Tag: Investment advisers


Modernizing and Enhancing Investment Company and Investment Adviser Reporting

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at a recent open meeting of the SEC, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at a recent open meeting of the SEC, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Good morning, everyone. This is an open meeting of the Securities and Exchange Commission on May 20, 2015 under the Government in the Sunshine Act.

The Commission today will consider two recommendations of the staff to modernize and augment the information reported by both registered investment companies, which include mutual funds and ETFs, and investment advisers. These proposals are part of a series of rulemakings to enhance the SEC’s monitoring and regulation of the asset management industry. We will discuss the two recommendations together and then will vote separately on each following the discussion.

The oversight of funds and advisers is one of the most important functions of the Commission. Over the past 75 years, our regulatory program for asset management has grown and adapted, guided by our mission, to address the challenges of this important, ever-evolving and growing area of our financial markets. Today, we once again are doing that.

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Effective Regulatory Oversight and Investor Protection Requires Better Information

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.

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.

It is said that, “knowledge is power.” Knowledge, however, requires information. And there is no doubt we live in an age of information. The advent of the Internet and the breathtaking technological advances we have witnessed over the last few decades have given us access to more information than at any time in history. The available data seems to be limitless—and all available at the touch of a fingertip.

Yet, when I joined the Commission, it quickly became apparent that the SEC did not have the breadth and quality of information necessary to do its job effectively. As our country experienced the worst financial crisis since the Great Depression, and, as things began to unravel, I sought data and information to analyze the impact of what was occurring—only to find that much of the information available to the Commission was missing, stale, or incomplete.

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DOL Re-Proposed Expanded “Investment Advice” Rule

Jeffrey D. Hochberg is a partner in the Tax and Alternative Investment Management practices at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication by Mr. Hochberg, David J. Passey, and Dana E. Brodsky; the complete publication, including footnotes, is available here.

Jeffrey D. Hochberg is a partner in the Tax and Alternative Investment Management practices at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication by Mr. Hochberg, David J. Passey, and Dana E. Brodsky; the complete publication, including footnotes, is available here.

On April 14, 2015, the Department of Labor (“DOL”) proposed a regulation (the “Proposed Regulation”) defining the circumstances in which a person will be treated as a fiduciary under both the Employee Retirement Income Security Act of 1974 (“ERISA”) and Section 4975 of the Internal Revenue Code (the “Code”) by reason of providing investment advice to retirement plans and individual retirement accounts (“IRAs”). As part of the regulatory package, the DOL also released proposed prohibited transaction class exemptions intended to minimize the industry disruptions that might otherwise result from the Proposed Regulation, most notably, the so-called “Best Interest Contract Exemption.”

The Proposed Regulation is a re-proposal of a 2010 proposed regulation (the “2010 Proposed Regulation”) that was withdrawn by the DOL after extensive criticism from the financial services industry and politicians of both parties.

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Conduct of Business Regulation: A Survey and Comparative Analysis

Andrew Tuch is Associate Professor of Law at Washington University School of Law.

Andrew Tuch is Associate Professor of Law at Washington University School of Law.

Although recent regulation and scholarship has focused on the financial stability and solvency of financial institutions, the business conduct of these institutions remains an issue of abiding regulatory concern. In a my chapter “Conduct of Business Regulation,” which is in the forthcoming Oxford Handbook of Financial Regulation, I provide a survey and comparative analysis of conduct of business (COB) regulation in the US, the EU, and Australia. COB regulation governs financial intermediaries’ conduct toward their clients; that is, toward the actors—whether individuals or institutions—with whom financial intermediaries transact in providing financial products and services. While the expression “conduct of business regulation” is not widely employed in the US, it is commonly used by international financial regulatory bodies and by financial regulators in many jurisdictions, including the Member States of the EU. In the US, COB regulation encompasses the regulation of broker-dealers and investment advisors under state and federal law; in the EU, the regulation of investment firms under MiFID I and the proposed MiFID II/ MiFIR regime; and in Australia, the regulation of financial services licensees and individual advisors under federal law. Generally speaking, these various financial intermediaries are in the business of providing securities-related services, including advice and recommendations.

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2014 Year-End Securities Enforcement Update

The following post comes to us from Marc J. Fagel, partner in the Securities Enforcement and White Collar Defense Practice Groups at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn publication; the full publication, including footnotes, is available here.

The following post comes to us from Marc J. Fagel, partner in the Securities Enforcement and White Collar Defense Practice Groups at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn publication; the full publication, including footnotes, is available here.

The close of 2014 saw the SEC’s Division of Enforcement take a victory lap. Following the release of the statistics for the fiscal year ended September 30, Division Director Andrew Ceresney touted a few records—the largest number of enforcement actions brought in a single year (755); the largest total value of monetary sanctions awarded to the agency (over $4 billion); the largest number of cases taken to trial in recent history (30). As Ceresney noted, numbers alone don’t tell the whole story. And it is in the details that one sees just how aggressive the Division has become, and how difficult the terrain is for individuals and entities caught in the crosshairs of an SEC investigation under the current administration.

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2014 SEC and FINRA Enforcement Actions Against Broker-Dealers and Investment Advisers

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

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

It’s been a busy year for securities regulators. The SEC recently reported that in FY 2014 new investigative approaches and innovative use of data and analytical tools contributed to a record 755 enforcement actions with orders totaling $4.16 billion in disgorgement and penalties. By comparison, in FY 2013 it brought 686 enforcement actions with orders totaling $3.4 billion in disgorgement and penalties. We do not yet have FINRA’s fiscal year 2014 enforcement action totals, but we know that FINRA too has taken a more aggressive approach to enforcement—in 2013 FINRA barred 135 more individuals and suspended 221 more individuals than it did in 2012. Moreover, like the SEC, FINRA increasingly is relying on data and analytical tools to make its enforcement program more effective. FINRA’s proposed Comprehensive Automated Risk Data System (CARDS) is a further step in that direction. CARDS will help FINRA more quickly identify patterns of transactions and monitor for excessive concentration, lack of suitability, churning, mutual fund switching, and other potentially problematic misconduct. Both broker-dealers and investment advisers now find themselves in a position in which, from an enforcement perspective, regulators often have far better data and analytical tools than the firms have.

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Important Proxy Advisor Developments

David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. The following post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, is available here.

David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. The following post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, is available here.

As 2014 winds down and 2015 approaches, proxy advisory firms—and the investment managers who hire them—are finding themselves under increased scrutiny. Staff guidance issued by the Securities and Exchange Commission at the end of June and a working paper published in August by SEC Commissioner Daniel M. Gallagher both indicate that oversight of proxy advisory services will be a significant focus for the SEC during next year’s proxy season. Under the rubric of corporate governance, annual proxy solicitations have become referenda on an ever-widening assortment of corporate, social, and political issues, and, as a result, the influence and power of proxy advisors—and their relative lack of accountability—have become increasingly problematic. The SEC’s recent actions and statements suggest that the tide may be turning. Proxy advisory firms appear to be entering a new era of increasing accountability and potentially decreasing influence, possibly with further, more significant, SEC action to come.

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SEC Guidance May Lessen Investment Adviser Demand for Proxy Advisory Services

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. This post is based on a Sidley update.

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. This post is based on a Sidley update.

Recently issued SEC staff guidance addresses concerns that have been raised about proxy advisory firms by emphasizing that the investment adviser that retains and pays a proxy advisory firm is uniquely positioned to monitor the proxy advisory firm and is required to actively oversee the firm if it wants to benefit from the firm’s services to discharge its fiduciary duty. As a result of the greater oversight exercised by all of their investment adviser clients, the proxy advisory firms will presumably respond by enhancing their policies, processes and procedures, as well as the transparency of these policies, processes and procedures. In turn, the corporate community may indirectly benefit to some degree.

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SEC Charges Hedge Fund Adviser for Prohibited Transactions and Retaliating Against Whistleblower

The following post comes to us from David A. Vaughan and Catherine Botticelli, Partners at Dechert LLP, and is based on a Dechert legal update authored by Mr. Vaughan, Ms. Botticelli, Brenden P. Carroll, and Aaron D. Withrow.

The following post comes to us from David A. Vaughan and Catherine Botticelli, Partners at Dechert LLP, and is based on a Dechert legal update authored by Mr. Vaughan, Ms. Botticelli, Brenden P. Carroll, and Aaron D. Withrow.

The U.S. Securities and Exchange Commission (SEC or Commission) issued a cease and desist order on June 16, 2014 (the Order) against Paradigm Capital Management, Inc. (Paradigm) and its founder, Director, President and Chief Investment Officer, Candace King Weir (Weir). [1] The Order alleged that Weir caused Paradigm’s hedge fund client, PCM Partners L.P. II (Fund), to engage in certain transactions (Transactions) with a proprietary account (Trading Account) at the Fund’s prime broker, C.L. King & Associates, Inc. (C.L. King). Paradigm and C.L. King were allegedly under the common control of Weir. The Order further alleged that, because of Weir’s personal interest in the Transactions and the fact that the committee designated to review and approve the Transactions on behalf of the Fund was conflicted, Paradigm failed to provide the Fund with effective disclosure and failed effectively to obtain the Fund’s consent to the Transactions, as required under the Investment Advisers Act of 1940 (Advisers Act).

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2014 Mid-Year Securities Enforcement Update

The following post comes to us from Marc J. Fagel, partner in the Securities Enforcement and White Collar Defense Practice Groups at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn publication; the full publication, including footnotes, is available here.

The following post comes to us from Marc J. Fagel, partner in the Securities Enforcement and White Collar Defense Practice Groups at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn publication; the full publication, including footnotes, is available here.

Our mid-year report one year ago presented an exciting opportunity to discuss a time of great change at the SEC. A new Chair and a new Director of Enforcement had recently assumed the reins and begun making bold policy pronouncements. One year later, things have stabilized somewhat. The hot-button issues identified early in the new SEC administration—admissions for settling parties, a growing number of trials (and, for the agency, trial losses), and a renewed focus on public company accounting—remain the leading issues a year later, albeit with some interesting developments.

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