Tag: Compliance officer

SEC Enforcement Actions Against Investment Advisers

Jon N. Eisenberg is partner in the Government Enforcement practice at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Eisenberg. The complete publication, including footnotes, is available here.

According to the SEC’s most recent financial report, as of August 2014, SEC-registered investment advisers managed $62.3 trillion in assets. Not surprisingly, investment advisers attract a great deal of attention from the SEC’s Enforcement Division. The Division of Enforcement’s Asset Management Unit has 75 professionals spread across all 12 SEC offices. The group has developed strong industry expertise: it includes more than a half-dozen former industry professionals and works closely with the examination teams of the Office of Compliance Inspections and Examinations, as well as with the Divisions of Investment Management and Economic and Risk Analysis. In the first 10 months of 2015, it brought over two dozen cases, resulting in over $190 million in settlements; nearly a dozen cases are being litigated.


Asset Managers: AML ready?

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Jeff Lavine, Adam Gilbert, and Armen Meyer. The complete publication, including footnotes and appendix, is available here.

On August 25th, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) proposed anti-money laundering requirements for US investment advisers. The proposal requires advisers that are registered with the Securities and Exchange Commission (SEC) to establish anti-money laundering (AML) programs, to report suspicious activities related to money laundering and terrorist financing, and to comply with other sections of the Bank Secrecy Act (BSA).

If finalized as proposed, the impact of these new requirements will vary. Advisers owned by bank holding companies (BHCs) are already subject to similar requirements that are applicable to their BHC parents and enforced by the Federal Reserve. These advisers will nevertheless likely experience an increase in regulatory oversight, as the proposal now allows the SEC to enforce AML requirements.


Clarity in Commission Orders

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

This statement is about the critical importance of clarity in Commission Orders for enforcement actions. One of the Commission’s most effective deterrents against future misconduct is what it says about the enforcement actions it takes. As a result, the Commission must use its position as a regulatory authority to carefully and effectively send clear messages to securities industry participants regarding what is, and what is not, acceptable behavior. For this reason, Commission Orders need to contain sufficiently detailed facts so that there is no doubt as to why the Commission brought an enforcement action, why the respondent deserved to be sanctioned, and why the Commission imposed the sanctions it did.

The Commission and its staff should always be cognizant that there is a broad audience that carefully reads Commission Orders for guidance. This broad audience is usually not familiar with the underlying facts of a particular matter, and is relying on the Order’s description of the misconduct to appreciate why a named respondent ran afoul of the applicable laws. A clear and transparent Commission Order, therefore, is an absolute necessity to ensure public transparency and accountability.


The Role of Chief Compliance Officers Must be Supported

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Chief Compliance Officers of Investment Advisers (CCOs) play an important and crucial role in fostering integrity in the securities industry. They are responsible for making sure that their firms comply with the rules that apply to their operations. As part of that effort, CCOs typically work with senior corporate leadership to instill a culture of compliance, nurture an environment where employees understand the value of honesty and integrity, and encourage everyone to take compliance issues seriously. CCOs of investment advisers (as with CCOs of other regulated entities) also work to prevent violations from occurring in the first place and, thus, prevent violations from causing harm to the firm, its investors, and market participants. Given the vital role that CCOs play, they need to be supported. Simply stated, the Commission needs capable and honest CCOs to help protect investors and the integrity of the capital markets.


Private Equity Fund Managers: Annual Compliance Reminders and New Developments

The following post comes to us from David J. Greene, partner focusing on investment fund formation, structuring, and related transactions at Latham & Watkins LLP, and is based on a Latham client alert by Mr. Greene, Amy Rigdon, Barton Clark, and Nabil Sabki.

US federal laws and regulations, as well as the rules of self-regulatory organizations, impose numerous yearly reporting and compliance obligations on private equity firms. While these obligations include many routine and ongoing obligations, new and emerging regulatory developments also impact private equity firms’ compliance operations. This post provides a round-up of certain annual or periodic investment advisory compliance-related requirements that apply to many private equity firms. In addition, this post highlights material regulatory developments in 2014 as well as a number of expectations regarding areas of regulatory focus for 2015.


Addressing the Lack of Transparency in the Security-Based Swap Market

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at a recent open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [January 14, 2015], the Commission considers rules that are designed to address the lack of transparency in the security-based swaps (SBS) market that substantially contributed to the 2008 financial crisis. These rules are the result of the Congressional mandate in the Dodd-Frank Act, which directed the SEC and the CFTC to create a regulatory framework to oversee this market.

The global derivatives market is huge, at an amount estimated to exceed $692 trillion worldwide—and more than $14 trillion represents transactions in SBS regulated by the SEC. The continuing lack of transparency and meaningful pricing information in the SBS market puts many investors at distinct disadvantages in negotiating transactions and understanding their risk exposures. In addition, as trillions of dollars have continued to trade in the OTC market, there is still no mandatory mechanism for regulators to obtain complete data about the potential exposure of individual financial institutions and the SBS market, in general.


SEC Whistleblower Program Achieves Critical Mass

The following post comes to us from Matt T. Morley, partner in the Government Enforcement practice area at K&L Gates LLP, and is based on a K&L Gates alert authored by Mr. Morley.

Two recent Dodd-Frank whistleblower awards suggest that the program is becoming the kind of “game changer” for law enforcement that many had predicted. The program, which took effect in August 2011, mandates the payment of bounties to persons who voluntarily provide information leading to a successful securities enforcement action in which more than $1 million is recovered. Informants are entitled to receive between 10 and 30 percent of the amounts recovered, with the precise amount to be determined by the SEC.


Compliance or Legal? The Board’s Duty to Assure Clarity

The following post comes to us from Michael W. Peregrine, partner at McDermott Will & Emery LLP. This post is based on an article by Mr. Peregrine; the views expressed therein do not necessarily reflect the views of McDermott Will & Emery LLP or its clients.

A series of developments threaten to blur the important distinction between the corporation’s legal and compliance functions. These developments arise from federal regulatory action, media and public discourse, policy statements from compliance industry leaders, and new surveys reflecting the increasing prominence of the general counsel. If left unaddressed, they could lead to significant organizational risk, e.g., leadership disharmony, misallocation of executive resources, ineffective risk management, and the loss of the attorney-client privilege in certain circumstances. The governing board is obligated to address this risk by working with executive leadership to assure clarity between the roles of general counsel and chief compliance officer.


Board Oversight of Compliance Programs

The following post comes to us from Jeffrey M. Kaplan, partner at Kaplan & Walker LLP, and is based on an article by Mr. Kaplan and Rebecca Walker that first appeared in Compliance & Ethics Professional; the full article is available here.

Strong oversight by boards of directors—meaning typically by authorized board committees—of compliance-and-ethics (“C&E”) programs can be essential to promoting legal and ethical conduct within companies. In a variety of ways, board oversight should help to ensure that a program is effective and that directors and companies are otherwise meeting applicable C&E-related legal standards. Nonetheless, this is an area of uncertainty for many boards and managers, and can even be a struggle for some.

In Reporting to the Board on the Compliance and Ethics Program, published in the June issue of Compliance & Ethics Professional, we examine various aspects of such oversight from a law and good-practices perspective.


SEC Hits ‘Reset’ on Failure to Supervise Liability

The following post comes to us from Ivan B. Knauer, co-chair of the Securities and Financial Services Enforcement Group and partner in the White Collar Litigation and Investigations Practice Group of Pepper Hamilton LLP, and is based on a Pepper Hamilton Client Alert by Mr. Knauer and Min Choi.

On September 30, 2013, the U.S. Securities and Exchange Commission (SEC)—quietly, and with little fanfare—released an informal statement of policy in the form of frequently asked questions (FAQ), in which it addressed its recent case against Ted Urban. [1] In doing so, the SEC shed light on when and how the agency will seek to hold legal and compliance personnel responsible for failing to supervise employees on the business side.

As many will recall, the Urban case was closely watched by securities legal and compliance professionals, who worried that a decision by the commissioners could be used by enforcement staff to make such professionals easier targets in future enforcement actions. Ultimately, the commissioners dismissed the case. That said, given the circumstances surrounding the case’s dismissal, legal and compliance officers were left with little guidance as to whether the case against Urban could be used against them to establish supervisor liability.


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