In XY Planning Network, LLC, et al. v. SEC, et al., the United States Court of Appeals for the Second Circuit rejected a challenge to Regulation Best Interest brought by an organization of investment advisers, an individual investment adviser, seven states, and the District of Columbia. The Court denied the Petitioners’ petition, holding that: the individual investment adviser had standing but the states did not, that § 913(f) of the Dodd-Frank Act authorized the SEC’s promulgation of Regulation Best Interest, and that Regulation Best Interest is not arbitrary and ...
The SEC announced August 25 that it approved FINRA's pay-to-play rules governing placement-agent or solicitor broker-dealers and was "prepared" to approve the extension of MSRB Rule G-37 to municipal advisors as well.
The two rule proposals would complete the pay-to-play suite of rules across municipal securities dealers, investment advisors, broker-dealers, and municipal advisors. The bedrock Rule - MSRB's Rule G-37 governing municipal finance professionals and dealers - has been in place since 1994. After Dodd-Frank's expansion of municipal-advisory regulation, the ...
This SRO gamesmanship is making a mockery of governing.
The latest is the SEC's position that it didn't take any action on the new MSRB Rules extending pay-to-play prohibitions to municipal advisors, so it can't be sued to stop the implementation of the regulations implemented by the MSRB under the SEC's jurisdiction. Making it only worse, the SEC says that it's because Congress prohibited the Agency from spending any money on this part of the Dodd-Frank mandate Congress required.
Whaaat?!? So hold onto your hat, as we go down the rabbit hole to explain this:
The MSRB: The SEC's ...
Since the 2010 passage of the Dodd-Frank Act, the U.S. Securities and Exchange Commission ("SEC") has been the subject of growing criticism regarding its increased use of administrative proceedings.
By enacting Dodd-Frank, Congress vastly expanded the enforcement powers afforded to the SEC by allowing it to address potential violations, such as insider trading, in its internal administrative courts rather than in federal court. While the SEC attributes its increased use of administrative proceedings to the significant benefits the administrative proceedings provide ...
In a January 21, 2016 Report of Investigation, the Inspector General for the Securities Exchange Commission found no evidence to substantiate allegations of pro-agency bias among SEC administrative law judges. The allegations of bias by a retired SEC ALJ appeared in a May 2015 Wall St. Journal article; the article's statistical analysis also revealed the SEC won 90% of contested cases brought in its "home court" administrative forum. The SEC's administrative forum has been under fire ever since Dodd-Frank expanded its jurisdiction to include non-registered persons. Then ...
Last Thursday, November 12, the MSRB published its Compliance Advisory for Municipal Advisors ("MA's"). The new MA regulatory regime was imposed by Dodd-Frank and implemented by the MSRB and SEC over the past several years. The Advisory highlights some of fundamental regulatory requirements for MA's and identifies some potential compliance risks, including, for example:
- Failing to register;
- Failing to ensure MA associated persons are Series 50 qualified (still in pilot);
- Failing to implement an MA-specific compliance program under Rule G-44;
- Failing to distinguish ...
For over a year, critics have questioned the fundamental fairness of the SEC's administrative forum, including whether the Agency should act as prosecutor, judge and jury. Even as criticisms mount, the Commission Staff steadfastly declaims there's no issue here - and if there is, they should be the ones to decide it (through two layers of administrative proceeding, with judicial Chevron deference to their expertise, if ever judicially reviewed). Commissioner Piwowar and former SEC Staff have suggested that more transparency might be in order; but the Staff's response included ...
In a brief filed last week, the SEC urged the D.C. Circuit to give Chevron deference to the Commission's unnecessary conclusion that Congress's 180-day enforcement deadline doesn't matter. The conclusion is consistent with case law, but the approach turns basic judicial tenets on their head in a sharp-elbowed approach to Commission authority. The Commission barred investment-adviser Montford from the industry, and also required disgorgement and civil penalties, over undisclosed solicitor kickbacks and conflicts of interest. See Advisers Act Rel. No. 3829 (May 2, 2014).
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 made numerous, and significant, changes to the Securities and Exchange Commission's regulatory powers particularly with respect to regulated professionals in the securities industry. But its broad sweep did not ignore non-regulated persons either. And, the significance of these changes to non-regulated individuals should not be underestimated.
- 929P(a) of Dodd-Frank granted the SEC authority to initiate the administrative proceedings against both regulated and non-regulated persons and to seek ...
The SEC last week approved new MSRB Rule G-44 implementing supervision and compliance requirements for municipal advisors. The MSRB touted the Rule as "its first dedicated rule for municipal advisors" under the Dodd-Frank mandate for greater regulation of the nation's municipal-securities markets. See MSRB Reg. Not. 2014-19, here. New Rule G-44 requires Municipal Advisors to follow the same supervision and compliance regime otherwise applicable to registered broker-dealers under FINRA Rules 3110- 3130. It requires, among others: - Written supervisory procedures ...
The SEC's Office of Compliance Inspections and Examinations ("OCIE") announced August 19 a two-year, three-phase examination initiative targeting newly-registered municipal advisors. SEC Press Rel. 2014-170 (Aug. 19, 2014). The MA Examination Initiative hopes to engage a significant portion of newly-registered MA's. In the first phase, Engagement, OCIE will engage in nationwide outreach to inform MA's of their obligations under Dodd-Frank, the SEC's new MA Rule and related implementing Rules by MSRB and others. The second phase, Examination, will review identified ...
The SEC's new MA Rules become effective July 1, 2014, 17 CFR 240.15Ba1-1 through 1-8 and 15Bc4-1. Required by Dodd-Frank § 975, the Rules were adopted last year, but the SEC postponed their implementation from January to July 1. Rel. No. 34-71288 (stayed January 13 until July 1, 2014); Final Rule, Rel. No. 34-70462, here: http://www.sec.gov/rules/final/2013/34-70462.pdf
The Rules implement a registration regime and impose a fiduciary duty upon any person deemed a Municipal Advisor. The Rules are very specific about which circumstances and relationships impose that duty and what ...On February 25, the Municipal Securities Rulemaking Board ("MSRB") proposed new Rule G-44 imposing a supervision and compliance requirements for Municipal Advisors ("MA's"). The Dodd-Frank Act imposed a new regulatory regime for MA's. New Rule G-44 imposes requirements familiar from broker-dealer regulation, including:
- A supervisory system reasonably designed to assure compliance with applicable laws and regulations;
- Written supervisory procedures ("WSP's") tailored to a registrant's business;
- Registered principals in supervisory roles; and,
- A Chief ...
On January 9, the SEC's Office of Compliance Inspections and Examinations ("OCIE") issued its annual "hot-topics" list of examination priorities for 2014. National Exam Program Priorities across OCIE's entire program include: 1. Fraud Detection & Prevention 2. Corporate Governance, Conflicts of Interest & Enterprise Risk Management 3. Technology 4. Dual Registrants (BD & RIA) 5. New Laws & Regulation
- Rule 506(c) Accredited Investors
- Crowd-funding
- Municipal Advisors
- New Registrants under Dodd-Frank
The SEC's new Municipal-Advisor Rules, 17 CFR § § 240.15Ba1-1 to 15Ba1-8 were to become effective Monday, January 13, 2014 but that morning were delayed until July 1. SEC Rel. 34-71288. Adopted last September, SEC Rel. 34-70462, the Rules will implement Dodd-Frank § 975 and require registration (firm-only, not individuals) and impose fiduciary duty upon MA's (and their control affiliates), subjecting MA's to SEC, FINRA and MSRB rules regarding:
- Supervision
- Conflicts
- Gifts & Entertainment
- Political Contributions
- Books & Records
- Business Communications
- Compensation and ...