Posts from January 2017.

In 2016, the U.S. Department of Labor (DOL) issued its final rule expanding the "investment advice fiduciary" definition under ERISA and modified the complex of prohibited transaction exemptions for investment activities as a result of the expanded definition. The new rule is scheduled to be implemented starting on April 10, 2017.

There are many opponents to the new rule, who argue that it is one of the most costly, burdensome regulations to be implemented. Joe Wilson, a Republican Congressman from South Carolina, has recently introduced the Protecting American Families ...

After markets closed on Friday the 13th, the U.S. Department of Justice ("DOJ") announced an $864 million settlement regarding Moody's credit ratings of residential mortgage-backed securities ("RMBS") and collateralized debt obligations ("CDOs") leading up to the financial crisis.

Moody's will pay a $437.5 civil penalty to DOJ to resolve civil FIRREA claims and another $426.3 million to resolve potential claims by 21 State Attorneys General. The agreement also requires Moody's to implement additional compliance measures.

Moody's release said the settlement "removes ...

One of three counts in Volkswagen's recent $4.3 billion guilty-plea was for obstruction of justice arising from a litigation-hold botched by house counsel.

As VW prepared to admit the defeat-device problems to US regulators, VW Group of America ("GOA") informed VW AG of a forthcoming litigation hold. The litigation holds were not issued simultaneously across the enterprise: VW GOA proposed its hold on August 26, 2015 but issued it on August 28. VW AG's corresponding hold was proposed on August 31, and issued September 1.

In the interim, in-house counsel Attorney A communicated with ...

Posted in: Litigation Hold

On Friday, January 13, the Supreme Court granted certiorari to resolve a Circuit split on the extent to which SEC enforcement actions are restricted by the five-year statute of limitations in 28 U.S.C. § 2462.

Section 2462 sets a five-year limitations period "for the enforcement of any civil fine, penalty, or forfeiture." The Supreme Court has held those limitations accrue when the violation occurs and the SEC does not benefit from a "discovery rule." Gabelli v. SEC, 133 S. Ct. 1216, 1220 (2013).

But there's disagreement over whether it applies to the commonly-sought disgorgement and ...

Posted in: SEC, Supreme Court

OCIE released its 2017 exam priorities on January 12. The priorities list was most notable for being shorter than prior years. But that likely means only more focus, rather than less vigor. Here is the list with some quick takes on its content:

Retail Investors:

Robo-adviser and wrap-fee programs (under scrutiny too for the DOL fiduciary rule - whether it stays or goes)

ETFs (due to increasing popularity)

Un-examined IA's (recognizing resource scarcity and the growth of SEC-registered IAs)

Recidivist Reps (the subject of several Wall St. Journal articles last year)

Multi-branch ...

Posted in: SEC

The Port Authority of New York and New Jersey has admitted wrongdoing and agreed to pay a $400,000 penalty to settle SEC charges that it failed to adequately disclose project risks to investors purchasing $2.3 billion in bonds to fund the Pulaski Skyway. The settlement includes additional remedial measures.

The Authority's internal discussions raised substantial doubts about the project's lawful authorization, and risks of bondholder challenges. Yet, the issuer's offering documents made no mention of those risks and represented the proceeds would be used for projects ...

Posted in: SEC

The Securities Act of 1933's catchall for defining a security is the "investment contract." The landmark case, SEC v Howey, explained that "an investment contract for the purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely form the efforts of the promoter or a third party …" Here, the Howey Court held that selling shares in a citrus farm managed by the promoter was an investment contract. Under the Howey test, staking sports, poker, or fantasy sports gamblers (or a related ...

Posted in: Stacking

On January 4, new President and CEO Richard Cook issued FINRA's Annual Regulatory and Examination Priorities Letter. This year's list in summary is:

New for 2017:

Targeted electronic off-site reviews "on select firms not scheduled for cycle exams."
An annual summary report of key exam findings on selected issues
More resources for small firms, including:
- Compliance calendar;
- Compliance service provide directory.

High-Risk / Recidivist Brokers

Dedicated exam group
Supervisory procedures and due-diligence
Branch inspections

Sales Practices

Seniors: fraud and abuse; ...

Posted in: FINRA
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