month that
exceed 2%.
06-61 SEC Approves Rule 3170 Requiring Members to Electronically File with or Otherwise
Submit to NASD Specified Regulatory Notices or Other Documents
The Securities and
Exchange Commission (SEC) has approved the adoption of NASD Rule 3170 (Mandatory
Electronic Filing Requirements), which gives NASD the authority to require firms to file or submit
electronically any regulatory notice or other document that a member is required to file with (or
otherwise submit to) NASD. This Notice also advises firms that NASD will require certain notices
required under the Securities Exchange Act of 1934 to be filed electronically starting on January 1,
2007.
News Items
SEC Announces Emergency Action to Halt
Ongoing Fraud Against Senior Citizens
The Securities and Exchange Commission today
filed an emergency enforcement action against an individual and two of his corporations to halt an
ongoing fraud in which the SEC claims the defendants have obtained over $2 million from at least
seven investors, most of them senior citizens.
The Commission's complaint, filed in the Eastern District of New York in Brooklyn, charges the
defendants, Peter J. Dawson, BMG Advisory Services, Inc., and Ethan Thomas Co., Inc., with
making fraudulent solicitations and misappropriating investor funds. The Commission seeks
temporary restraining orders freezing the defendants' assets, requiring them to provide
accountings and prohibiting them from committing future violations of the federal securities laws.
The Commission's complaint also seeks a final judgment assessing civil penalties and ordering
the defendants to disgorge thei gains.
Statement by SEC Chairman Cox at News
Conference on Self Regulation Consolidation
SEC Chairman's comments on the
regulatory merger. - "This single regulator approach would also completely eliminate today's
duplicate member rulebooks, and the possibility of conflicting interpretations of those rules. At the
same time, it would retain one of the fundamental precepts that has characterized the SRO model
since its inception in 1930s: the notion that regulation of the markets works best when the front-
line regulator is close to the markets."
Department of Labor to Brokers: No
Overtime Pay for You
Here is a new twist in the broker overtime pay lawsuits: The
Department of Labor (DOL) says brokers are not entitled to overtime pay after all. Well, that is,
unless the DOL is wrong, which it allowed could be the case. (No kidding.)
Merrill Lynch to Pay National
Overtime Settlement
Merrill Lynch has decided to consolidate the numerous overtime
lawsuits that have been filed against the firm and settle nationally with its brokers. It is the third
securities firm to do so—earlier this year, both UBS and Smith Barney settled nationally with
brokers in similar overtime lawsuits.
N.Y. Pols Argue for Business
Reforms
New York City could lose its position as the world's financial capital if steps
aren't taken to reduce regulation and litigation, Mayor Michael Bloomberg and Sen. Charles
Schumer wrote Wednesday in a call for business reforms.
SEC Files Settled Charges Against Eight
Former Officers and Directors of Spiegel, Inc.
Former Officers Charged With Overstating
Performance of Credit Card Receivables Portfolio; Former Chairman, Directors and CEO Charged
for Decision to Withhold Filing of Spiegel's Required Financial Reports
